COVID-19: A Data Protection Perspective and A Key Decision by The UK Supreme Court

Posted on April 21st, 2020

The COVID-19 pandemic raises data protection issues as most organizations begin to grapple with the data protection ramifications with regard to personal data that might relate to the pandemic e.g. travel history, proximity or contact with infected individuals, underlying health conditions or vulnerability, etc. Indeed, one of the proposed ways to check the spread of the disease is through the use of a mobile phone app that would alert one of close proximity or contact with an infected person. For such an app to work, it would undoubtedly require the availability and use of people’s personal health data which falls within the definition of “sensitive personal data” under the Data Protection Act, 2019 (DPA) and care ought to be taken before processing such data and risk running afoul of the DPA, with potential penal consequence.

Section 44 of the DPA prohibits the processing of sensitive personal data unless the same is processed in line with the data protection principles set out under section 25 of the DPA which include data collection for legitimate purposes and limited to the extent necessary. Under section 46 (1) of the DPA, processing of personal data relating to the health of an individual is restricted to healthcare providers or persons under obligation of professional secrecy under law. However, section 46 (2) (a) of the DPA, then provides that the condition under section 46 (1) is met if the processing “is necessary for reasons of public interest in the area of public health”. It is therefore arguable that organizations that possess or collect personal data may be allowed to process such data if it is deemed necessary “for reasons of public interest in the area of public health” relating to COVID-19.

That notwithstanding, organizations ought to take necessary precautions so as to abide by the data processing principles set out under section 25 of the DPA, and where in doubt, appropriate guidance may be sought from the Data Commissioner, given that the DPA is fairly new legislation in Kenya (having come into force on 25th November 2019) while the COVID-19 pandemic is itself a public health crisis of unprecedented proportions.

Speaking of compliance with data protection laws, a key decision was recently handed down by the United Kingdom’s Supreme Court regarding an employer’s vicarious liability in respect of breaches of the United Kingdom’s Data Protection Act, 2018 (the UK DPA) in the case of  WM Morrison Supermarkets plc vs Various Claimants (2020) UKSC 12. The decision was in respect of a challenge by Morrisons on the Court of Appeal’s decision by which the supermarket chain was found vicariously liable for data breaches committed by its former employee which had satisfied the “close connection test” The Court of Appeal also rejected the argument advanced by Morrisons that since vicarious liability in respect of data breaches by an employee was not expressly included in the UK DPA, an employer should not be vicariously liable for such breaches.

The UK Supreme Court considered the two issues afresh and applied the close connection test with reference to a long line of established precedent on vicarious liability. The Court considered the fact that the actions of Morrisons’ former employee had not been pursued in furtherance of his employer’s business and that he was on a “a frolic of his own”. The Court of Appeal’s application of the close connection test was found to have been faulty, as what ought to have been considered was the entire sequence of events and whether an individual was acting in his capacity as an employee and in furtherance of his employer’s objectives before arriving at a positive finding of vicarious liability.

On the issue as to whether vicarious liability is excluded under the UK DPA, the Court held that the statutory liability of a data controller under the UK DPA, including the liability for the conduct of its employee, is based on lack of reasonable care, whereas vicarious liability is not based on fault. The Court went on to state that there is nothing anomalous about the contrast between the fault-based liability of the primary wrongdoer under the UK DPA and the strict vicarious liability of his employer. In reaching this conclusion, the Court drew an analogy between the fault-based liability of an employee for negligence and the resultant strict vicarious liability of his employer with the resulting determination that the UKDPA does not exclude vicarious liability for data breaches by an employee.

While the decision was ultimately in Morrisons’ favour, the case turned largely on the application of the close connection test which was both fact dependent and context specific with regard to that particular case.


This alert is for informational purposes only and should not be taken as or construed to be legal advice. If you have any queries or need clarifications, please do not hesitate to contact John Mbaluto (john@oraro.co.ke), Gibran Darr (gibran@oraro.co.ke) or your usual contact at our firm, for legal advice relating to the COVID-19 pandemic and how the same might affect you.

Keeping the Wheels of Justice Turning During the COVID-19 Pandemic

Posted on April 17th, 2020

Following the announcement of the first confirmed COVID-19 case in Kenya on 13th March 2020, the National Council on the Administration of Justice (NCAJ) promptly issued directions scaling down the operations of Courts countrywide aimed at finding a balance between keeping the wheels of justice turning whilst safeguarding the health of both the judicial staff and the general public in the face of the prevailing pandemic. The general effect of the directions which have been amended from time to time has been a significant slowdown of litigation practice. Whereas the past month of litigation practice has been challenging, our firm has been able to navigate these unchartered waters and we take this opportunity to share some of our experiences in the litigation circles.

The initial directives from NCAJ on 15th March 2020 saw massive scaling down of Court activities throughout the country for two weeks effective 16th March 2020. During this period, all appeals, hearings, mentions and execution proceedings in criminal and civil cases in all Courts were suspended. The only filings accepted at the Court registries were those under certificate of urgency and time bound pleadings. With time, further directions were given on the electronic filing (e-filing) of pleadings.

Our first encounter with e-filing was in the Court of Appeal where we filed a Notice of Appeal and a letter to the Deputy Registrar bespeaking typed proceedings from the lower Court. The process entailed preparing the documents in the usual manner and thereafter scanning and sending the documents to an email address provided by the Judiciary. In this instance we were advised to send the documents to efilingkenya@gmail.com. After sending the scanned documents to the said email, we received an email confirming the assessed filing fees and proceeded to pay the amount through the M-Pesa Pay Bill Number provided by the Court registry. Upon confirmation of payment, a physical receipt was generated for collection by our clerk. During this period the process still necessitated attendance to the Court registry.

Subsequently, there was further scaling down of operations at the Court registries with absolutely no physical attendance at the Court registries. Contact details for the various Divisions and Court stations around the country were circulated for communication with the relevant Deputy Registrars for directions on e-filing. It was directed that all documents should be scanned and sent to the appropriate email addresses of the Deputy Registrars and Executive Officers (as the case may be) and once that was  done, the court would then advise on the mode of payment and how proof of payment would be communicated. During this period, we were able to file applications under certificate of urgency and time bound pleadings in the various Courts including the Court of Appeal where we filed an application for stay of execution.

We further had an interesting experience of participating in a hearing at the Chief Magistrate’s Court. The Plaintiff served us through email with an application under certificate of urgency together with the extracted orders relating to a contentious burial dispute. Upon receipt of the documents we drafted a notice entering appearance and response on behalf of our client (through scanning and sending the documents to the Court’s email address) and served the same upon the other parties via email. It was necessary to have each document clearly identified in capital letters and scanned separately. Upon receipt of the documents, the Court registry assessed the documents before sending out the amount of filing fees to be paid. We then paid the amount advised via an M-Pesa Pay Bill Number after which the confirmation message was sent. Once it was confirmed that payment had been received, the documents were processed and sent to the litigants. On the hearing date, we sought clarification on whether the hearing would be in open Court or via video-link. We were informed that due to the limited electronic resources available to the Chief Magistrate’s Court, the hearing of the application would be in open Court but with strict observance of the directives issued by the Government.

