Delving Deeper: Supreme Court Affirms Dual Enforcement and Investigatory Mandates of the Capital Markets Authority

Posted on May 31st, 2021

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In Issue 12 of our Newsletter published in August 2020, we featured an article on the powers and role of the Capital Markets Authority (the Authority) which concluded that the Authority is empowered to take robust administrative action in combating insider trading, albeit obligated to adhere to the principles of natural justice, the Fair Administrative Action Act, 2015 and the Constitution, while doing so. We also highlighted the appeal processes provided in the Capital Markets Act (the Act) which are to ensure that there are sufficient corrective mechanisms to mitigate and safeguard against any potential excesses or errors that the Authority might make in the carrying out of its mandate.

In this edition we consider a recent decision of the Supreme Court of Kenya in the case of Alnashir Popat & 7 Others v Capital Markets Authority (2020) eKLR, in which the Supreme Court considered the inquisitorial and enforcement mandate of the Authority.

The Authority’s Inquisitorial and Enforcement Mandate

The Act provides for the inquisitorial powers of the Authority by mandating it to inquire into the affairs of persons it has granted a licence or an approval to, and any public company whose securities are publicly traded or offered on an approved securities market or over the counter market. The Authority may also appoint an auditor to investigate the affairs of any collective investment scheme or public company whose securities are publicly offered or traded on an approved securities exchange or on an over-the-counter market. The Authority’s inquisitorial mandate exists contemporaneously with an enforcement mandate, which ordinarily comes into play after the inquisitorial stage. To this end, the Authority may impose sanctions, give directions, and trace assets of persons it has found to have engaged in fraudulent dealings or insider trading. The Act empowers the Authority to order the placing of caveats against the title to assets or prohibit suspected persons from operating their bank accounts pending the determination of charges that the Authority may have levelled against them. The Authority may also have recourse against any person whose act or omission has resulted in a payment from the Compensation Fund established under the Act to compensate investors who suffer losses due to the failure of a licensed broker or dealer to meet its contractual obligations.

The Imperial Bank Matter

Alnashir Popat & 7 Others v Capital Markets Authority concerned a corporate bond issued by Imperial Bank Limited (now in receivership) (the Bank) that had been approved by the Authority. Things took a grim turn when the Bank’s Managing Director, Mr. Janmohamed, collapsed and died. After his passing, the Acting Managing Director and his deputy revealed to the non-executive Chairman of the Bank’s Board, Mr. Popat (one of the Petitioners in the case) that the deceased had authorised many illegal disbursements of vast amounts of the Bank’s monies in transactions that were concealed from the Central Bank of Kenya (CBK) and the Bank’s Board.

Mr. Popat then moved the Board to appoint a consultant to carry out a forensic audit of the Bank’s financial affairs and report on its accurate financial position. The Board authorised this and also resolved not to utilise the corporate bond issue pending the outcome of the investigations by the consultant. The consultant’s report confirmed the assertions made by the Acting Managing Director and is deputy, and that the Bank had incurred losses running into billions of shillings. The Board reported the matter to the CBK, which on 13th October 2015, placed the Bank under receivership and appointed the Kenya Deposit Insurance Corporation as the Bank’s receiver manager for a period of twelve (12) months. A moratorium was also placed on the Bank.

On this same day, the Authority instructed the Nairobi Securities Exchange not to proceed with the listing of the Bank’s bond issue until further notice. The Authority then decided to inquire into the circumstances prevailing in the Bank during the bond application and approval period to determine whether the Petitioners, i.e. the directors of the Bank, had contravened regulatory requirements. On 6th May 2016, the Respondent served the Petitioners with notices to show cause and required them to respond within fourteen (14) days to various allegations of negligence in the discharge of their mandate as directors of the Bank. The Petitioners were summoned to appear before the Authority’s Board on 24th May 2016 to answer those allegations. However, the hearing did not proceed as the Petitioners filed a Petition before the High Court challenging the proceedings before the Authority.

Proceedings before the High Court and Court of Appeal

In the High Court, the Petitioners challenged the propriety of the Authority’s conduct of the enquiry. The main argument that the Petitioners made was that the Authority, having approved the bond issue, and certain officers, including the Chairman of the Board, having conducted the preliminary enquiry, was conflicted and could not be impartial in the enforcement proceedings. The Petitioners consequently sought an order of certiorari to quash the notices to show cause.

