KENYA: An Introduction to Dispute Resolution
The dispute resolution landscape in Kenya continued to experience interesting developments in 2022. There were significant legislative enactments and judicial decisions that will, no doubt, affect various sectors of the economy and inform decisions in the dispute resolution sphere going forward.
In this article, we summarise some significant recent legislation and judicial authorities that will have an impact on the manner in which individuals, organisations and the government conduct their affairs. We also highlight the current economic conditions and how they may affect the legal profession and clients.
Recent Legislation
The National Hospital Insurance Fund (Amendment) Act, 2022 was passed in January 2022 to amend various provisions of the principal Act, whose name was changed to the National Health Insurance Fund Act. The amendments introduced included measures to facilitate universal health coverage. The amendments will result in employers incurring additional expenses in contributions to employees’ health insurance.
The Children Act, 2022 provides for enhanced protection of children. The Act gives priority to family-based alternative care as opposed to institutionalised care and has introduced the concept of kinship adoption; addresses emerging issues such as online abuse of children; establishes a Child Welfare Fund at the national level; and mandates county governments to establish child welfare schemes and care facilities.
The Copyright (Amendment) Act, 2022 provides for a revenue sharing formula for proceeds from ring back tunes; establishes a National Rights Registry to undertake digital registration of right-holders and authentication and authorisation of consumers of copyrighted works.
The Employment (Amendment) Act, 2022 prohibits employers from requiring any clearance or compliance certificates unless they intend to employ the applicant. An employer may withdraw an employment offer if the candidate does not satisfy the integrity requirements set out in Chapter Six of the Constitution. The legislation also bars public entities from charging fees for issuance of these certificates which must now be issued within seven days of request. These changes will make the recruitment and selection procedures of organisations more convenient for job seekers.
The Kenya Deposit Insurance (Amendment) Act, 2022 increased the maximum amount payable to a depositor during liquidation of a bank from KES100,000 (approximately USD800) to KES500,000 (approximately USD4,000). It also expanded the period for making the payment from one month to six months.
The National Electronic Single Window System Act, 2022 repealed the Kenya Trade Network Agency Order, 2010. It reinforces the mandate of the Kenya Trade Network Agency, gives it a stronger legal foundation, and anchors its mandate in law. This will enhance facilitation of trade.
The Data Protection Regulations (the “Regulations”) on complaints handling, enforcement, registration of controllers and processors took effect on 14 July 2022. The Regulations provide comprehensive guidance on the various matters outlined in the Data Protection Act. Compliance with data protection law will continue to be critical to entities as the regulator has commenced taking enforcement measures against organisations.
Judicial Decisions and Their Impact on Business
In Mugure & 2 others v Higher Education Loans Board [2022] eKLR, the High Court held that the Higher Education Loans Board (HELB) should not impose interest, penalties or fines that exceed the principal amount loaned, on the basis that it is unconstitutional and violates the in duplum rule which governs commercial and other loans. This decision is a welcome relief to HELB loan beneficiaries.
In Rift Valley Water Services Board & 3 others v Asanyo & 2 others [2022] eKLR, the Court of Appeal held that directors of a company are not employees of the company unless there is a specific contract of service. Companies may need to review the contracts of directors to align them with their intentions. Directors whose terms of engagement do not constitute a contract of service may have no forum to ventilate their grievances as the Employment and Labour Relations Court (ELRC) would have no jurisdiction to handle their disputes with the company.
On 22 September 2022, the ELRC declared various provisions of the National Social Security Fund (NSSF) Act unconstitutional in Kenya Tea Growers Association & Others v The Honourable Attorney General, the NSSF Trustees & Others. The court held that mandatory registration and contribution to the NSSF by employees is unconstitutional to the extent that it obliges employees who are members of other provident schemes to join the NSSF. The Court of Appeal, in a decision delivered on 3 February 2023, held that the ELRC had no jurisdiction to handle the matter and set aside the decision. Employees will now bear an increase in their rate of contribution to NSSF.
On 8 August 2022, the Supreme Court declared the Constituencies Development Fund Act, 2013 unconstitutional. The court held that the Act is in violation of the principle of separation of powers between the legislature and the executive, and that the Fund operated outside the established structure of sharing revenue between the national government and county governments.
The Office of the Data Protection Commissioner (ODPC) has rendered two remarkable decisions since its inception. The first was pursuant to a complaint filed by a law firm against their former employees alleging breach of the Data Protection Act. While the complaint itself was dismissed, the decision made some important points, including that complaints of violation may only be filed for the benefit of natural persons; a person does not need to be registered under the Act for one to bring a complaint against them; and that since the ODPC has investigatory powers, it may rely on the evidence it has gathered on its own over and above what the parties adduce. In a separate instance of non-compliance, the ODPC issued its first penalty notice of KES5 million against Oppo Kenya on 3 November 2022 for failing to adduce a data policy for compliance. Data controllers and processors need to ensure utmost compliance with the Act to avoid the sanctions under the Act.
Current Economic Conditions Affecting Clients or the Legal Profession
A new Kenyan government
The general elections held on 9 August 2022 were peaceful and ushered in a new government. General elections usually come with political risks that impact on investors’ decisions. The new Kenyan government has started to implement its own social, political and economic goals and policies. Changes in key sectors of the economy are expected to affect businesses and investments. The changes in priority for the government will become more apparent when it makes its first budgetary proposals ahead of the 2023/2024 financial year. Resulting from this, a fair amount of public interest litigation is expected.
Conveyancing and land law
The practice of conveyancing is one that is plagued with undeniable hardships not only for lawyers but also for surveyors, planners, realtors, agents and members of the public. The Law Society of Kenya has in recent times held peaceful protests against the delays, inefficiencies and stalling of systems at the land registries across the country. These challenges have led to delays in land and related commercial transactions. The Ministry of Lands launched a digital land management system that is aimed at increasing efficiency, expediting services and curbing fraud in land transactions. The rollout of the system has, however, faced a myriad of challenges that have led to further delays in land transactions.
One of the major concerns in 2022 was compliance with the Sectional Properties Act, 2020 (SPA) and its Regulations. The Lands Registry had not yet operationalised the registration of sectional titles and the conversion of long-term leases to sectional properties, despite the SPA requiring such conversions to have been concluded by December 2022.
Fiscal measures and Kenyan national debt
The Finance Act, 2022 amended various tax laws, the most notable of which was the increase in the capital gains tax (CGT) rate from 5% to 15%, with effect from 1 January 2023. Effective 1 July 2022, there was also an increase in the excise duty rates charged on specific goods under the Excise Duty Act. This is likely to further increase the cost of living, which has skyrocketed in recent times. These tax measures and aggressive tax collection by the Kenya Revenue Authority will present tax controversy and tax planning opportunities for legal and tax firms.
Businesses are recovering from the effects of the COVID-19 pandemic, following the relaxation of the measures that were imposed to curb the virus. Before this, businesses had scaled down operations and some had laid off employees to mitigate losses. Employment policies, law and jurisprudence will continue to develop as employers deal with new norms like working from home. Lastly, Kenya’s national debt has increased every year for the last ten years, and it is getting to an unsustainable level. Most of the revenue and taxes collected go into servicing loan and interest repayments. This has resulted in huge pending bills and the inability of the government to incur development expenditure or provide essential services.