The Court session began with all parties being ushered into the Court room by the Court assistant who ensured that each Counsel and respective clients had worn protective masks and had either sanitized their hands or had latex gloves on. After this brief inspection, the Court assistant pointed everyone to their sitting positions and allocated everyone a spot at least one (1) meter apart from each other. Advocates were allocated the front benches while clients were allocated the rear benches. The general public was not allowed to sit in during the Court session. The Court room selected was spacious and with very good ventilation.

Once everyone was seated, the Court assistant informed the Magistrate who came in duly masked and gloved. In the course of the hearing, confirmation of e-filing and e-service was done by confirming the same from a laptop availed to the Magistrate and the Court assistant. The litigants had physical copies of the documents which had been availed to the Magistrate, who referred to the documents as the litigants followed proceedings.

The advocates observed at least one (1) meter’s distance while delivering their oral arguments. Whilst addressing Court, each advocate kept his mask on despite it muffling out the sound which made it difficult to hear what one was saying. After the conclusion of the hearing, order was observed as parties made their way out of the Court room. Parties were thereafter ushered out of the Court precinct to avoid crowding. Although the Ruling was promptly prepared and sent via email, parties still insisted on appearing in Court for the delivery of the Ruling, during which the same ‘rules’ were observed.

Whereas there have been Rulings and Judgment delivered via email and hearings conducted via Zoom, the Judiciary is still trying to put in place further measures to provide services using technology, however the process should be complementary between the Judiciary, advocates and litigants, so as not to leave out any stakeholders. We have also noted most of the e-filings and hearings via video-link have been largely in Nairobi and there is room for expansion to other stations.

NCAJ has recently issued the latest update vide a communique of 16th April 2020 which will see Court operations upscaled effective 21st April 2020. Some of the implications of these latest resolutions will see operations and services in all Court registries upscaled and are therefore set to be accessible to Court users but in a manner that is in compliance with the guidelines of the Ministry of Health on combating COVID-19. With respect to civil matters, hearings will be upscaled with effect from 22nd April 2020 and guidelines on how the hearings and appeals are to be conducted will be put in place in accordance with the guidelines of the Ministry of Health. This is a clear indication that going forward, parties will be able to institute Court proceedings and progress pending cases, even in instances where there is no urgency, with effect from 22nd April 2020. Further guidelines on how matters which were taken out between 16th March 2020 and 22nd April 2020, will be dealt with are to be put in place by the respective Heads of Divisions and various Court stations.

It is expected that going forward, all pending Judgments and Rulings will now be delivered in open Court upon notice to the parties as opposed to the electronic delivery via email or video-link as was previously the case. This indicates that there is likely to be controlled Court appearance by litigants and/or their advocates. Further, orders will now be extracted by the Court registries and released to the litigants or their advocates within twenty-four (24) hours of their making. The suspension of execution of civil orders, decrees and eviction orders made before 16th March 2020, remains in force until 22nd April 2020.

We will keep you updated on any developments with respect to the implementation of the latest directives issued by the NCAJ.


This alert is for informational purposes only and should not be taken as or construed to be legal advice.

If you have any queries or need clarifications, please do not hesitate to contact Georgina Ogalo-Omondi (georgina@oraro.co.ke), Daniel Okoth (daniel@oraro.co.ke), Meshack Kwaka (meshack@oraro.co.ke), Quinter Okuta (quinter@oraro.co.ke) or your usual contact at our firm, for legal advice relating to the COVID-19 pandemic and how the same might affect you.

Commercial Transactions – Invoking Force Majeure and Frustration in Contracts

Posted on April 14th, 2020

On 11th March 2020, the World Health Organisation (WHO) declared COVID-19 a pandemic, which is defined as “an epidemic occurring worldwide, or over a very wide area, crossing international boundaries and usually affecting a large number of people”.

Since then, the economic threat posed by the novel coronavirus has rapidly turned from a looming threat to a reality. Governments, Central Banks and the private sector are putting in place plans to respond to effects of the virus. However uncertain the times ahead may be, companies nonetheless need to consider how the spread of the virus may affect the conduct of their underlying business and their contractual obligations.

Effect On Contracts

Some of the effects of the COVID-19 outbreak are obvious, such as travel restrictions, quarantines and shortages of medical equipment. However, their immediate impact on contractual obligations, such as the ability to pay, deploy resources on time and meet service levels as agreed, may be less obvious. Most contracts that require ongoing performance are, in principle, absolute: that is, a party affected by the COVID-19 outbreak will be required to perform its obligations and will be potentially liable to its counterparty for a failure to do so. There are, however, two key exceptions to the rule: force majeure; and the common law doctrine of frustration.

A.FORCE MAJEURE

A force majeure event refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract. If successfully invoked, the clause would excuse a party’s performance of its obligation under the contract, thereby avoiding a breach. It could also lead to termination if the event survives for a long period of time. However, this is a factual question and is largely dependent on the wording of the clause in the contract.

Acts Within the Scope

The first thing to check in a contract is whether or not it contains a force majeure clause, as the same will not be implied. Moreover, the applicability of a force majeure clause is largely dependent on the specific drafting. For instance, where the term “pandemic” does not form an express part of the clause, there may be a blanket-clause which covers all events “beyond the reasonable control of the parties”, which may be applicable to consequence emanating from COVID-19.

It appears probable that WHO’s classification of COVID-19 as a “pandemic” means it will be within the scope of clauses that include the words “pandemic” or even “epidemic”. However, certain other aspects of this crisis, such as the increase in government-decreed lock downs aimed at slowing the pandemic’s spread may also fall within the scope of the clause.

Impossible to Perfom

If a force majeure clause provides that the relevant triggering event must ‘prevent’ performance, the relevant party must demonstrate that performance is legally or physically impossible, but not just difficult or unprofitable – See Tennants (Lancashire) Ltd v G.S. Wilson & Co Ltd [1917] AC 495. A change in economic or market circumstances, affecting the profitability of a contract or the ease with which the parties’ obligations can be performed is not regarded as a force majeure event – See Thames Valley Power Limited v Total Gas & Power Limited [2005] EWHC 2208.

In addition, the force majeure event must be the only effective cause of default by a party under a contract relying on a force majeure provision as was held in Seadrill Ghana v Tullow Ghana [2018] EWHC 1640 (Comm). Moreover, the ‘supervening event’ will excuse performance of only those obligations which are affected by the outbreak of COVID-19. Therefore, in contracts with divisible performance obligations, a supervening event like COVID-19 could cause only partial impossibility or impracticability and the party’s unaffected performance obligations will not be excused.

Mitigation

The party claiming relief is usually under a duty to show that it has taken reasonable steps to avoid the effects of the force majeure event, and that there are no alternate means for performing under the contract.

The Court of Appeal in Channel Island Ferries Limited v Sealink UK Limited [1988] 1 Lloyd’s Report 323 held that any clause referring to events “beyond the control of the relevant party” could only provide relief if the affected party had taken all reasonable steps to avoid its operation or mitigate its results.

