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Historically, the basis of judicial review in Kenya was derived from the Law Reform Act (Cap. 26) Laws of Kenya and Order 53 of the Civil Procedure Rules, 2010 as better developed by case law on the area. On this basis, judicial review was limited to ensuring compliance by administrative bodies with the principles of proportionality, legitimate expectation and reasonableness in the carrying out of their functions.

However, the promulgation of the Constitution of Kenya, 2010 (the Constitution) brought with it Article 47 which expressly provides for the right to fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. In operationalising Article 47, Parliament subsequently enacted the Fair Administrative Action Act, 2015 (the FAAA). The FAAA has transformed judicial review in Kenya by expanding its scope from a review of the decisions of only public entities or administrative bodies, to include any person, body or authority which exercises a judicial or quasi-judicial function.

In this article we shall look at section 9 of the FAAA, which provides for the procedural aspect of judicial review applications by delineating the circumstances under which one may institute such proceedings. We will then examine the exceptional circumstances that might allow a party to bypass a prescribed statutory remedy and pursue a judicial review remedy through Court instead.

Statutory Remedies

Section 9 (1) of the FAAA provides that a person aggrieved by an administrative action may apply for judicial review of such a decision in the High Court or a subordinate court upon which original jurisdiction is conferred pursuant to Article 22 (3) of the Constitution. However, section 9 (2) of the FAAA limits this avenue of redress by providing a specific threshold to be satisfied whereby administrative action is only subject to judicial review if alternative mechanisms (including internal mechanisms for appeal or review), as well all remedies available under any other written law, are first exhausted.

Section 9 (2) of the FAAA may be viewed as a codification of the doctrine of exhaustion of administrative remedies. In applying the said doctrine, the Court of Appeal in the case of Geoffrey Muthinja & another v Samuel Muguna Henry & 1756 others (2015) eKLR, stated that the requirement is in conformity with Article 159 of the Constitution as it encourages the use of alternative dispute resolution. Of note was the Court’s holding that:

“It is imperative that where a dispute resolution mechanism exists outside Courts, the same be exhausted before the jurisdiction of the Courts is invoked. Courts ought to be the fora of last resort and not the first port of call the moment a storm brews… as is bound to happen. The exhaustion doctrine is a sound one and serves the purpose of ensuring that there is a postponement of judicial consideration of matters to ensure that a party is first of all diligent in the protection of his own interest within the mechanisms in place for resolution outside of Courts.”

For the above reason, a Court before which an application for judicial review is placed often satisfies itself, before seizing jurisdiction, that the parties seeking its intervention have first exhausted the prescribed statutory mechanisms for redress. In the case of Aly Khan Satchu v Capital Markets Authority (2019) eKLR, the High Court (Mativo, J) quashed the decision of the Capital Markets Tribunal on the basis inter alia, that the Tribunal that rendered the impugned decision was not properly constituted and that the applicant had not satisfied the ecxceptional circumstances requirement under section 9 (4) of the FAAA. Further, in recognizing that the Capital Markets Act (Cap. 485A) Laws of Kenya, provides for an express dispute resolution mechanism, the Court remitted the dispute back to a properly constituted Capital Markets Tribunal.

It is noteworthy that a person aggrieved by the decision of an administrative body prescribed by statute to hear a dispute has recourse to pursue redress in the High Court, either as a consequence of a provision of the statute providing for an appellate procedure to the

High Court, or in exercise of the Constitutional right of access to justice. An appeal procedure under statute ordinarily clothes the High Court with appellate jurisdiction which is often confined to determining the propriety of both the decision-making process as well as a limited review of the merits of the decision itself.

It is also important to note that administrative bodies created under statute are intended to be constituted by persons who are specially trained or have knowledge in the field in question. This ensures that any grievance arising under the statute is heard by persons who are uniquely qualified to handle the issues at hand and who have the ability to foresee the implications of any decision made.

Exceptional Circumstances

In order to address unique and peculiar circumstances, the Courts have recognised exceptions to the doctrine of exhaustion of remedies, which exceptions are also provided for under the FAAA. Section 9 (4) of the FAAA provides that in exceptional circumstances, and on application by a party, the Court may exempt such party from the obligation of exhausting alternative remedies if the Court considers such exemption to be in the interest of justice. The exceptional circumstances are not outlined in the Act, thus leaving the Courts to exercise their discretion when faced with an application for exemption.

The High Court in the case of Krystalline Salt Limited v Kenya Revenue Authority (2019) eKLR expressed its view on the definition of “exceptional circumstances” as follows:

“What constitutes exceptional circumstances depends on the facts and circumstances of the case and the nature of the administrative action at issue. Thus, where an internal remedy would not be effective and/ or where its pursuit would be futile, a court may permit a litigant to approach the court directly. So too where an internal appellate tribunal has developed a rigid policy which renders exhaustion futile.

The Fair Administrative Action Act does not define ‘exceptional circumstances’. However, this court interprets exceptional circumstances to mean circumstances that are out of the ordinary and that render it inappropriate for the court to require an applicant first to pursue the available internal remedies. The circumstances must in other words be such as to require the immediate intervention of the court rather than to resort to the applicable internal remedy.”

In Republic v Council for Legal Education ex parte Desmond Tutu Owuoth (2019) eKLR, the High Court went further to state that in determining whether an exception to internal remedies should be granted in allowing parties to institute judicial review proceedings, the Court must look at whether the internal appeal mechanism available to a party under statute would serve the ends of justice. The Court had previously stated that the doctrine of exhaustion of remedies would not be applied where a party may not have an audience before the forum created, or the party may not have the quality of audience before the forum created which would be proportionate to the interests the party wishes to advance within the suit.

Therefore, a Court is obliged to look at whether the dispute resolution mechanism established under the statute in question is competent in the circumstances of the case to serve the interests of justice, or whether it warrants a party applying for an exemption from the doctrine of exhaustion of remedies.

Of interest, when faced with an application under section 9 (4) of the FAAA, the Courts have looked at the practicality and efficacy of the statutory remedies as well as the nature of the issue at hand when making their decision. For instance, in the case of Republic v Kenya Revenue Authority ex parte Style Industries Limited (2019) eKLR, the Court held that it would grant exemption where it would be impractical to make an application to the administrative body.

For example, where the issue at hand is legal in nature and thus ought to be decided by the Courts rather than an administrative body, the Court would grant the exemption.

Upshot

Our review of case law reveals that parties tend to institute judicial review proceedings in Court for a variety of reasons. It may be that the statutory body that ought to hear the dispute at hand has not been constituted, and yet the dispute is time sensitive in nature, or the nature of the complaint is such that the statutory body cannot render an effective, impartial or dispassionate decision.

However, the downside of pursuing judicial review remedies through Court action is the comparatively longer time that Courts take to hear and determine matters. Another downturn is the fact that judicial review proceedings are restrictive, and save for exceptions, the Courts have been reluctant to delve into a review of the merits of the decision, placing the focus more on the propriety of the decision-making process itself.

Empanelment of a bench of judges refers to the administrative action of appointing several judges, to preside over a case or to hear an appeal. In the Court of Appeal empanelment of a bench would entail appointing an uneven number of judges being not less than three (3) in number, to hear and determine the matter either through a unanimous decision or by way a majority decision.

Section 13 (1) (b) of the Court of Appeal (Organization and Administration) Act, 2015 provides the President of the Court of Appeal is “…responsible for the allocation of cases and the constitution of benches, including ordinary and extraordinary benches, of the Court” amongst other functions. The Act does not define what an extraordinary bench is but from the meaning of the word extraordinary, it is taken to mean that the Court would be constituted in a unique, unusual or exceptional manner i.e. in a numerically greater coram than usual. This was remarked upon by the President of the Court of Appeal, Justice Ouko (P), in the case of Multichoice (Kenya) Ltd v Wananchi Group (Kenya) Limited & 2 Others (2020) eKLR:

“The Act does not define what extraordinary benches are but, in my assessment, these would not be the usual benches of one judge (in chambers) or three in open Court, but of a number greater than these provided that the number is odd.”