The High Court noted the Authority’s dual inquisitorial and enforcement mandate and the fact that it had considered and approved the bond issue. It found that a well informed and fair-minded observer, given all the facts, would conclude that there existed a possibility of bias on the part of the Authority against the Petitioners. The High Court quashed the notices to show cause as prayed, holding that since the Authority’s regulatory mandate would not be hampered as under Section 11A of the Act, it could delegate its functions to an independent body.

The Authority appealed this decision to the Court of Appeal, the outcome of which was a finding that the overlapping inquisitorial and enforcement functions of the Authority are expressly authorised in the Act. Therefore, the Authority was expected to make unprejudiced judgment on matters it had investigated. The Court of Appeal allowed the appeal and clarified that the Authority was at liberty to continue with the administrative proceedings it had commenced against the Petitioners.

Supreme Court Decision

The Petitioners petitioned the Supreme Court pursuant to Article 163 (4) (a) of the Constitution which provides that appeals shall lie from the Court of Appeal to the Supreme Court as of right in any case involving the interpretation or application of the Constitution. On this basis, the live issues before the Court were whether the overlapping roles that the Act vests in the Authority constitute a violation of the Constitution and whether the Respondent’s attempted enforcement proceedings were or were likely to be biased against the Petitioners.

The apex Court held that whereas the dual roles were not unconstitutional per se, the manner of discharging the dual mandate is what might turn out to be unconstitutional. The Court reasoned that the for the purpose of efficiency and in carrying out the objectives of the Act i.e. expeditious disposal of disputes that arise in the operations of the capital markets, the functions of enforcement and investigation could not be performed by separate bodies. However, when it came to judicial and quasi-judicial proceeding that are likely to adversely affect the rights of the persons or bodies under investigation, the Authority was obligated to comply with the requirements of impartiality and independence under Articles 50 (1) and 47 of the Constitution. The Court noted that the Authority’s power to delegate its functions and powers to other bodies or persons would enable it to fulfil the objectives of the Act while complying with the constitutional requirements of impartiality and independence.

On the issue of bias, the Court held that there was a possibility of bias in the case. It reasoned that the Authority had approved the corporate bond issue and thereafter it emerged that the management of the Bank had been running a scheme of fraudulent disbursements leading to losses in the billions of shillings. As this was a matter that the Authority probably ought to have discovered when conducting due diligence on the bond issue, it would cast aspersions on the Authority’s diligence. Therefore, the Court held that the Authority was unlikely to approach the proceedings with the impartiality appropriate for that decision.

The Court allowed the appeal to the extent that the Authority could proceed with its enforcement proceedings against the petitioners through its delegated authority under section 11A (1) or section 14 (1) of the Act.

The Position in Canada

The case of Brosseau v Alberta Securities Commission (1989) 1 SCR 301 illustrates the Canadian position on the issue of the dual investigative and enforcement mandate of an administrative body. In this case, Brosseau, a solicitor, prepared the prospectus of a company that later became insolvent. The Respondent, who had approved the prospectus of the company, investigated the company to deter[1]mine whether the Appellants should be subject to a cease trading order and deprived them of certain exemptions provided by the Canadian Securities Act.

n the hearing before the Alberta Securities Commission, the Appellants sought an order that the Commission did not have jurisdiction to hold a hearing against them. The Commission ruled that it had jurisdiction and directed that the hearing proceed. Aggrieved by this decision, the Appellants lodged an appeal with the Alberta Court of Appeal which was unsuccessful. The Appellant then lodged an appeal with the Alberta Supreme Court.

The Alberta Supreme Court found that the relevant statute permitted the Commission to be involved in both the investigatory and adjudicatory functions, which does not by itself, give rise to a reasonable apprehension of bias. The reasoning given is that securities commissions, by their nature, undertake several different functions. They would therefore have repeated dealings with the same parties. The Court held that it is not enough to merely claim bias because a Commission, in undertaking its preliminary internal review, did not act like a Court. If it is clear from its empowering legislation that certain activities which might otherwise be considered “biased” formed an integral part of its operations and the Commission has not acted outside its statutory authority, the doctrine of reasonable apprehension of bias cannot be sustained. Therefore, this ground of appeal was dismissed.