It is, therefore, important for companies to document the impacts of COVID-19 on their businesses, as well as steps taken to mitigate those impacts, as these could form a viable record for a potential force majeure claim.

Notice Provisions

In addition, if a contract has a force majeure clause, it is likely that it will contain notice provisions, which notice provisions should be carefully followed so as to mitigate the losses that may be occasioned upon the other party. Some contracts, especially construction contracts, include a “time bar” clause that requires notice to be provided within a specific period from when the affected party first became aware of the force majeure event, failure of which will result in a loss of entitlement to claim.

Effect of a Force Majeure Clause

Generally, the effect of a force majeure clause includes some or all of the following:

    1. Suspension – for the most part, affected obligations do not go away and are simply suspended for the duration of time that the force majeure event continues, unless parties agree otherwise.
    2. Non – liability – once the force majeure clause is triggered, the non-performing party’s liability for non-performance or delay is removed (usually for the duration of time that the force majeure event continues).
    3. Right to terminate – in some cases, suspension of obligations may be unsatisfactory if it becomes commercially unfeasible for the parties to resume performance of the contract once the force majeure event ceases.
Practical Considerations

Before suspending performance in reliance upon a force majeure clause, parties should review their contractual agreements and consider:

    1. The scope of the applicable force majeure clause and whether a pandemic falls within the scope.
    2. The notice requirements and whether they have been triggered.
    3. Whether mitigation steps should be taken, and if so, the reasonable time for the same.
    4. The potential consequences of a breach under the contract.
    5. How the force majeure clause reads with any indemnity clauses under the contract.
B. FRUSTRATION

In the absence of an express force majeure clause, the common law doctrine of frustration may apply. The doctrine of frustration, as established in Taylor v Caldwell (1863) 3 B&S 826, allows a contract to be automatically discharged when a frustrating event occurs so that parties are no longer bound to perform their obligations.

It was perfectly illustrated in the Kenyan case of Five Forty Aviation Limited v Erwan Lowe [2019] eKLR where the Court stated:

the doctrine of frustration operates to excuse further performance where it appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist, or that some particular person will continue to be available, or that some future event which forms the foundation of the contract will take place, and before breach performance becomes impossible or only possible in a very different way to that contemplated without default of either party and owing to a fundamental change of circumstances beyond the control and original contemplation of the parties.”

The doctrine of frustration (or discharge, as it is sometimes referred to) is generally thought to provide a solution to the problems of loss allocation which arise when performance is prevented by supervening events. Therefore, in the event of a contract being frustrated (and therefore terminated) by the onset of COVID-19 and the resultant inability to perform contractual obligations, the operation of the doctrine automatically allocates risk and loss following from the said termination.

Test For Frustration

Over time, the courts have adapted the test in Taylor v Caldwell and developed a broader test for frustration. Generally speaking, a frustrating event is an event which:

    1. Occurs after the contract has been formed.
    2. Is so fundamental as to be regarded by the law both as striking at the root of the contract and entirely beyond what was contemplated by the parties when they entered the contract.
    3. Is not due to the fault of either party.
    4. Renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.
Effect of Frustration

The doctrine of frustration automatically terminates the contract in question and the parties will no longer be bound by their obligations thereunder. Moreover, the drastic consequences of contractual frustration mean that the threshold for proving frustration is much higher than that for most force majeure provisions since it must be shown that the obligations impacted by the event or circumstance are fundamental to the contract.

Limitations

Where there is an express provision in the contract addressing a particular act or supervening event, such an act or event cannot be relied upon when invoking the doctrine of frustration. A clause in the contract which is intended to deal with the event which has occurred will normally preclude the application of the doctrine of frustration as frustration is concerned with unforeseen, supervening events, and not events which have been anticipated and are provided for within the contract itself.

It is likely that the doctrine of frustration will not be available if the contract contains an express force majeure provision, since the said provision will be deemed to be the agreed allocation of risk between the parties.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion.

If you have any queries or need clarifications, please do not hesitate to contact Jacob Ochieng, Partner (jacob@oraro.co.ke), Milly Mbedi, Senior Associate (milly@oraro.co.ke) or your usual contact at our firm, for legal advice on how COVID-19 might affect your business.

Weathering the Storm: Steps an Employer Can Take to Mitigate the Effects of the COVID-19

Posted on April 1st, 2020

The emergence of the COVID-19 pandemic has created unprecedented instability in the employment sector with employers currently faced with the difficult balancing act of ensuring business continuity and sustainability while at the same time ensuring the safety and well-being of employees.

Many businesses are undergoing massive financial challenges during this period and are being forced to take drastic measures such as termination of employment by declaring redundancies, in a bid to remain afloat. Declaring redundancy is a drastic and last-line measure, and an employer should consider other measures which might serve to keep the business in operation and keep the staff component intact, before resorting to declaring redundancies. Whichever measure one takes, employers are encouraged to abide by the present legal frameworks governing the employment regime in Kenya which are heavily weighted towards the protection of fair labour practices in accordance with Article 41 of the Constitution.

Below is a discussion on the measures an employer can put in place to mitigate the effects of the COVID-19 pandemic:

a) Annual leave

Section 28 of the Employment Act, 2007 (the Act) provides for paid annual leave for not less than twenty-one (21) working days for every twelve (12) consecutive months of service.

The question that arises is whether an employer can compel an employee to go on annual leave during this period especially for employees who cannot work remotely. This can be effected with the consent of the employee.

b) Unpaid leave

An employment relationship is governed by the general principles of contract law as much as it is regulated by the Constitution and statute. There are no statutory or constitutional provisions on unpaid leave. It is, however, possible to have such provisions included in contracts of employment and/or an employer’s internal policies.

Section 10(5) of the Act requires consultation with the employee before any change or amendment of the terms of employment. These changes must thereafter be captured in writing and the employee notified of the same. Where the contract of employment and/or employer’s internal policies do not provide for unpaid leave, an employer may send an employee on unpaid leave upon consultation with the employee and the employee consenting to the same. This must be made expressly in writing.

c) Sick leave

Section 30 of the Act provides for sick leave of not less than seven (7) days with full pay and thereafter seven (7) days with half pay. The Regulation of Wages (General) Order provides that an employee is entitled to a maximum of thirty (30) days sick leave with full pay and thereafter to a maximum of fifteen (15) days sick leave with half pay in each period on twelve (12) months consecutive service.

The courts have held that employers should apply the provisions in the Order since they are more advantageous to employees than those in the Act.

If employees fall sick during this period, they are entitled to sick leave in line with the foregoing provisions or any internal policies the employer might have and that may have more advantageous terms on sick leave.

d) Reduction in working hours

As a mechanism to deal with lower demand in production during this period, an employer may consider a reduction in working hours for employees. This will require employees to only work for specified shorter periods with duties spread out across the workforce as a sustainability measure. Like any other alteration to the employment contract, the same should be done in consultation with and written consent by the employee.

Furthermore, on 25th March 2020, the President through a presidential address on state interventions to cushion Kenyans against economic effects of COVID-19 issued a directive on the coming into force of a daily curfew from 7 p.m. to 5 a.m. from 27th March 2020. The directive exempted those offering specified essential services, and the same was formally gazetted through Legal Notice No. 36 issued under the Public Order Act (Cap 56).