Whereas section 5 (3) of the Appellate Jurisdiction Act (Cap. 9) Laws of Kenya provides for making of rules for the purposes of “fixing the numbers of judges who may sit for any purpose”, this provision has not been taken advantage of and no such rules have ever been made. In the circumstances, empanelment of appellate benches (whether ordinary or extraordinary) has come to be matter of practice, rather than procedural rule, and is a function carried out by the President of the Court. This observation is well captured in the aforementioned case of Multichoice (Kenya) Ltd v Wananchi Group (Kenya) Limited:

“Though the Rules Committee is empowered under section 5 (3) (i) of the Appellate Jurisdiction Act to make rules to fix the number of judges of the Court comprising an uneven number not being less than three, no such rules, unfortunately have been made. So that, apart from section 5 (3) (i) and the general provisions in section 13 (1) (b) of the Court of Appeal (Organization and Administration) Act, the empanelling of benches has been a matter of practice and not rules of procedure.”

In the Multichoice (Kenya) Ltd v Wananchi Group (Kenya) Limited case, Justice Ouko took a walk down memory lane and re-traced the practice of empanelment of a five-judge (or extraordinary) bench, pointing out that the power to empanel a five-judge bench rested with the President of the Court, while the process could be initiated either through an oral application made by a party before a three judge bench, or through a formal letter to the President of the Court:

“I take advantage of this appeal to, briefly outline…the correct practice and the proper circumstances for constituting a bench of more than three judges in this Court because the long-held practice appears to have been lost along the way. In the past it was the function of the President of the Court (in the years 1954 to 1977 when the predecessor of the Court had President) or the Presiding Judge in the years immediately preceding the promulgation of the 2010 Constitution, to constitute such benches. Today acting on an oral application, a three-judge bench would direct that the President of the Court constitutes an enlarged bench…Sometimes, in response to mail from advocates, the Presiding Judge or President would empanel the bench. As way back in history as 1954, it was recognized by the predecessor of this Court…that the role of empanelling a five-Judge bench rested with the President of the Court.”

Having touched upon the process and means through which an extraordinary bench might be empanelled, we turn now to consider the grounds or basis upon which such empanelment might be made.

Departure from Previous Decisions

One of the grounds upon which one may request for the empanelment of an extraordinary bench would be where one would be asking the Court to depart from one or more of its previous decisions i.e. potentially upsetting precedent, in recognition of the fact that while the Court should abide by the doctrine of precedent, it is nevertheless free in both civil and criminal cases to depart from previous decisions, when it is right to do so.

In the case of Income Tax v T (1974) EA 549, Justice Spry (Ag. P) explained as follows —being a reiteration of an earlier decision of the Court of Appeal in PHR Poole v R (1960) EA 63:

“A full Court of Appeal has no greater powers than a division of the Court; but if it is to be contended that there are grounds, upon which the Court could act, for departing from a previous decision of the Court, it is obviously desirable that a matter should, if practicable, be considered by a bench of five judges.”

Review of Conflicting Decisions

Closely related to a situation where the Court is directly asked to depart from a previous decision, (not previously thought to be wrong), is where the Court has unwittingly given varying opinions on a matter. Whilst the Court is not bound by its previous decision, the doctrine of stare decisis calls for deference to precedent, while conflicting decisions on the same issue necessarily means that one school of thought is wrong.

Thus, while stating that the “strengthening of the normal bench of three by two more heads” was desirable when the Court was called upon to review inconsistent decisions, the Court of Appeal rendered itself as follows in Eric V. J. Makokha & 4 Others v Lawrence Sagini & 2 Other (1994) eKLR

“Some muted but not impolite observation was made about the numerical composition of the Court by the applicant’s counsel but the breadth and sophistication of the submissions made to us for four whole days, justified the strengthening of the normal bench of three by two more heads. Because of the hierarchical structure of the Court, it is also the practice adopted to review inconsistent decisions of this Court.”

Substantial Question of Law

The Constitution does not define what a substantial question of law is (it may well be argued that any question of law is substantial), but Justice Majanja attempted a definition in the case of Harrison Kinyanjui v Attorney General & Another (2012) eKLR, where he held that:

“…the meaning of ‘substantial question’ must take into account the provisions of the Constitution as a whole and the need to dispense justice without delay particularly given specific fact situation. In other words, each case must be considered on its merits by the judge certifying the matter. It must also be remembered that each High Court judge, has authority under Article 165 of the Constitution, to determine any matter that is within the jurisdiction of the High Court. Further, and notwithstanding the provisions of Article 165(4), the decision of a three Judge bench is of equal force to that of a single judge exercising the same jurisdiction. A single judge deciding a matter is not obliged to follow a decision of the Court delivered by three judges.”

In Santosh Hazari v Purushottam Tiwari (2001) 3 SCC 179, the Supreme Court of India summarized the question of whether a matter raises a substantial question of law as follows:

• directly or indirectly, it affects substantial rights of the parties
• the question is of general public importance
• it is an open question, in that the issue has not previously been settled by the Court
• the issue is not free from difficulty
• it calls for a discussion for alternative view

The above considerations shed some light as to what would amount to “a substantial question of law” for the purposes of empanelment of an extraordinary bench. As Justice Odungasuccinctly stated in Wycliffe Ambetsa Oparanya & 2 Others v Director of Public Prosecutions & Another (2016) eKLR:

“…a Court seized with the question as to whether or not an extraordinary bench is required may also consider whether the matter is moot in the sense that the matter raises a novel point; whether the matter is complex; whether the matter by its nature requires a substantial amount of time to be disposed of; the effect of the prayers sought in the petition and the level of public interest generated by the petition.”

Upshot

There is no doubting the juridical benefit derived from drawing upon the collective wisdom, experience and understanding of an increased number of judicial heads put together, where the circumstances call for the same. It is a recourse that perhaps the Rules Committee of the Court of Appeal might make readily available by promulgating the Rules envisaged under section 5 (3) of the Appellate Jurisdiction Act, which would stipulate the procedure and grounds for the empanelment of an extraordinary bench.

The principal remedy under common law for breach of contract is an award of damages, with the purpose of damages being to compensate the injured party for the loss suffered as a result of the breach, rather than (except for very limited circumstances) to punish the breaching party. This general rule, which can be traced back to the decision in the case of Robinson v Harman (1848) 1 Ex 850, is to place the claimant in the same position as if the contract had been performed, with the guiding principle being that of restitution. As was held by the Court in Robinson v Harman:

“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

In this article, we explore various types of damages that a Court of law might award depending on the nature of the case. It is important for parties to be aware of the types of damages available in law and the circumstances upon which such damages might be awarded, so as not to pursue that which one is not entitled to, and perhaps more importantly, not to omit that which one is entitled to.

Special Damages

Special damages are awarded to compensate a claimant for actual out-of-pocket expenses and provable losses that have been incurred as a direct result of the defendant’s actions or behaviour. Special damages are amenable to precise monetary quantification and as such the claimant must be able to support their claim with compelling and accurate evidence of the losses sustained.

In Equity Bank Limited v Gerald Wang’ombe Thuni (2015) eKLR, the Court highlighted the importance of special damages being specifically pleaded and thereafter strictly proved before they can be awarded. This position was further buttressed by the Court in OkuluGondi v South Nyanza Sugar Company Limited (2018) eKLR, where it was held that “special damages must indeed be specifically pleaded and proved with a degree of certainty and particularity.”

General Damages

General damages, or non-pecuniary losses, are those damages which cannot be mathematically assessed as at the date of the trial. These damages are not amenable to precise monetary quantification and are assessed by the Court, ordinarily guided by precedents of a similar nature.

It is noteworthy that general damages are ordinarily not recoverable in cases concerning breach of contract as highlighted in the Court of Appeal case of National Industrial Credit Bank Limited v Aquinas Francis Wasike & Another (2015) eKLR.

Further, the Court of Appeal has on numerous occasions held that allowing a claim for general damages in addition to quantified damages under a breach of contract would amount to duplication. In addition, where there has been a breach of contract but the innocent party has not sustained any actual damage therefrom, or fails to prove that he has, only nominal damages would be recoverable by the innocent party.