The position in Canada is thus similar to that prevailing in Kenya as highlighted by the reasoning of the Kenyan Supreme Court in Alnashir Popat & 7 Others v Capital Markets Authority, which concurred with the Alberta Supreme Court in Brosseau v. Alberta Securities Commission.

9 to 5?: Examining The Pros and Cons of Part-Time Employment

Posted on May 31st, 2021

By Georgina Ogalo-Omondi | Rosemary Chepkorir | Hellen Mutua

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The early 1990s saw a transformation in the Kenyan labour market with the marked rise in part-time and casual workers. This was brought about by efforts to cut labour costs since casual and part-time workers were thought to be ineligible to employment benefits as compared to full-time employees. The trend continues to date, more so in the wake of the Covid-19 pandemic which has wreaked havoc on the global and national economy and is set to continue doing so. It is therefore an appropriate time to consider the nature and meaning of part-time employment; the advantages and disadvantages it offers to both employers and employees alike; and the prevailing law on part-time employment.

What is Part-time Employment?

The International Labour Organization Part-Time Work Convention, 1994 (the Convention) defines a part-time worker as an employed person whose normal hours of work are less than those of comparable full-time workers. Locally, the term “normal” working hours is not defined in the Employment Act, 2007 (the Act) making it difficult to define a part-time worker. The Act confers power on employers to regulate employees’ working hours in line with their contract of service but does not expressly state the maximum working hours of an employee.

Rule 5 of the Regulation of Wages (General) Order which constitute the regulations under the Labour Institutions Act, 2007 provides that the normal working week shall constitute a maximum of fifty-two (52) hours spread out over six (6) days of a calendar week. It further provides that the normal working week of a person doing night work should be not more than sixty (60) hours per work week. While this rule provides the law on maximum working hours, nothing is stated about normal working hours or the threshold from which part-time work begins. This is despite part-time workers constituting a significant number of the workforce in Kenya. Foreign legislations are known to provide a threshold under which an employee is considered to be working part time, which should stand as a challenge to the Kenyan Parliament to define normal working hours as well as to provide clarity in matters concerning part-time employees.

Pros and Cons of Part-time Work to Employees

Whilst most employees would opt to be employed on a full-time basis, some are forced to take the part-time work route for diverse reasons. However, it is important to note that part-time work offers certain advantages to employees. First, it can be a suitable learning process for a young person hoping to gain clarity as to which field they should pursue a career in. It also allows people with other pressing commitments to take up work in a flexible manner. This proves to be a viable option for students who ordinarily attend classes as well as primary care givers who have to take care of their loved ones at home.

Part-time work also has its disadvantages considering that it is perceived to be a cost cutting measure for employers meaning that such employees often do not enjoy the employment benefits that full-time employees do. These include health benefits, provision of food, water and housing, paid leave and set out procedure during termination and dismissal. Further, part-time workers often do not get the full protection of the Act as accorded to full-time employees, hence providing a platform for employers to exert greater control over them. This is more so because such employees are not unionisable given the temporary nature of their work. For these reasons, most employees tend to seek full time employment as the employment benefits, legislative protection and ability to join a union contribute towards greater stability and security at work.

Pros and Cons of Part-time Work to Employers

Offering part-time employment is an attractive option to employers because of the cost cutting opportunities it presents owing to the fact that part-time workers are considered to be ineligible for employee benefits. Furthermore, employers can exert greater control over the labour force since the employees are not unionisable. In addition to the above, hiring and dismissing part-time workers does not require the procedural rigmarole that is envisaged under the Act.

From the employers’ perspective, more so those that require less skilled labour, there are no pitfalls in hiring part-time employees. For those that require highly skilled employees such as universities when hiring lecturers, there is need to consider the cost of high employee turnover especially where the employees find better terms elsewhere. Suffice to state, recruitment and training processes for highly skilled employees, whether employed on a part time of full-time basis tend to be costly.

Rights of Part-time Employees under the Convention

From the above exposition, Kenyan labour legislation does not provide for part-time employees. Therefore, Kenyan Courts tend to look to the Convention to determine the meaning of part-time work and the rights of such workers. This is the practice despite the fact that Kenya has not ratified the Convention.