Following skirmishes which broke out between law enforcement officers and members of the public on the first few days of the curfew, it was further directed that employers should release their employees from work earlier than usual, so that those who use public transport are able to beat rush-hour traffic and get home in good time.

Therefore, employers might be forced to adjust the working hours and have more flexible working arrangements for their employees who do not offer essential services to ensure that they are in a position to adhere to the curfew.

Any measures to facilitate the above must be in consultation with the employee.

e) Reduction in remuneration

Across both the public and private sector various organisations are using pay-cuts as an alternative to declaring redundancies. Some of the pay-cuts are voluntary and others have been proposals at various rates through certain levels or grades of employment. As with any other change in the terms of employment, a reduction in remuneration can only be done upon consultation with an employee and obtaining his or her consent on the same. Again, this must be done in writing.

If parties consult and agree to salary cuts or unpaid leave, the employee will not be able to recover such underpaid on unpaid salaries when normal business operations resume, unless it is a specific term in the agreement.

f) Working from home

Employers can have their employees working from home or working remotely if it is possible, except where those employees are working in critical and essential services. Employees who cannot work remotely can take annual leave during this period. However, the consent of the employees should be sought.

g) Working in shifts

Employers can employ a shift system to reduce the number of employees who are in the workplace at any given time. With a reduced number of staff present in the office during any given shift, this will also go towards ensuring compliance with the directives on social distancing in the workplace.

h) Redundancies

Some employers may be forced to declare some employees redundant if circumstances become unsustainably dire. In such eventuality, employers will be required to strictly adhere to the provisions of redundancy under the Act, which include issuing a mandatory notice of intention to terminate employment on account of redundancy and consultation with the employees before ultimately terminating employment. Both these mandatory processes take no less than one (1) month and in certain cases may take up to three (3) months based on terms of employment and Collective Bargaining Agreement (if any). More importantly, under the Act, it is clear that employees have to be paid all dues owing to them before the redundancy can be deemed to have taken effect, thus serious financial consideration must be taken before taking this route. This might prove difficult to employers due to the prevailing financial times.

i) Insolvency

The COVID-19 pandemic has significantly affected business operations across the world resulting in cases where an employer is unable to meet its financial obligations to its employees and therefore gets into an insolvency situation. The options available in such circumstances are provided for in the Act and the Insolvency Act No. 18 of 2015 (the Insolvency Act).

The Act provides under sections 43 and 45 that for termination of an employment relationship to be fair and lawful the employer must prove that the reasons for the same are fair and valid. The current slumped business environment would constitute valid and fair reasons for termination of an employment relationship if the employer is able to show that it is unable to meet its financial obligations as a result of the COVID-19 pandemic.

Section 66 of the Act provides that where an employee or his representative makes an application to the Minister in writing and the Minister is satisfied among other reasons that the employer is insolvent, then the Minister shall, subject to the provisions of section 69 of the Act, pay the employee out of the National Social Security Fund the amount which in the opinion of the Minister the employee is entitled to in respect to the debt.

Section 68 of the Act then sets out the debts which apply when an employer is insolvent, and these include:

  1. Any arrears of wages in respect of one (1) or more months, but not more than six (6) months or part thereof
  2. An amount equivalent to the period of notice that the employer would be required to give to the employee in case of termination in accordance to the Act
  3. Any pay in lieu of annual leave days earned by the employee but not taken

Section 69 of the Act to which section 66 is subject to limits the total amount payable to an employee in respect of any debt in case of insolvency to KES. 10,000 or one half of the monthly remuneration whichever is greater in respect of any one month payable.

The Insolvency Act caters to payment of wages by the employer in an insolvency situation. The Second Schedule of the Insolvency Act sets out the order of priority of debts where the secured creditors get first priority and dues payable to employees are second priority claims as set out at paragraph 2 thereof “all wages or salaries payable to employees in respect of services provided to the bankrupt or company during the four months before the commencement of the bankruptcy or liquidation” to the extent that they remain unpaid.

Paragraph 3 (2) of the Second Schedule to the Insolvency Act then limits the amount payable to any one employee to not more than KES 200,000 as at the commencement of the bankruptcy or liquidation, as the case may be.

Therefore, employees claiming unpaid benefits will be ranked as second priority claims if the claim is merited and accrues before or because of the commencement of the insolvency proceedings and any payments made to the employees by the employer are limited to four (4) months before the commencement of the insolvency proceedings and further limited to not more than KES 200,000 in relation to an amount payable to any one (1) employee.

j) Compliance with directives by Government

On 14th March 2020, the Ministry of Labour through the Directorate of Occupational Safety and Health Services issued an advisory following the COVID-19 outbreak. The directive states that employers should formulate policies on infection control plans that should guide the organization. The directive outlines that such a policy should include:

  • Steps that the organization will take in the promotion and practice of hygiene
  • Modalities of holding meetings and travel control mechanisms both business travel and commute to and from work for the employees
  • Safe food handling in the workplace
  • Possible mechanisms of working from home
  • Channels of reporting any suspected COVID-19 cases

From the above, it is clear that more obligations are placed on employers in the health sector as they are expected to provide their employees with effective personal protective equipment, the maintenance of the protective gear and training of the employees. However, it is key that every employer takes the necessary step of coming up with a relevant policy as outlined above and they may consult the Directorate of Occupational, Safety and Health Services on the same.

The Ministry of Health has been at the forefront in issuing directives that apply to all citizens within the country. The directives are not specifically directed to employers or employees however they are complementary of the directives issued by the Ministry of Labour and Social Protection. Therefore, employers have an obligation to ensure that they are up to date with the directives and the same is implemented in the workplace.

Working together during the storm

Employers are encouraged to work towards remaining in operation during these uncertain times, to the extent possible. This may be achieved through co-operation with government guidelines aimed at reducing the spread of COVID-19 and in consultation and consent with employees on workable amendments to the terms and conditions of employment. Together, the storm can be weathered.


This alert is for informational purposes only and should not be taken as or construed to be legal advice. If you have any queries or need clarifications, please do not hesitate to contact Chacha Odera, Managing Partner, Georgina Ogalo-Omondi, Partner, Sandra Kavagi, Associate, Anne Kadima, Associate, Rosemary Sossion, Associate, or your usual contact at our firm for legal advice relating to the COVID-19 pandemic and how the same might affect you.

Legal & Tax Perspective of the Presidential Tax Directive – COVID-19

Posted on March 30th, 2020

With the outbreak of the Coronavirus pandemic come widespread economic challenges affecting the world at large with no country spared. Kenya on its part has seen a decline in economic and business activities following the announcement of the Coronavirus cases in Kenya. In the result, the security of employment and businesses of many Kenyans is uncertain. An even greater challenge faced by companies is the inability to fulfil contractual obligations and more importantly be in compliance with statutory obligations.

It is on this premise that the President in an effort to mitigate the adverse economic effects of the Coronavirus pandemic, directed the National Treasury to implement certain tax reliefs (as set out below) aimed at increasing liquidity in the country.