Expectation Damages

Expectation damages are a form of compensation awarded to the party harmed by a breach of contract for the loss of what was reasonably anticipated from the transaction that was not completed and are aimed at placing the innocent party in the position he would have been, had the breach not occurred.

Expectation damages are recoverable only where they can be calculated to a reasonable certainty, and where this is not possible, the injured party will only be able to recover nominal damages.

Typically, the issue of certainty arises in cases where the damages suffered are in the form of lost profits. The general rule regarding lost profits and certainty in calculating damages is that if the injured party is an established business, lost profits are not treated as speculative because they can be estimated from past profits. Therefore, an established business will generally recover its lost profits, based on reasonable estimates derived from previous records.

Consequential Damages

Consequential damages are intended to reimburse a claimant for indirect losses other than contractual loss. However, this head of damages is not as open ended as it seems; the standard of proof is higher than that of special damages, as the loss needs to have been foreseeable or communicated in advance.

The general rule with regard to consequential damages is that the breaching party either knew, or ought to have known, that the damages claimed would probably result from his or her breach of the contract. In the absence of such damages being foreseeable, they are only recoverable where the innocent party mentioned their special circumstances in advance of the breach as was held in Hadley v Baxendale (1854) ER 145.

Punitive Damages

As mentioned earlier, the general aim of awarding damages is compensation, and not punishment. However, there are certain instances where a Court might order the breaching party to pay punitive (also known as ‘exemplary’ or ‘aggravated’) damages to deter him or her from committing future breaches of the same kind. Such instances include where:

Duty to Mitigate

Even after having suffered breach of contract and loss arising from such breach, a plaintiff has a legal duty to mitigate the damages suffered, and not to the allow the damages, as it were, to “snowball into an avalanche.” If the plaintiff unreasonably fails to act so as tomitigate its loss, or acts unreasonably so as to increase its loss, the law treats those actions as having broken the chain of causation and measures damages as if the plaintiff had instead acted reasonably.

The law further recognizes that a failure to mitigate damages means that the level of damages recoverable by the plaintiff would be commensurately affected by the extent of that failure.

The burden of proving that the plaintiff failed to take all reasonable steps to minimise or avert loss falls on the defendant. As was held in the case of Lombard North Central PLC v Automobile World (UK) Limited (2010) EWCA Civ 20:

“…it is well recognised that the duty to mitigate is not a demanding one. Ex hypothesi, it is the party in breach which has placed the other party in a difficult situation. The burden of proof is therefore on the party in breach to demonstrate a failure to mitigate. The other party only has to do what is reasonable in the circumstances.”

Interest

In addition to a determination on the quantum of damages, the Court will often award interest on the damages awarded. Such interest may be pre-Judgment or post-Judgment, where the former entails interest accruing on the award from the date of injury or the time of filing the claim to the time of the award, while the latter is interest accruing on the award from the time of entering the award to the time of payment.

An award of interest is not always discretionary. The general rule is that the applicable rate should be sourced from the contract, and where the contract is silent on the applicable interest rate, the rate may be implied from trade usage. In some cases, the contract may be so extensive as to stipulate for default interest. Similarly, an award of compound and simple interest should derive from the contract. In other words, the rate on interest will only be discretionary if it is not provided for in the agreement, implied from trade usage, or prescribed by statute.

Simply put, e-commerce refers to the sale or purchase of goods and services conducted over computer networks by methods specifically designed for the purposes of receiving and placing orders. The spectrum of goods and services sold online is wide, encompassing goods and services delivered physically, as well as intangible digital goods such as music, films, books, software and services such as online banking.

The United Nations Conference in Trade and Development (UNCTAD) reported that as of 2017, e-commerce accounted for six percent (6%) of all purchases made in Kenya. A natural consequence of electronic trading is implications under intellectual property laws or tort such as negligence and defamation. Electronic trading may also raise issues on privacy and data protection. Majority of online transactions were in the form of business-to-consumer or consumer-to-consumer transactions as opposed to business-to-business transactions, raising the question on the need for an effective dispute resolution mechanism. Albeit a relatively emerging area, online dispute resolution (ODR) may be one of the suitable dispute resolution mechanisms for online transactions.

Several definitions have been formulated to describe ODR, for example, the American Bar Association defines ODR as follows:

“ODR uses alternative dispute resolution process to resolve a claim or dispute. ODR can be used for disputes arising from online, e-commerce transactions, or disputes arsing from an issue not involving the internet called an “offline” dispute. It is an alternative to the traditional legal process which usually involves a court judge and possibly a jury.”

Authors Kah-Wei Chong and Len Kardon in the publication E-Commerce: An Introduction describe ODR in the following manner:- “ODR uses the internet as a more efficient medium for parties to resolve their disputes through a variety of methods similar to traditional ADR. It brings parties online to participate in a dialogue about resolving their disputes.”

It is clear that the term ODR is used to describe the process by which a dispute is resolved on an online platform such as the internet by means of arbitration, mediation or negotiation, all of which are alternatives to litigation or court processes.

Some of the means employed in ODR include, video conferencing, emailing, fax, virtual meetings in chat rooms, teleconferences etc. Parties may upload their written claim, evidential documents and written submissions, respond to questions from the arbitrator on email and receive the arbitrator’s decision on email.

With traditional arbitration increasingly incorporating modern technology into its proceedings, the distinction between online arbitration and traditional arbitration is becoming less clear. It is therefore imperative that legal practitioners and jurists continuously keep themselves abreast and familiarise themselves with technological developments to avoid falling on the wayside.

Why does ODR Matter?

In The World is Flat by Thomas L Friedman, the author argues that the advancement of the internet and computers has equalised the playing field in commerce. This is because a vendor located in different part of the world can sell his products to a consumer located in another part of the world without the two (2) ever physically meeting.

Indeed, it is impossible to deny the rapid rise in the number of commercial transactions that happen on an online platform. This has been further enhanced by the rise in use of the mobile phones that have internet connectivity capabilities. It is now no longer necessary to physically walk into a shop or meet a vendor before one can purchase an item. Many of the day-to-day commercial functions that we undertake are now a “click” or a “swipe” away. Only recently, it was announced that Tesla, the largest electric car dealer in the world had taken the decision to close most of its stores and shift to online–only sales.

It is inevitable that the increase in online commercial transactions would result in an increase in disputes on the same, thereby informing the need for a quick, efficient and cost effectivedispute resolution mechanism that is suited for online transactions.

Most online purchases involve parties located in different parts of the world and are unlikely to involve large or significant sums of money. As a result, the traditional means of dispute resolution which primarily involve courtroom litigation may in the case of an online purchase dispute be inconvenient, impractical, time consuming and prohibitive.

Of concern therefore, is whether consumers of online purchases are sufficiently protected from injury and have an efficient, effective and cost efficient means of seeking redress for such injury.

Related to this issue is whether there is a need for the formulation of a legal framework for ODR. As things stand, there is no law in Kenya that governs or addresses ODR nor is there any indication of an intention by Parliament to pass laws to regulate ODR.

This second question must be considered against the divergent regulatory approaches of the United Kingdom and the United States with the former preferring to pro-actively regulate ODRs while the latter prefers a self regulatory approach which leaves the task of regulation to private actors involved or participating in ODR.

These issues are all part of and should be looked at as part of a broader discussion on the Constitutional right to access to justice and consumer protection guaranteed under Articles 48 and 46 respectively of the Constitution of Kenya.

How Does ODR Work in Practice?

The Virtual Magistrate Project (the VMAG) launched in the US in 1996 was one of the first ODR initiatives. The VMAG served as an arbitrator for online disputes submitted to it and all proceedings would be done by email and decisions transmitted within days.

However, this initiative collapsed because several complaints were not within its jurisdiction, a lack of awareness of the service, failure by parties to participate and the inability of the VMAG to enforce its decisions.