The Convention largely treats part-time employees the same way it does full-time employees. It engenders the view that the only difference between part-time and full-time employees should be in the pay they receive. To this end, the Convention states that part-time workers have the right to unionize and are entitled to the conditions that full-time employees are entitled to. This includes maternity/paternity leave, sick leave, paid annual leave and public holidays, and procedural fairness when it comes to termination of employment. The Convention also proffers voluntary transition from full-time to part-time work arrangements on the part of employees. This is to prevent such employees from being relegated to part-time status against their will. Taking the approach of the Convention, part-time employees ought to be treated as full-time employees and be entitled to the full benefits that come with such status. If the hours worked is all that separates full-time and part-time employees, then it is only just to accord them the same rights and benefits.

Kenyan Jurisprudence

The Act defines an employee as a person employed for wages or a salary and includes an apprentice and indentured learner. It does not go on to differentiate between full-time and part-time employees but makes reference to the type of work employees undertake using the terms “piece-work” and “task.” Piece-work is defined as any work that an employee does and is paid according to the amount of work performed irrespective of the time occupied in its performance. On the other hand, a task is defined as such amount of work as can, in the opinion of an authorised officer, be performed by an employee in an ordinary working day.

These definitions are only used to define how an employee is to be paid. For a task, they are to be paid on a quantum meruit basis, i.e. for the portion of the task that has been done as at the time their pay is due. For piece-work, employees are to be paid in proportion to the amount of work they have done that month or when they complete the work, whichever is earlier. Notably, in both cases the worker is identified as an employee, and not a casual worker. This means that they are entitled to the full benefits and conditions of work that employees are entitled to.

In Valentine Ataka v Karatina University (2019) eKLR, the claimant, a lecturer employed on a part-time basis, sought to be paid his dues as per the oral contract of employment he had entered with the respondent. The Court found that he was indeed a part-time employee at the university as per the contract and performed work that was in the nature of piece work even though the employer defined the periods within which he was to do his work. The Court considered the provisions of the Convention in making a finding that the employee was indeed a part-time employee but did not consider the rights of such employees as the issue did not arise. The Court ordered the respondent to pay the claimant his dues for the work he had done.

In Peterson Guto Ondieki v Kisii University (2020) eKLR, the claimant, who was a lecturer, sought among other prayers, that the Court compel the respondent to engage him on a full-time basis as a permanent employee as he was being treated differently compared to his colleagues. His claim for discrimination was met with the defence that he was a part-time lecturer and therefore could not expect to be treated the same way as full-time lecturers. Further, the Court cited the freedom of contract that allowed employers and employees to agree on the terms and conditions of employment. The position of a part-time worker in Kenya was not explored nor the attendant rights. However, the Court cited the Act’s protections and provisions without distinguishing the position of the employee as a part-time worker.

Lastly, in Simon Ndungu Kabau v Hillock Country Club (2014) eKLR, the Court considered a claim alleging unlawful termination seeking terminal dues and certificate of service, among others. One of the issues that the Court considered is whether the claimant was a part-time employee as the respondent had claimed. The Court considered the hours that the employee worked to determine this issue. On finding that it was common ground that the employee worked forty (40) hours a week, the Court held that the claimant was a full-time employee and proceeded to apply the protections outlined in the Act for employees.

From the jurisprudence above, Kenyan legislation remains unclear as to the definition and the rights of part-time employee. It could therefore be argued that since the Act does not differentiate employees on this basis, part-time employees should be treated the same as full-time employees, with the difference between them being the salary paid. In addition to the above, the maximum working hours as stated in the foregoing, is fifty-two (52) hours in a six (6) days’ work week, presents the need for Parliament to clearly set out the working hours that constitute part-time work.

Parting Shot

Part-time employees are only differentiated from full-time employees in that the former work for comparatively lesser hours. Kenya has neither defined the work-hour threshold that differentiates the two nor the rights of such employees. Part-time work offers advantages and disadvantages for both employees and employers, which both should consider carefully before entering into an employment contract. Whilst the Convention treats full-time and part-time employees the same with a difference in salary, the Act is silent on their position, leaving the labour market to treat them largely as casual workers. Notably, Courts have also not offered express guidance on the rights of part-time employees as against full-time employees. The ball is therefore in the Kenyan Parliament’s court; to adopt the Convention and provide clarity as to the status of part-time work and the rights of such workers.

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