Pay As You Earn (PAYE)

The President has directed a one hundred percent (100%) Tax Relief for persons earning gross monthly income of up to KES 24,000 and reduction of the highest PAYE rate from thirty percent (30%) to twenty five percent (25%).

This is a good move in ensuring that a taxpayer who earns salary goes home with more disposable income. This will help sustain the common mwananchi in the coming hard times. This directive will however only come into force pursuant to a tax amendment bill being tabled in parliament and the same being enacted.

Value Added Tax (VAT)

The President further directed an immediate reduction of the standard VAT rate from sixteen percent (16%) to fourteen percent (14%), effective 1st April, 2020. The Cabinet Secretary in exercise of his powers under section 6 of the VAT Act has issued Legal Notice Number 35 of 2020 dated 26th March 2020 in terms of the aforesaid directive, which is pending approval by Parliament.

The Kenya Revenue Authority (KRA) was also directed to expedite the payment of all verified VAT refund claims amounting to KES 10 Billion within three (3) weeks or in the alternative to allow for offsetting of Withholding VAT, in order to improve cash flows for businesses in the economy. We must emphasise this VAT Refund Claim only applies to claims that have been verified by KRA and does not extend to contested claims.

Turnover Tax (TOT)

Reduction of the TOT rate from the current three percent (3%) to one percent (1%) for all Micro, Small and Medium Enterprises (MSMEs). The TOT was reintroduced by the Finance Act, 2019. This will provide a major reprieve to taxpayers - entities whose turnover is less than KES 5 Million in a year of income.

Export Processing Zone (EPZ) Enterprises

Further to Presidential directives, the Cabinet Secretary for National Treasury and Planning, on 20th March, 2020, had issued a notice to the Commissioner General of KRA asking that it lifts restrictions of twenty percent (20%) of the total annual production of the EPZs for sale into the domestic market to one hundred percent (100%) with an undertaking that the government pays the dues and taxes to KRA given that there is no legal provision exempting goods from EPZs sold locally from taxes.

The tax and dues payable by taxpayers in the EPZs are charged under the 13th Schedule of the Income Tax Act and the EPZ Act, 1990.  This Presidential directive will allow entities in the EPZs to supply locally all their products in Kenya.

While the move is welcomed and the idea of the government paying taxes and dues on behalf of tax payers to KRA may be economically sound, the same goes against the basic agency principle of ‘a principal being estopped from purchasing its own goods from its agent’. However, it must be noted that this is a temporary measure, pending parliamentary amendments to the law to allow for exemption of EPZs.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Lena Onchwari (lena@oraro.co.ke) and Wanjala Opwora(wanjala@oraro.co.ke) or your usual contact at our firm, for legal advice.

Salient Changes Under the Business Laws (Amendment) Act, 2020

Posted on March 30th, 2020

On 18th March, 2020 the President assented to the Business Laws (Amendment) Act, 2020 (the Act). The Act, which came into force on its date of assent, seeks to facilitate the ease of doing business in Kenya by amending various statutes. Below is a summary of the salient changes brought about by the Act, that affect specific sectors:

CONVEYANCING AND REAL ESTATE
Electronic Execution of Documents
The Act recognises the use of advanced electronic signatures and electronic signatures as a valid mode of execution of documents in Kenya. The recognition of electronic signatures is poised to improve the ease at which land transactions are carried out, especially in transactions where the parties are not in Kenya at the time of execution.

The Stamp Duty Act has equally been amended to provide that documents can be electronically stamped, extending the scope of the initial provision which only recognized stamping by a franking machine or an adhesive stamp.

Electronic Registries
The Registration of Documents Act (the RDA) has been amended to recognise electronic filing of documents. The Registrar of Documents is empowered to establish both the Principal Registry in Nairobi and the Coast Registry in electronic form. This is intended to ease the process of applying for registration of documents under the RDA, as one may not require to physically present a document for registration at either of the two Registries.

Abolishment of Land Rate and Land Rent Clearance Certificates
Previously, a person seeking to register an interest in land was required to provide proof of payment of land rates and land rent before registration is effected. An application for registration therefore had to be accompanied with Rates and Rent Clearance Certificates where rent and rates were payable.

The Act has deleted these provisions in entirety implying that it shall no longer be mandatory to produce Land Rent and Rates Clearance Certificates when applying for registration of an interest in land. Transferees therefore have to individually carry out their own due diligence and satisfy themselves that rent and rates have been paid in order to avoid assuming these liabilities.

It is however important to note that although Section 38 and 39 have been deleted from the Land Registration Act, Sections 55 (b) and 56 (4) which require production of a Rent Clearance Certificate and Consent to Lease or Charge prior to registration remain in force. It will, therefore, be necessary to address this disparity going forward, in order to clarify the applicable completion documents in property dealings.

EMPLOYMENT AND LABOUR
Waiver of Registration of Workplaces for new businesses
New businesses with less than one hundred (100) employees can now operate without registration of a workplace for a period of one year from the date of registration of the business. This provision is set to provide small and medium sized enterprises with more time to register their workplaces.

CORPORATE AND COMMERCIAL
Increased threshold for enforcing Squeeze-Out rights in mergers and takeovers
The stake that an acquiring party should purchase before enforcing a squeeze-out has been restored to ninety per cent (90%) from the current stake of fifty per cent (50%). The increase in the squeeze-out threshold seeks to restore the protection of the rights of minority shareholders, especially in listed companies.

Abolishment of the use of common seals in execution
The use of common seals in executing contracts by companies has been abolished. The adoption of this amendment broadens the scope for holding a company accountable for contracts as such contracts may be executed by any person acting under its authority, express or implied authority.

Treatment of bearer shares
Bearers of share warrants can now convert their warrants into registered shares. This provision is poised to recognize and protect the rights of bearers acquired before the coming into force of the Companies Act, 2015.

RESTRUCTURING AND INSOLVENCY
Additional factors to consider when lifting a moratorium in insolvency matters
The Act has included additional factors to consider when the courts seek to lift a moratorium in insolvency. These include, whether the value of the secured creditor’s claim exceeds the value of the encumbered asset, whether the secured creditor is not receiving protection for the diminution in the value of the encumbered asset, whether the encumbered asset is not needed for the reorganisation or sale of the company as a going concern and whether relief is required to protect or preserve the value of the assets such as perishable goods.. The inclusion of these factors is to take into account the different business exigencies of companies under administration.

Information requests by creditors
The Act gives creditors the right to request for information from the insolvency practitioner in respect of the insolvency process. The information rights will provide more transparency in relation to the insolvency process in Kenya.

CONSTRUCTION
Enforcement of the Building Code
The National Construction Authority (NCA) has been authorised to promulgate and enforce the Building Code in the construction industry. Consequently, any matters concerning compliance with the Building Code shall be under the purview of the NCA. The NCA will also have power to promulgate regulations relating to and to conduct mandatory inspections of the construction sites with a view to verify and confirm whether contractors are complying with the construction regulations.