Another significant ODR initiative is the Internet Corporation for Assigned Names and Numbers (ICANN) which resolves disputes regarding domain names. As commercialisation of the internet grew, domain name registry services identified potential issues surrounding the jurisdictional nature of trademarks and their involvement in potential litigation.

At the time of registering a domain name, parties agree to be bound by the ICANN dispute resolution mechanism. What makes ICANN effective is once an arbitrator decides that a domain name should be transferred or cancelled, the decision is binding on the domain name provider who will effect the change as determined by the arbitrator. The decision is however not binding on the parties and may be referred to court. Also, the domain name is instantly suspended on the submission of a complaint. The entire process is concluded using online procedures within about two (2) months. So far ICANN has resolved over five thousand (5,000) domain name disputes.

Other ODRs are Square Trade which has partnered with among the largest online businesses such as eBay, and PayPal among others and has resolved over two hundred thousand (200,000) disputes to date. Also worth mentioning is CyberSettle which was established in 1998 uses a three-round blind bidding system to settle monetary disputes particularly insurance related and workers compensation disputes. CyberSettle is a software technology that automatically compares the ranked bids to determine if the parties have arrived at a settlement. So far it has assisted in settling claims worth approximately USD 500,000 (KES 50 Million).

Advantages of ODR

Disadvantages of ODR

ODR is only suited for a very limited class of disputes such as e-commerce disputes and domain disputes, in most cases, the size of a claim arising from an online transaction will not correspond with the cost of possible litigation proceedings

Way Forward for ODR in Kenya

It has been said that when law and technology converge, change is inevitable. It is therefore doubtful that Kenya will have a choice in the matter other than to adapt to the changing faces of dispute resolution. Rather than wait for private actors to shape and develop ODR, there may be merit in a pro-active approach that is continuously and actively working to formulate regulatory legislation which has the objective of protecting online consumers and promoting their right to access to justice which are both Constitutional guarantees.

Kenya will need to develop a regulatory framework for ODR before this initiative is overtaken by more complex online dispute resolution initiatives such as smart contracts and block chain arbitrations among others.

The greatest inventions that have revolutionized the way we live, work and do business have originated from the minds of people. It all starts in the mind as an intangible idea. With rising competition, organizations are developing innovative strategies to develop more business and attract investments. The value of intangible assets (a non- physical asset such as patents, trademarks, copyrights, industrial designs and trade secrets etc. that a company owns) are increasingly proving to be game changers in business competitiveness and growth.

It is important for businesses and startups in particular, to recognize intellectual property (IP) as a valuable corporate asset. However, as an intangible asset, steps must be taken to protect such asset to mitigate the potential risks associated with unauthorized use within domestic and international markets. Generally, IP refers to creations of the mind such as inventions, literary and artistic works, designs and symbols, names and images used in commerce. Regardless of size and sector, a business loses the immense potential of its innovation and ideas, if it fails or neglects to protect its innovations.

Startups drive real innovation and growth, new products, services and solutions that can propel business growth and ultimately economic growth and development. As is to be expected, startups invest their energy in the first few years on gaining credibility with their target market and seeking additional capital and investments to grow their business. Innovative ideas of startups require resources for its development. However, in the quest to seek funding, startups risk disclosing ideas to investors without the required protection. This is attributable to the fear that, hesitation to disclose may lead to loss of interest of investors. Due to this fear, startups thus end up disclosing without required protections. Whilst new businesses navigate the challenges of starting a new enterprise, they must not be oblivious to the need to protect their IP assets.  Big organizations such as Apple, Samsung, Microsoft, Metro-Goldwyn-Mayer and Google spend huge amounts of money in research and development and ensure that their inventions, literary works, applications, designs, images etc. are legally protected (to gain maximum value from their creations). Established organizations, therefore, unlike startups do not face the same challenges in protecting their intellectual property rights (IPR) as startups.

This article discusses the importance of IPR protection for startups, the modes for the protection of IPRs in Ghana, enforcement of IPRs and the strategies that a startup can adopt for the protection of their IPRs.

Importance of Protecting IPRs for Startups

The success of Ghanaian startups depends on their ability to protect their IP assets. Though protection of IP in Ghana at the initial stages of an organization’s life may involve time and costs, the future benefits are numerous. For startups to scale up and commercialize their ideas, protection to gain IPRs is key for a number of reasons including:

• Protection against infringement of their IPRs
• Safeguards against exploitation by potential investors.
• Competitive advantage when market share translates into brand reputation and increased income.
• Leverage in negotiations with potential investors.
• Sale, lease, assignment or transfer for value.
• Realization through valuation of assets of the company in the event of acquisition

Protection of Intangible Assets in Ghana

Generally, ideas cannot be successfully commercialized if not legally protected. Where an IPR can be used by anyone and everyone, there will be no need to pay the originators of the idea. It is for this reason that IPRs are deemed to be assets or properties of the originator. Under Ghana’s IP laws, IPRs may be acquired specifically for the following categories of intangible assets:

1. Inventions (patents) – Patent can be a design, process, an improvement or physical invention that provides a new way of doing things. Technology and software companies often have patents for their designs. An example is Alan Emtage’s, creation of the world’s first search engine which provided a solution to easy access to information. Also, IBM’s invention of the smartphone, the portable device that combines mobile telephone and computing functions into one unit enabled a new way of doing things.
2. Cultural, artistic and literary works (copyright)- this provides authors and creators of original material the exclusive right to use, copy or duplicate their material. For example, one of Africa’s prominent writers, Ama Ata Aidoo whose works comprise of plays, novels, short stories, poetry and essays has her works copyrighted and only grants limited access for research or for study.
3. Symbols, names and images used in commerce (trademarks)- This protects business names, logo, shape, slogan, image, color etc. of goods and services that distinguish it from the goods and services of others. Trademarks are often associated with a company’s brand. For example, the logo and brand of “Coca Cola” is owned by the Coca Cola Company.
4. Trade secrets- It involves a company’s process or practice that is not public information which affords a business a competitive edge. These are typically the result of a company’s research and development. It could be in the form of a design, pattern, recipe (think of Burger King or KFC), formula or proprietary process.
5. Unique designs for commercial use (industrial designs)-This focuses on the physical appearance and functionality of the product including textile which is a product of industry or handicrafts
6. Geographical indications- these are products that are synonymous with certain locations for their quality. For example, the cloth weaving patterns of Kente which are unique and attributed to the Akans and Ewes. The traditional smocks associated with people in the northern part of Ghana, shea butter (with medicinal benefits), handicrafts such as beads by the Krobos and the local baskets and hats from the North.

There are specific legislation in Ghana protecting each IP. These include the Copyright Act, 2005 (Act 690) which protects copyrights in Ghana. The Industrial Designs Act, 2003 (Act 660) for the protection of industrial designs. Patent Act, 2003 (Act 657), for the protection of inventions and the Trademarks Act, 2004 (Act 664) for the protection of trademarks. In addition, there is the Protection Against Unfair Competition Act, 2000 (Act 589) which regulates and sanctions persons causing confusion with respect to another’s enterprise or its activities, damaging another person’s goodwill or reputation, misleading the public, discrediting another person’s enterprise or its activities, unfair competition in respect of secret information, and unfair competition in respect of national and international obligations.

For obtaining protection for each IPR, there are requirements under the specific laws that must be complied with.

Some of the Strategies to be Adopted by Startups for the Protection of IPRs

• Initial Step

As a first step, startups must protect their ideas. While they may be excited about the prospects of partnerships and investors, prudence is key. Prior to disclosing an idea to third parties, these must be considered:

• physically ensuring that the idea is kept safe from unauthorized access
• where disclosure is required, that there is first, some due diligence on the recipients of the IP information and where the outcome of the due diligence is positive that there is a confidentiality or non-disclosure agreement in place which must restrict the use of information disclosed.

 

• Registrations

Startups should register their ideas with the relevant statutory entities to provide protection from infringement. For example, it is necessary to recognize that, although we live in a globalized world, the registration of some ideas like trademarks are territorial. According to the principle of territoriality, intellectual property rights are limited to the territory of the country where they have been granted. This is despite increased globalization and the ease with which products protected by IPRs can cross national borders as a result of technological advancements. It is therefore important for Ghanaian startups to register their trademarks in Ghana and other key jurisdictions.

Additionally, since Ghana is a member of ARIPO, an IP protection may be obtained in other ARIPO member states by filing a registration application through ARIPO and designating any member state to protect your IP rights.

 

• Contractual Protection

Startups may seek to protect their IP through well drafted legal contracts which must include the following:

• ownership and use of the IP rights
• monitoring mechanism to ensure compliance with rights of use
• restriction of IP access to essential parties, contractors or supply chain partners
• prohibition of unauthorized use or copies of IP, e.g., on devices, shared network drives etc.

 

Enforceability of IP Rights

Under Ghanaian law, there are civil and criminal sanctions for the infringement of IPRs. Additionally, Ghana is a signatory to international treaties/protocols for the protection of IP including the World Intellectual Property Organization (WIPO) and a signatory to certain WIPO-administered treaties, the Berne Convention for the Protection of Literary & Artistic Works and the Paris Convention for the Protection of Industrial Property. These international treaties afford additional rights for persons (from member states) whose IPRs are infringed.

 

Conclusion

People will always try to replicate a unique idea for their own commercial gains. In Ghana, even protected ideas are replicated illegally, as such, failure to protect an idea only opens a floodgate. Hence, before any third party infringes on a startups IPR, it is very important for the startup to protect their IP. Startups must therefore prioritize the need to protect their IP assets to position them well for any potential merger or acquisition, a valuation of their company, or a dispute on the ownership, use or infringement of their IPR. IPRs can be protected irrespective of the kind and size of the business. Consequently, after evaluating the business needs and circumstances, appropriate action for IP protection must be taken. It is crucial to note that, it is the complete responsibility of the proprietor to protect its IP from infringement.

The competitiveness of the business environment requires investment in research and development. To fully utilize innovations from research and development, organizations must recognize the proprietary nature of their ideas, take necessary actions to protect such IP and aggressively enforce unauthorized use or any infringement of their IPR.

The rise of the information age has forced businesses to re-evaluate their modes of carrying on business with a key shift in advertising. Advertising is no longer the dominant way to pay for information and culture. What previously was the purview of corporate logic has been replaced by algorithms and informational architecture meant to create a personalised experience for the user. In the heightened noise of marketing, with all fighting for the user’s attention, the temptation to directly engage the user with a targeted and personal advertisement is understandable, yet such engagement often comes at the risk of violating the user’s right to privacy. In this article, we explore ways through which a business can navigate these murky waters and strike a balance between respecting a customer’s right to privacy whilst creating an effective and satisfactory user experience through direct marketing.

 

Direct Digital Marketing: The Basics

Hamman and Papaodulos define direct digital marketing (DDM) as a system of marketing where the marketer communicates directly with the intended customer over a medium, with the expectation that such interaction will elicit a measured response, often positive. Whereas traditional direct marketing can take various forms such as the use of fliers, DDM involves the use of a digital medium such as a mobile phone, e-mail, television, or web-based platforms for the direct or indirect purpose of promoting a good or a service. Practically, this can take the form of Short Message Services (SMS) alerts sent to a person informing them of the latest offers in a particular restaurant or email alerts notifying a user of an ongoing promotion in a department store.

 

In Kenya, an attempt to codify the meaning of DDM has been made under regulation 13 of the Draft Data Protection (General) Regulations, 2021 (the Draft Regulations) which are still under consideration. Regulation 13 stipulates that a data processor or controller will be deemed to have used data for commercial purposes where they send a catalogue through any medium which addresses a data subject; display an advertisement on an online media site where a data subject is logged on using their personal data relating to the website the data subject has viewed – this includes the use of data collected by cookies to target users; send an electronic message to a data subject about a sale or other advertising material relating to a sale, using personal data provided by a data subject.

 

The foregoing definition of DDM casts a wide net as to the possible forms of DDM that may be used by advertisers in marketing. This includes covert methods of targeting audiences such as the use of cookies and data analytics to determine the age, gender and sites visited by a data subject for the purposes of determining which forms of advertisements should be displayed to the user, as well as overt methods such as the use of SMS to target a data subject.

 

It is critical to note that under the Draft Regulations, a person will not be considered to have utilised a data subject’s personal data for DDM purposes, where the personal data is not used or disclosed to identify or target particular recipients. For instance, the use of data analytics by a data processor or controller for the purposes of estimating the content most viewed by users, or the resources a user sought when using an organisation’s website, would not qualify as DDM. However, should the organisation proceed to either use personal data collected from an analytical review of their website, such as one’s age and gender to then target the user during their next visit to the organisation’s website or to sell that data to an advertiser, then such use would effectively qualify as DDM thus calling for the application of the Data Protection Act, 2019 (DPA).

 

The Risk

For DDM to be successful, marketers need to address a target audience. To accomplish this, marketers will ordinarily require large volumes of personal data thus the crux of direct marketing. This is premised on the fact that most of the data sought by marketers is often of a personal nature such as details of a person’s name, age, gender, residence, purchase habits or preferences. In most instances, this data is likely to be collected from a consumer’s interaction with the concerned entity or platform. DDM may however present a risk to a marketer, where the marketer obtains a consumer’s personal data without their consent. An example would be the collection of one’s phone number by a hotel while booking one’s accommodation where the hotel uses such information to send promotional messages on their discounted rates, without disclosing to the customer that they intended to use the customer’s phone number for that purpose. As innocuous as such collection, storage and subsequent use might seem, it presents a real legal risk to the enterprise. To begin with, such collection would be a violation of a data subject’s rights under section 26 (1) (a) of the DPA which provides that a data subject has the right to be informed of the use to which their personal data is to be put. Further, these actions would constitute a violation of section 30 (1) of the DPA which prohibits the processing of a data subject’s personal data without their consent. In addition to this, the resultant storage and use of a customer’s data in the example above would be in further breach of the DPA which prohibits the use and storage of personal data without obtaining a data subject’s consent. As such, the enterprise is likely to incur liability for breaching the user’s right to privacy thereby exposing the business to the risk of lawsuits and regulatory fines. The unlawful disclosure of personal data constitutes an offence under the section 72 (1) of the DPA and upon conviction, one would be liable to a fine not exceeding KES 3,000,000 (USD 30,000) or to a term of imprisonment not exceeding ten (10) years or both.

 

Solutions

1. Obtain consent

Businesses that intend to adopt a DDM strategy should obtain consent from their intended audience before carrying out any advertising campaign. This obligation is founded on the provisions of section 30 (1) of the DPA which imposes the obligation to obtain a data subject’s consent before processing any data upon a data controller or data processor. The above position is further bolstered by the provisions of regulation 14 (1) of the Draft Regulations which sets out the instances in which commercial use of personal data other than sensitive data may be permitted.

 

Under regulation 14 (1), a data controller or processor would be permitted to use personal data if they meet five (5) conditions. Firstly, the data controller or processor must have collected the personal data sought to be used from the data subject. Secondly, the data subject must be notified that direct marketing is one of the purposes for which the data has been collected. Additionally, the data subject must have consented to such use of their personal data. Further, the data controller or processor must provide an opt-out mechanism for the data subject to not receive the DDM communications.

 

Generally, opt-out mechanisms allow a data subject to withdraw their consent from the use of their personal data in DDM. Practically, this may be in the form of an unsubscribe button. To effect this, regulation 15 (1) of the Draft Regulations prescribes the features that should accompany an opt-out mechanism. First, opt-out mechanisms must have a visible, clear, and easily understandable explanation of how to opt-out, such as instructions written in simple language and in a font size that is easy to read. Also, opt-out mechanisms must use a simplified process for opting-out that requires minimal time and effort. In addition, opt-out mechanisms must provide a direct and accessible communication channel and be free or involve not more than a nominal cost to a data subject. Finally, the data subject must have not made an opt-out request at the time of the collection, use and/or processing of the data.