TAX
Investment deductions, exemption of supplies for bulk storage of Standard Gauge Railway raw materials and market protectionism
Companies that incur a capital expenditure of at least Kenya Shillings Five Billion (KES 5,000,000,000) on construction of bulk storage and handling facilities with a minimum capacity of one hundred thousand metric tonnes in relation to the Standard Gauge Railway (SGR), will be entitled to investment deductions equal to one hundred and fifty per cent (150%) of the capital expenditure incurred from the year of first use of the facility.
Additionally, taxable supplies procured locally or imported for the construction of bulk storage in support of the SGR operations are exempted from paying import declaration fees.

Further, a twenty five per cent (25%) tax has been imposed on imported glass bottles under the Excise Duty Act.

The adoption of these amendments is intended to boost businesses for local manufacturers and ultimately grow Kenyan brands.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Pamella Ager (pamella@oraro.co.ke), Nelly GitauJacob Ochieng (jacob@oraro.co.ke), Lena OnchwariNaeem Hirani or your usual contact at our firm, for legal advice relating to the Business Laws (Amendment) Act, 2020 and how the same might affect your business.

Coronavirus (COVID- 19) | Oraro & Company Advocates’ Contingency Measures

Posted on March 16th, 2020

In view of the guidelines issued by the Government of Kenya in response to the spread of the COVID-19 (Corona virus), we wish to assure you that we have put in place measures that will ensure continuity of your matters and that the same will be well attended to.

During this period, which is by all accounts unprecedented, we will keep our communication lines open and we will be happy to attend to any concerns or enquiries. We can be reached on telephone, email, messaging services and meetings can be conducted by prior arrangement via video conferencing links.

Further note that the firm will retain a scaled down staff complement during this period.  However, the following Partners will be available to attend to you at short notice and at any given time:

We request for your understanding during these challenging times. In the meantime, we have attached here a notice from the National Council on the Administration of Justice for your information. We will update you as and when there are any material developments.

George Oraro SC Ranked ‘Star Individual’ Top Dispute Resolution Lawyer in Kenya

Posted on February 17th, 2020

17th February, 2020

Chambers Global Guide which ranks the most outstanding law firms and top lawyers across the world has released its 2020 rankings.

We are delighted to announce that our Senior Partner, George Oraro SC has surpassed the Band 1 ranking receiving the prestigious ‘Star Individual’ accolade in Dispute Resolution. The accolade is awarded to lawyers with exceptional recommendations in their field and George is the only lawyer ranked in this category in Kenya. Acclaimed by sources as "a man of integrity and humility", and regarded as being "wise, patient, extremely brilliant in all respects and very client-focused”, Chambers Global noted that multiple interviewees affirm his stature as a "litigation powerhouse" and "one of the best lawyers Kenya has ever produced."  George whose practice cuts across the full spectrum of contentious mandates and arbitration has also been ranked Band 1 among leading Arbitrators in Kenya. George has decades of experience which have seen him feature in some of Kenya's most eminent cases.

Chambers Global has also highly ranked other lawyers from the firm. Chacha Odera, Managing Partner, was ranked Band 1 in both Dispute Resolution and Employment practice areas. Chacha was commended for his expertise in land, employment and constitutional disputes with market commentators highlighting that he has a "very sharp mind," and other sources saying he is “a man full of wisdom; courteous, respectful, hard-working and a team player.”

Our Employment & Labour law Partner, Georgina Ogalo-Omondi, continues to excel in the Employment practice area. Georgina received praise from the interviewees for being “ambitious, very hard-working and a team player," also adding that “she is fearless.

Moving up the ranking, our Partners Noella Lubano and Jacob Ochieng were also ranked in Dispute Resolution and Corporate/M&A respectively. Chambers Global commended Noella for her in-depth understanding of financial and commercial disputes, covering banking, insolvency and asset tracing mandates. Noella was lauded for having a “very determined” approach and “outstanding client handling skills.” Jacob Ochieng is well regarded in the Corporate & Commercial space and his peers noted that he “is commercially astute and always looks out for his clients in any transaction.

In general, the firm continues to maintain its position as a market leader. Ranked Band 1, our Dispute Resolution team was lauded for routinely appearing in high quantum and sensitive matters and its representation of regional and international clients in complex cases. The firm was also well ranked in Employment and Banking & Finance categories.

Chacha Odera, Managing Partner, commented on the awards saying “It is such a great honour for me and the firm to receive such commendable rankings. I congratulate everyone in the firm for their unrelenting efforts. Our clients, thank you for your valuable feedback, unwavering support and trust over the years.” These accolades reinforce the firm’s leading position in the region and its standing globally.

Chambers Global rankings are based on extensive research and one-on-one client interviews. The Guide assesses the quality and magnitude of cases or transactions handled by each firm, technical ability, professional conduct, client service, commercial awareness/astuteness and commitment to providing solutions to clients, among other qualities.

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Profile

Established 43 years ago by George Oraro SC (one of Kenya’s top litigators), Oraro & Company Advocates is a top-tier, full-service Kenyan law firm providing specialist legal services both locally and regionally with a focus on Arbitration, Banking & Finance, Conveyancing & Real Estate, Corporate & Commercial, Dispute Resolution, Employment & Labour, Infrastructure, Projects & PPP, Restructuring & Insolvency and Tax.

Oraro & Company Advocates prides itself in its deeply rooted client relationships by steadily providing quality legal services through its partner-led approach and continues to distinguish itself as an African law firm offering legal services drawing from local knowledge and global perspectives.

Kipkirui Kosgei

Head of Business Development

T: +254 709 250 000/709 250 735

E: gkosgei@oraro.co.ke

A ‘Dicey’ Matter: The Fate of Employees in Mergers and Acquisitions

Posted on February 3rd, 2020

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There has been a rise in mergers and acquisitions transactions (M&A Transactions) in Kenya even as business entities grapple with tough economic times and the ability to stay afl oat in the evolving business market. Th e recent acquisition of National Bank of Kenya Limited by KCB Bank PLC, the merger of NIC Group PLC and Commercial Bank of Africa Limited, the acquisition of Quick Mart and Tumaini Self Service Supermarkets by Sokoni Retail Kenya to form a single retail operation and the proposed acquisition of one hundred percent (100%) of the issued share capital of De La Rue Kenya Limited (a subsidiary of De La Rue PLC) by American firm HID Corporation Limited are some of the notable M&A Transactions that have taken place in Kenya in 2019. All these recent M&A Transactions have brought to the fore, among other issues, the fate of employees in the merging entities. In most instances, a high number of employees are declared redundant and thereaft er, have to wait for fresh advertisements of positions by the merged or acquiring entity and apply to be recruited.

Employment and labour law considerations feature highly during M&A Transactions. More often than not, such transactions lead to loss of employment due to the restructuring of the target company, or the change in character and identity of the transferring entity. Unlike other contracts involving assets and liabilities of the transferor, contracts of employment are currently not assignable to the acquiring entity under Kenyan law.

Other than setting out the basic conditions of employment and addressing the legal requirements for engagement and termination of employees, both the Employment Act, 2007 and the Labor Relations Act, 2007 are silent on the effect of M&A Transactions on employees. In practice, the contracts of employment are terminated on account of redundancy subject to compliance with the conditions as set out under section 40 of the Employment Act.