 

1. Use the data obtained for a limited purpose

The obligations of a business entity are not strictly limited to lawfully obtaining data. A business must also ensure that they use the data obtained for the purpose for which it was acquired. Where the initial purpose for which personal data was obtained changes, a data controller may still use the data, subject to obtaining consent from the data subject for the changed use. This is in line with regulation 5 (3) of the Draft Regulations which provides that where the data controller or processor intends to use personal data for a new purpose, it shall ensure that the new purpose is compatible with the initial purpose. For instance, if a business collects a customer’s phone number for the purposes of determining whether payment made through a mobile money payment platform has been effected, the same number should not be used to send out promotional messages. To use such data for a purpose which is not intrinsic to the root purpose would constitute a violation of the data subject’s rights under section 26 of the DPA.

 

1. Respect the data subject’s rights

A data subject has a right under section 26 (c) of the DPA to object to the processing of their personal data. Examples of this include the sending of SMSs to specific codes calling for the cessation of promotional marketing messages or the clicking of an unsubscribe button on email marketing. It is critical to note that once a customer has objected to the processing of their data, then, any subsequent use of such data becomes unlawful, and the marketer runs the risk of incurring liability for such use. For this reason, once a customer objects to the use and or processing of their data, a business is obliged to comply with the same and cannot continue to use the customer’s data.

 

1. Adopt data protection by design in devising DDM Strategies

The use of DDM as a marketing strategy involves the collection and subsequent storage of data. Therefore, a business which seeks to adopt DDM must at the very core ensure that its technical and organisational measures are designed at all times to implement the data protection principles in an effective manner and integrate necessary safeguards for the purposes of processing. The above obligation is consistent with the provisions of section 41 (2) of the DPA, which mandates data processors and data controllers to adopt technical and operational measures that implement the data protection principles at the time of determining the means of processing the data and at the time of processing data. Failure to adopt technical and organisational measures that ensure data protection by design, may expose the business to a data breach and potential legal liability. It is thus important for a business to ensure that the technical and operational measures adopted comply with this principle.

 

1. Notify the data subject in case of breach

If a data breach occurs, the business must first notify the data subject of the breach, the nature of data lost, and the intended remedial action taken up to prevent further loss of data. This obligation is imposed by section 43 (1) (b) of the DPA which mandates a data controller to notify a data subject of any unauthorised access or risk of unauthorised access to the data subject within forty-eight (48) hours. Such notification not only serves to alert the data subject of the expected loss of personal data, but also allows the data subject to take on remedial actions as an end-user such as changing or updating their credentials, which can stave off the worst of attacks.

 

In conclusion, the use of DDM, whilst a viable and useful method of reaching and engaging with one’s clientele, is often laden with the risk of violating a customer’s right to privacy. To avoid such risk, businesses are advised to adopt a DDM strategy that is alive to the target’s right to privacy and data protection duties and obligations.

Bruce Schneir, an American privacy specialist and computer security professional, famously stated that “data is the pollution problem of the information age and protecting privacy is the environmental challenge”. In Kenya, the Data Protection Act, 2019 (the Act) provides an elaborate regime for dealing with the “environmental challenge” that is protection of data through inter alia the establishment of the Office of the Data Protection Commissioner (ODPC), which is primarily tasked with overseeing implementation of the Act and comprises of the Data Protection Commissioner (DPC) and other staff appointed by the DPC.

To this end, the ODPC has, in conjunction with the Cabinet Secretary for matters relating to information communications and technology, promulgated the Data Protection (Compliance and Enforcement) Regulations, 2021 (the Regulations), which will come into effect on 14th July 2022.

In this article, we set out an overview of the compliance and complaint handling mechanisms under the Act and the Regulations, and we also highlight the consequences of non-compliance

Functions of the ODPC

The functions of the ODPC are contained in section 8 of the Act and include receiving and investigating any complaint by any person on the infringement of rights and obligations set out under the Act. Section 9 (1) of the Act gives the DPC wide powers to superintend compliance with the Act, including powers to conduct investigations; facilitate conciliation, mediation, and negotiation on disputes; issue summons to witnesses for purposes of investigation; and to impose administrative fines for failure to comply with the Act.

Lodging Complaints

Pursuant to section 56 (1) of the Act, a data subject who is aggrieved by the decision of any person pertaining to the Act, can make a com- plaint to the DPC. Subsection 2 as augmented by Rule 4 (1) of the Regulations permits lodging of complaints either orally or in writing through electronic means, including by email, web posting, complaint management information systems, or by other appropriate means. The DPC is required to reduce a complaint made orally to writing.

Pursuant to Rule 4(3) of the Regulations, a complaint can be lodged in person, by a person acting on behalf of the complainant, or by any other person authorized by law to act on behalf of a data subject (such as an Advocate, an agent or anonymously). Once a complaint is received, the DPC is required to conduct a preliminary review upon which the ODPC may either admit the complaint, advise that the matter is not within its mandate, advise that the matter lies for determination by another body or institution and refer the complainant to that body or institution, or alternatively decline to admit the complaint altogether where the same does not raise any issue under the Act.

The various avenues through which a complaint may be lodged, coupled with the fact that there is no cost implication for lodging a com- plaint, conforms the process to the dictates of the right of access to jus- tice as enshrined under Article 48 of the Constitution of Kenya, 2010.

This is further buttressed by section 56 (5) of the Act which provides for an expeditious ninety (90) day period within which the DPC must investigate and make a determination on complaints made to it.

Admission and Investigation of Complaints

Rule 6 (4) of the Regulations provides that where a complaint is admit- ted, the DPC may either conduct an inquiry into the complaint; con- duct investigations; facilitate mediation, conciliation, or negotiation; or use any other mechanism to resolve the complaint. In this regard, the ODPC has recently published a draft Alternative Dispute Resolution (ADR) Framework which is currently at the public participation stage, and which are ultimately aimed at codifying the ADR processes con- templated under the Act.

Rule 11 of the Regulations requires the DPC to, upon admission of a complaint, notify the respondent of the same within fourteen (14) days so as to give the respondent a chance to either respond to the allegations against them; resolve the complaint made in a manner that is satisfactory to the complainant; or make representations and submit evidence relevant to support their representations. Where a respondent fails to act on the complaint against them, the DPC will proceed to determine the complaint without any responses thereto. However, the DPC re- serves the right to discontinue a complaint where the same does not merit further consideration or where a complainant refuses, fails or neglects to communicate further without justifiable cause. A complainant is also at liberty to withdraw the complaint before its determination. Section 57 of the Act, taken in conjunction with Rule 13 (1) of the Regulations, gives the DPC discretion to conduct investigations, issue summons requiring attendance of any person at a specified time and place for examination, administer an oath or affirmation on any person during proceedings, require any person to produce any document or information and upon obtaining warrants from the Court, enter into  any establishment or premises to conduct a search and may seize any material relevant to the investigation. Upon the conclusion of the investigations, the DPC is then required to make a determination based on findings thereof. Under Rule 14 (2) of the Regulations, the said determination should be in writing and should state, among others, the remedy to which the complainant is entitled. The remedies contemplated include issuance of an enforcement notice to the respondent, issuance of a penalty notice imposing an administrative fine in case of non-compliance, dismissal of the complaint where it lacks merit, recommendation for prosecution, or an order for compensation to the complainant by the respondent.

Enforcement Notices

In case of failure to comply with the Act, section 58 empowers the DPC to serve an enforcement notice requiring the recipient to take certain defined steps within a period of time specified within the notice itself. The enforcement notice must clearly indicate what provision of the Act has been or is likely to be contravened; what steps the recipient can take to address the actual or potential contravention of the Act; the time- frame within which the recipient is to implement the remedial steps; and any right of appeal available to the recipient. An appeal against a decision arising out of the enforcement notice may be made to the High Court within thirty (30) days from service of the notice.

Section 9 (1) of the Act gives the DPC wide powers to superintend compliance with the Act, including powers to conduct investigations; facilitate conciliation, mediation and negotiation on disputes; issue summons to witnesses for purposes of investigation; and to impose administrative fines for failure to comply with the Act.

Failure to comply with an enforcement notice constitutes an offence and upon conviction one is liable to a fine not exceeding KES. 5,000,000, or to imprisonment for a term not exceeding two (2) years, or to both. Further, the obstruction of the DPC in relation to the exercise of her functions under the Act attracts criminal liability and sanctions.

 

Penalty Notices, Administrative Fines and Compensation

In case of failure or likelihood of failure to comply with an enforcement notice, the DPC may issue a penalty notice requiring the person in de-fault to pay the ODPC an amount specified under the penalty notice. A penalty notice is to be issued for each breach identified in the enforcement notice and shall contain, among others, an administrative fine im- posed as contemplated under section 63 of the Act. Section 63 of the Act prescribes the administrative fine payable under a penalty notice as not more than KES. 5,000,000 or in the case of an enterprise, up to one percent (1%) of its annual turnover for the pre- ceding financial year, whichever is lower. Rule 20 (4) of the Regulations provides that a penalty notice may impose a daily fine of not more than KES. 10,000 for each breach identified until the breach is rectified. It is important to note that the right of appeal to the High Court has been preserved, as against any administrative action taken by the DPC, including as against the issuance of penalty notices.

The seemingly steep administrative fine is intended to deter non-compliance with the provisions of the Act. Indeed, data protection enforcement authorities in other jurisdictions such as the Information Commissioner’s Office (ICO) in the United Kingdom, have not shied away from imposing hefty fines against persons found to be in violation of data protection laws. For instance, the United Kingdom’s ICO fined American Express Services Europe (a credit card company) a sum of nine thousand euros (€ 9,000) for sending marketing emails to various customers who had not given their consent for the same. Should Kenya’s DPC follow the precedents set by other jurisdictions’ data protection enforcement authorities, then the importance of compliance with the Act will not need to be gainsaid. The DPC would how- ever do well to temper the need for compliance and enforcement of the Act with proportionality and reasonableness, in line with the principle that the punishment should fit the crime. In addition to administrative fines, section 65 of the Act provides that a data subject who suffers damage by reason of contravention of a requirement of the Act is entitled to compensation for that damage from the data controller or data processor, save where the data controller or data processor can establish that the damage occasioned on the data subject is not attributable to any fault on their part.

Conclusion

The Regulations offer comprehensive enforcement mechanisms coupled with penal sanctions for non-compliance. It is worth noting that the DPC is taking proactive steps to operationalize the Act and, in addition to the Regulations, has also embarked on a recruitment drive aimed at bolstering the human resource of the ODPC. It is yet to be seen how strict the DPC will be in dealing with complaints arising from breaches of the Act and imposing penalties where applicable. It is only matter of time before occasion for the DPC’s intervention arises, more so once the Regulations take full effect. It is therefore advisable for all data processors and data controllers to err on the side of caution by ensuring full compliance with the Act and the Regulations rather than being “caught off-side” by the imminent compliance and enforcement phase of the nascent data protection laws.

 

Companies are legal entities used by natural persons to undertake business or pursue an object. However, it is not always the case that natural persons want to use companies for lawful activities or to be identified with the company. Natural persons may use companies as fronts for unlawful activities including terrorist financing, money laundering, and tax evasion: circumventing legal compliance requirements, among others. In light of this, it is important to have full information on the persons using a company to undertake business or pursue an object.

This has led to the requirement of beneficial ownership disclosure globally. Ghana adopted the disclosure requirement in 2016 through an amendment of the now repealed Companies Act, 1963 (Act 179), and has restated the requirement in the new Companies Act, 2019 (Act 992). This article discusses beneficial ownership disclosure in Ghana.

Background to beneficial ownership disclosure

Studies conducted by the Financial Action Task Force (FATF) (an international body that sets standards for anti-money laundering and counter-terrorist financing) in 2006 revealed that the lack of adequate, accurate and timely beneficial ownership information on companies in jurisdictions, including Ghana, allows money laundering and terrorist financing to flourish in those jurisdictions.

Consequently, the FATF recommended its Recommendations 24 and 25 on transparency and beneficial ownership of companies. In parallel, the Ghana Extractive Industry Transparency Initiative (GEITI), an initiative that monitors payments by extractive industry companies to governments and government entities, initiated a beneficial ownership transparency agenda to push for transparency in payments in the industry. FATF Recommendations 24 and 25 and the GEITI served as catalysts for Ghana to consider a beneficial ownership disclosure regime covering all companies.

Ghana implemented the requirement by amending the now repealed Act 179 through the passage of the Companies (Amendment) Act, 2016, (Act 920). Act 920 provided for a beneficial ownership disclosure regime by mandating the inclusion of names and particulars of beneficial owners in the register of members. The beneficial ownership disclosure reveals how companies are owned and controlled by their beneficial owners.

Act 920 and Act 179 were repealed by the Companies Act, 2019, (Act 992) which was passed in August 2019. However, it restated the beneficial ownership disclosure requirement and expanded on it.

Who is a beneficial owner?

A beneficial owner is a natural person who ultimately owns or significantly controls a company or materially benefit from the assets held by a company. The control can be exercised directly (holding a significant share in the company) or indirectly (influential in the running of the business) through a legal ownership interest or a significant percentage of voting rights. Act 992 defines the beneficial owner as the natural or artificial person that has a direct or indirect significant interest in or substantial control over a company. It characterises the beneficial owner as an individual:

1. who directly or indirectly ultimately owns or exercises substantial control over a person or company;
2. who has a substantial economic interest in or receives substantial economic benefits from a company, whether acting alone or together with other persons;
3. on whose behalf a transaction is conducted; or
4. who exercises significant control or influence over a legal person or legal arrangement through a formal or informal agreement;

Thus, persons who fall into any of the above categories are beneficial owners and their details must be disclosed to increase transparency in business transactions. Act 992 requires Ghanaian companies (incorporated or external company) to disclose their beneficial owner(s) to the Office of the Registrar of Companies (ORC).

When to report/disclose beneficial ownership?

Act 992 establishes a Central Register (‘Register’) that allows the Registrar to, in accordance with Recommendations 24 and 25 and the provisions of Act 992, obtain, verify and record beneficial ownership information. Consequently, companies have reporting obligations under the beneficial ownership regime. The following reporting requirements have been adopted under Act 992:

1. Filing of beneficial ownership information with the ORC during incorporation/registration of a company. This involves the completion of the relevant Beneficial Ownership Declaration Form.
2. Entry of details of beneficial owners in the Register of Members, and thereafter, submitting their particulars to the ORC within 28 days.
3. Disclosure of beneficial owners in the annual returns forms.
4. The Registrar may request for details of beneficial owners of companies when updating its Register.

The details required from the beneficial owner includes the personal details, percentage interest held, approved national identification, details of politically exposed persons and in the case of a foreign beneficial owner, their passport details. The reporting requirements helps the Registrar to have records of beneficial owners to track their activities.

Should everyone report?

Act 992 does not require everyone that has or controls interest directly or indirectly or receives benefits from a company to disclose. The Act qualifies the reporting thresholds with the words ‘significant’ or ‘substantial’. This is necessary to ensure that the Register contains details of persons who only hold significant or substantial interests. Pursuant to that, the Beneficial Ownership Declaration Forms sets out the thresholds for disclosure in the Register. The thresholds are dependent on the type/sector of the company and the type of beneficial owners involved. The prescribed thresholds are as follows:

1. A natural person who has a direct or indirect interest of 20 percent interest or greater.
2. Foreign politically exposed person in any company who holds 5 percent interest or greater.
3. Domestic politically exposed person with any amount of shares or form of control.
4. In a high-risk company (e.g., oil and gas), any person with an interest of 5 percent.

The thresholds provided under the law are to ensure that only significant and substantial ownership by beneficial owners is disclosed. This is to avoid the disclosure becoming an unnecessary burden for the acquisition of any interest or receiving any benefit, no matter how insignificant in a company.

What happens if you fail to disclose?

To ensure compliance with the disclosure requirements, Act 992 prescribes sanctions for non-compliance. Non-compliance with the reporting/disclosure requirements attracts payment of a fine or a term of imprisonment not exceeding 2 years or both. The prescription of sanctions for non-compliance in Act 992 is necessary as it serves as a check on companies hiding share ownership or control.