In some instances, the Competition Authority of Kenya (the Authority) established under the Competition Act, 2010 undertakes a public interest assessment to ascertain the extent to which the M&A Transaction will cause a substantial loss of employment and impose conditions to mitigate such as has been in case of the acquisition of National Bank of Kenya Limited by KCB Bank PLC where the Authority approved the merger on condition that KCB Bank PLC retains ninety percent (90%) of the employees from National Bank of Kenya Limited for a period of at least eighteen (18) months. This was also seen in the merger between NIC Group PLC and Commercial Bank of Africa Limited where the Authority approved the merger on condition that both entities retain all the employees for a period of at least one (1) year.

Proposed Law

The Kenya Law Reform Commission, a statutory body established under the Kenya Law Reform Commission Act, 2013 with the mandate to review all the laws of Kenya to ensure that they are modernised, relevant and harmonised with the Constitution of Kenya, 2010, recently prepared a draft Employment (Amendment) Bill, 2019 (the Bill) which amongst other provisions, proposes to amend the principal Act (being the Employment Act, 2007) by introducing a new section 15A which provides for the transfer of employees during M&A Transactions.

The proposed section 15A provides that such transfer of employees shall not operate to terminate or alter the terms and conditions of service as stipulated in the original contracts of the employees. It also creates an obligation on the transferor to notify and consult with the affected employees or their representatives regarding the anticipated transfer, the implications of such transfer and the measures that the transferor envisages will be taken to mitigate such implications. Further, the Bill provides that any dismissal taking place prior or subsequent to the transfer shall amount to summary dismissal if such dismissal is premised on the transfer.

Essentially, the Bill seeks to eliminate the difficulties occasioned during M&A Transactions by ensuring that the employees are not left out in the cold when their employer is bought out. It also creates an obligation for the transferor to inform and consult with the employees who shall be affected in an M&A Transaction. This has been the practice in other jurisdictions such as the United Kingdom and even closer home, in neighbouring Uganda.

The Bill borrows heavily from the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) as amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 applicable in England and Wales. TUPE Regulations are aimed at protecting the rights of employees in M&A Transactions in England and Wales by imposing obligations on employers to inform and, in other cases, consult with representatives of affected employees. Failure to comply with these obligations attracts penalties and sanctions to the employer.

Critique

While the proposed law could be seen as a relief for employees who are mostly losers in M&A Transactions, it brings with it several challenges and may potentially make M&A Transactions even more complex and strenuous, particularly on the part of the transferee.

Firstly, all the transferor’s rights, powers, duties and liabilities in connection with any employment contract shall be transferred to the transferee. Further, the transferee shall be liable for all the employees’ dues dating back to the commencement of the employment contract. This also means that the transferee shall shoulder all the liabilities that arose from the transferor’s engagements with its employees, including but not limited to cases initiated by and against the transferor.

Secondly, the proposed amendment as currently drafted may subject the parties in M&A Transactions to unnecessary costs and restrictions. It may not be practical to place the transferee under an obligation to automatically retain all the employees of the transferor without any loss of benefits or contractual dues. Such a provision shall defeat the purpose of M&A Transactions, as most of them are geared towards restructuring the business for purposes of reducing operational costs.

With respect to the dismissal of employees immediately prior or subsequent to an M&A Transaction, the proposed amendment as currently framed might open a pandora’s box as it may operate as a blanket protection to all employees including those whose contracts may be terminated for valid reasons during the transition period. The proposed amendment as drafted protects employees against redundancy processes while creating a higher standard of proof against the transacting parties with regards to any termination disputes arising in the course of an M&A Transaction.

Further, the proposed amendment fails to appreciate the contractual rights and obligations of parties with respect to employment and M&A Transactions. There should be provision to allow the transferee to freely negotiate alternative arrangements and contractual obligations with the transferor’s employees and maybe set the standards that should guide this process. By doing so, the parties would have a better chance to make agreements that are favourable to all.

Conclusion

While the issue of how to deal with employees and employment contracts remains a challenge in M&A Transactions in Kenya, the proposed amendments to the Employment Act will no doubt come as a sigh of relief for many employees who have long viewed themselves as collateral damage in M&A Transactions. However, the proposed amendment is likely to increase the cost of undertaking M&A Transactions in Kenya which may well end up being counterproductive as regards the rationale for which the M&A Transaction was carried out in the first place.

‘Phoney War’: Tackling the Counterfeits’ Problem In Kenya 

Posted on February 3rd, 2020

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A consumer purchasing goods and services in the market, is often concerned about whether the goods that he is placing in his basket are genuine. One is oft en left in shock upon learning that the establishment where one purchased his supplies from, appeared in the local dailies accused of dealing in counterfeit goods. Th is fear is not restricted to goods alone, but also covers the services market.

The infiltration of counterfeit products in the market infringes on the intellectual property rights of the rightful owners of the products, since counterfeiters pass off phoney goods as the products of legitimate manufacturers, when in actual fact, they are not. This passing off denies the genuine manufacturers revenue, as they find it diffi cult for their products to compete with the invariably cheaper non-genuine products. Inability to compete with counterfeiters often comes with a dip in profi tability which, in turn, leads to loss of employment due to downsizing or worse still, closing down of the business altogether. The government also loses out on taxes as counterfeiters are prone to evade tax while the genuine manufacturer simultaneously experiences a slump in sales and therefore decrease taxable income.

According to the Kenya Association of Manufacturers, local manufacturers lose an estimated sum of KES 30 billion (USD 300 million) in revenue while the national government is deprived of KES 6 billion (USD 60 million) in taxes, due to counterfeit products, annually.

Counterfeit products also pose a health risk to consumers, as such products may at times contain excessive amounts of hazardous substances as compared to genuine products. Similarly, counterfeit farm inputs such as seeds or fertilizers, pose a serious threat to a nation’s food security as their use may result in poor yields or crop failures.

All in all, counterfeit goods seem to have pervaded all sectors of our country’s economy, noting the estimation by the Anti-Counterfeit Authority (the Authority) that one in every fi ve (5) products sold in the Kenyan market is counterfeit. It is therefore very much in the public interest that the war against counterfeit is swiftly and decisively won.

Legal Framework

To address the concerns posed by counterfeit goods, the Anti-Counterfeit Act, 2008 (the Act) was enacted to provide the legal and institutional framework for tackling the vice. The Authority (formerly known as the Anti-Counterfeit Agency) is established under section 3 of the Act. The Authority’s responsibilities are centred on curbing counterfeit products in the market through enlightening and informing the public on matters relating to counterfeiting, combating counterfeiting trade and other dealings in counterfeit goods through devising and promoting training programmes on fi ghting counterfeiting and advising the government on policies and measures concerning the protection of intellectual property rights as well as the extent of counterfeiting. The Authority’s Board (the Board) is established under section 6 of the Act and draws representation from other stakeholders, including the Att orney General’s offi ce, the Kenya Revenue Authority, the Kenya Bureau of Standards and the Kenya Association of Manufacturers amongst others.

The Board is authorised under section 22 of the Act to appoint inspectors who are tasked with enforcing the provisions of the Act. Board members, police offi cers, customs offi cials, trade mark and patent examiners, seed and plant inspectors and public health inspectors are also designated as inspectors under the Act. The idea is to ensure as much representation or coverage as possible from other public institutions, so that the Act can be widely enforced. However, the Authority’s powers appear to have been somewhat clipped as section 30 (1) of the Act empowers the Director of Public Prosecutions (DPP) to appoint prosecutors for counterfeiting cases.

Under section 23 of the Act, an inspector has the power to enter suspected premises and to search and ascertain whether the goods are genuine and to take steps reasonably necessary to terminate the manufacturing, production or making of counterfeit goods. Section 23 (3) of the Act specifically empowers an inspector to arrest with or without a warrant, any person whom he suspects on reasonable grounds of having committed any offence under the Act and an inspector may search and detain such a person. The discharge of an inspector’s functions is not to be taken lightly, as the obstruction of an Inspector from undertaking his duties amounts to a criminal offence under section 24 of the Act and shall be liable, upon conviction, to imprisonment for a term not exceeding three (3) years or a fine not exceeding KES 2 million (USD 20,000) or both. Section 25 of the Act provides details on what the inspector is to do upon seizing the suspected counterfeit goods. The inspector is required to seal, sort and take an inventory of the seized goods, furnish the complainant and the owner of the goods with the inventory, secure the goods by relocating them to a safe place and notify the concerned parties of the new location of goods. An aggrieved party may petition Court for a declaration that the goods are not counterfeit and an order for the return of the seized goods to him or her.

Section 32 of the Act lists the general offences pertaining to counterfeiting such as possession, sale, distribution or importation of counterfeit goods. Equally, the possession of any labels, patches, wrapping, containers or documentation bearing a counterfeit mark is also an offence. The aiding or abetting of any of the foregoing is also outlawed. The penalty for contravention of this section of the Act is stiff, in the case of a first conviction, being imprisonment for a term not exceeding five (5) years, or to a fine, in respect of each article or item involved in the particular act of dealing in counterfeit goods to which the offence relates, not less than three (3) times the value of the prevailing retail price of the goods, or both. In the case of a second or any subsequent conviction, to imprisonment for a term not exceeding fifteen (15) years, or to a fine, not less than five (5) times the value of the prevailing retail price of the goods, or both.

A complaints mechanism is laid out in section 33 of the Act. It allows the holder of an intellectual property right to lodge a complaint under the Act with the Executive Director of the Agency. The complainant is also required, together with lodging the complaint, to furnish such information or particulars to demonstrate that on the face of it, the goods in question are counterfeit. If the Executive Director is duly satisfied with the information, he may order such necessary steps be taken under section 23 of the Act. However, an inspector is not precluded from taking the appropriate steps on his own motion in relation to any dealing in counterfeit goods.

The holders of trademarks, copyrights and other trade names of goods or works to be imported into Kenya, can record such interests with the Agency for protection as per section 25 of the Act. The application is in the prescribed form and the protection comes into force from the date on which such interests are recorded. The duration of protection is one (1) year from the date the interest was recorded by the Agency or the period of protection of the intellectual property right, whichever is shorter.

A person who has suffered damage following wrongful seizure of goods is entitled to claim for compensation under section 34 (7) of the Act.

Judicial Pronouncements

The Kenyan Courts have made various pronouncements and developed jurisprudence on counterfeiting matters. In Wilson Muriithi Kariuki t/a Wiskam Agencies v Surgipharm Limited (2012) eKLR, the Applicant was seeking an interlocutory injunctive order restraining the Respondent from distributing the alleged counterfeit products in the market. The High Court held that the party seeking an interlocutory injunction must demonstrate, as it the normin injunction cases, that it has a prima facie case with probability of success; that if the order sought is not granted, he risks suffering irreparable damage that cannot be compensated by way of damages; and if the Court is in doubt, then it is to determine the matter on a balance of convenience. Importantly, the Applicant must be a right holder.

In Republic v Anti Counterfeit Agency & 3 others Ex-parte Omega Chalk Industries (1993) Limited & another (2015) eKLR, the High Court emphasised that there is no need for the Authority to notify an individual of an impending seizure exercise as follows: “I agree with the interested party that a reading of the above provisions and taking into account the mischief that these provisions were meant to cure, it would defeat the purpose of the Act to require that the person in whose possession suspected counterfeit goods are to be heard before the power of seizure is exercised. Any wrongful seizure of the goods is to be dealt with under section 25 of the Act.

In Platinum Distillers Limited v Attorney General & 4 Others (2017) eKLR, the Court held that the power to commence and prosecute counterfeit cases falls within the purview of the DPP, and that the power should be exercised independently and there should also be no perception that the DPP is acting under the direction or instigation of anyone else. However, the Court has the inherent power to discontinue the prosecution if it is opined that allowing the prosecution to continue would be an abuse of the Court process or result in a breach of the accused’s fundamental rights. The Court further noted that the lack of a proper factual basis for the prosecution can be another ground for termination of proceedings.

In Anti-Counterfeit Agency v Barloworld Limited & another (2018) eKLR, the Court of Appeal held that public interest should be taken into account when issuing injunctive reliefs pending hearing and determination of the main appeal. In this matter, the Agency had applied for a stay of execution with the intention that counterfeit products should not be released to the market.

Executive Forum and Working Group

A point of concern has been a perceived lack of coordination or cooperation between complimentary government agencies in the war on counterfeits. However, this issue has been addressed by the formation of the Inter-Agency Anti-Illicit Trade Executive Forum (Executive Forum) and the Inter-Agency Anti-Illicit Trade TechnicalWorking Group (Working Group) established under Gazette Notice No. 7270 of 2018.

The Executive Forum is chaired by the Principal Secretary, State Department for Trade with the Head of the Authority being the secretary. Its functions include advising the Cabinet Secretary for Trade on all matters concerning illicit trade as well as the appropriate policies, laws and regulations required to strengthen the war on illicit trade. One the other hand, the functions of the Working Group include developing a national strategy to combat illicit trade, coordination of surveillance and investigations on the source of illicit merchandise, coordination of the enforcement of laws, regulations and policies dealing with illicit trade and conducting public education on illicit trade.

The establishment of the Executive Forum and the Working Group is a step in the right direction, as the idea behind their formation is to infuse the much needed synchrony and coordination in the war on counterfeits.

About Us

Oraro & Company Advocates is a full-service market-leading African law firm established in 1977 with a strong focus on dispute resolution and corporate & commercial law. With a dedicated team of 10 partners, 4 senior associates, 10 associates, 1 lawyer and 36 support staff, the Firm has been consistently ranked by leading legal directories such as Chambers Global, IFLR 1000 and Legal 500 as a top-tier firm in Kenya.

Oraro & Company Advocates is an affiliate member of AB & David Africa.

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Oraro & Company Advocates
ACK Garden Annex, 6th Floor, 1st Ngong Avenue
P. O. Box 51236 - 00200, Nairobi, Kenya.
T: +254 709 250 000
E: legal@oraro.co.ke | W: www.oraro.co.ke

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