Additionally, where persons act as ‘fronts’ for beneficial owners per the terms of an undisclosed agreement, allowing the beneficial owner to use various means to control the actions of the front in the company; such an agreement will have no legal effect on the basis that it is unlawful.

It is therefore important that companies take necessary steps to comply with the disclosure requirements to avoid the prescribed sanctions.

Practical issues arising with implementation register

The disclosure requirement is not without faults. Concerns raised include:

• There are generally technical challenges related to the verification of information obtained on beneficial owners. Consequently, it is difficult for the ORC to verify the information on beneficial owners who are publicly listed companies. This has led to delays in filings by companies (especially foreign-owned companies) who have publicly listed companies as beneficial owners. The Registrar must issue a clear directive on how to proceed in respect of this matter.
• Under the regime, it is mandatory for beneficial owners who do not have a Tax Identification Number (TIN) to procure a TIN. Beneficial owners who are non-residents are reluctant to procure the TIN on the basis that it exposes them to tax liabilities in Ghana. Foreign beneficial owners must be made aware that tax liability does not arise just by the procurement of a TIN but only applicable on taxable activities.
• The Form allows companies to indicate if there are no beneficial owners who meet the prescribed thresholds. There is no requirement for an applicant to provide any supporting information for that statement. However, the ORC would only file such a form if it has supporting documentation. The form should be amended to include the provision of supporting information if there are no beneficial owners.

Conclusion

The beneficial ownership disclosure regime is being implemented to ensure best practices in business operations. Undoubtedly, there are issues associated with its implementation. However, businesses must comply with the requirements. For businesses to be compliant with the requirements, the following measures can be adopted:

• Procurement of TIN- beneficial owners must take steps to procure TINs. Having a TIN does not equate tax liability. Tax payment is generally triggered if the income is accrued in, derived from, and brought into Ghana.
• Submission of completed Beneficial Ownership Forms to the Registry (despite its non-filing by the Registry). This may reduce the compliance risk.
• Where a company does not have a natural person, listed company, or government entity as beneficial owner, provide the additional information/explanation with the application before submission.
• Registrar to develop its verification system to ensure accuracy of the data.

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:

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.

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).

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:

The scope of the applicable force majeure clause and whether a pandemic falls within the scope.

The notice requirements and whether they have been triggered.

Whether mitigation steps should be taken, and if so, the reasonable time for the same.

The potential consequences of a breach under the contract.

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.

Start-ups are making great strides and impacting the world economy. It is estimated that there are about nine hundred unicorn start-ups (non-listed start-ups with valuations of US$1billion and above) in the world with an estimated value of more than US$3.5trillion, including companies like Uber, DiDi, SpaceX and Airbnb.

In Ghana, start-ups are also making impact in many sectors of the economy particularly in the transport, entertainment and fintech spaces. However, a significant number of start-ups fail. Globally, it is estimated that the failure rate of start-ups is between 50 to 60%. It is believed that the rate may be significantly higher in Africa where the systems are not in place to support the growth of start-ups. It is, therefore, important for entrepreneurs to avoid pitfalls that lead to the failure of a significant number of start-ups. Whilst obvious mention can be made of access to finance and cost of finance, the crux of the matter is the inability or failure of start-ups to get the right advice.

Definition of start-ups

Given the informal nature of our economy on the continent, it is important to clarify what constitutes start-ups as different from small businesses. Opening a “provisions” shop within a neighbourhood is not a start-up. Start-ups are generally newly formed businesses by entrepreneurs with a particular drive behind them, based on perceived demand for their products and services with the aim of scaling up quickly to fill a market gap. The main differentiating factor is that start-ups seek to commercialise innovative ideas to fill a market gap. As a result of the need to scale up rapidly, they are major challenges including resource constraints. Many young men and women have brilliant solutions to the myriad of problems facing the nation which can be resolved, or at least minimised, by the provision of products and services. The challenge is transforming such brilliant ideas from just ideas to sustainable profitable businesses and scaling up to fill market gaps.

Avoiding the pitfalls

Existing studies and research have catalogued the numerous problems and challenges faced by start-ups globally. These include:

• Lack of finance
• Neglecting marketing and sales
• Lack of planning
• Finding the right people
• Time management
• The founders
• Scaling up
• Being in a comfort zone

In least-developed and developing economies in Africa, including Ghana, the challenges are more pronounced. In Ghana, access to finance and cost of credit have been topmost problems for businesses generally and for start-ups in particular. Even though this has been a concern for most start-ups on the continent, in advising a number of start-ups or dealing with disputes that have arisen, it has been observed that the most critical of challenges is the inability or failure of start-ups to obtain the right advice and on time at the initial stages of putting their ideas into action.

Observation over the periods shows that the failure to obtain the right advice enabling start-ups to avoid pitfalls has led to the failure of a majority of start-ups. Majority of these pitfalls can be avoided by obtaining the right advice. Start-ups must, therefore, avoid the following pitfalls through the right and timely advice.

• Starting without a proper business plan – Surprisingly, a number of young entrepreneurs with innovative ideas fail to ensure they have a proper business plan to guide moving that innovative idea to products and services that are delivered to targeted clients or customers. A plan cannot be in the head of the founder. Documentation of the plan is important for start-ups. This requires having the right advisor to guide the preparation of the business plan with clear steps and an implementation schedule, as well as fall back positions in the event of setbacks. As is said, failing to plan is planning for failure.

• Not deciding on form of set-ups of start-ups – This covers the business form to use to implement the innovative ideas of start-ups. Choosing the wrong business set-up invariably leads to future challenges and the possible demise of start-ups. In Ghana, the default position has been for start-ups to start the process without incorporating a business entity or registering a business name. Most start-ups operate essentially as a sole proprietorship without the protection offered by registration. Even though, it is not inherently a bad idea to do so, failure to recognise the implication of operating as a sole proprietorship creates problems down the line, particularly when it comes to raising funding. Even in instances where decision is made to have a corporate entity, choices need to be made between a firm (partnership) or the incorporation of a company (and what type of company to incorporate). The right advice or information must be obtained to inform understanding of the decision and its implications.

• Unsuitable shareholding structure and governance system – It has been observed that the default position, in case of creating a corporate entity for most start-ups, after determining how to get the operation going, is to set up a private company limited by shares. In doing so, determining the right shareholding structure must be based on sound advice based on law, the business model and optimisation of funding opportunity as well as the need to protect young founding entrepreneurs. Failure to do that has led to instances where founding entrepreneurs become employees in their own company with no ability to give direction on how the business should operate. Related to the above is the need to have a good corporate governance system. This requires having the right mix of expertise for board composition. Directors for start-up companies, in most cases, are not selected based on the requirements of the business, but on having a board that does what the founder dictates. It is more prudent for the success of the start-up that each member of the board brings on board some expertise required for the success of the business. This must not only be limited to technical expertise but must include having the time, business acumen and commitment to see the growth of the start-up.

Principles of good corporate governance must be adopted based on:

1. leadership, ethics and integrity
2. participatory and inclusive process
3. consensus oriented
4. accountability and transparency
5. responsive, effective and efficient
6. equity or fairness
7. based on rules – both legal and non-legal rules
8. clear roles and responsibilities of the various actors

There is no one size-fits-all governance system. A governance system must be crafted for each start-up taking into account particular circumstances of the founder and persons involved, business and legal requirements. This requires obtaining the right advice.

• Inability to raise funding – Whilst this may be seen as the number one challenge on the continent (seen as the topmost in Ghana), there are many financial institutions and investors prepared to invest in start-ups. From observation, the underlying problem has been the preparedness of the start-ups to access such funds. Generally, initial investments are sourced from family and friends. This is mostly done on a very informal basis with no clear agreement on repayment for debts or exit of friend/family “equity” investors. This has led to many disputes when friends and family start to see potential growth of the business. Even where the initial investment is secured and products or services are launched, the next stage of raising funding to scale up encounters challenges due to the fact that the start-up fails to have a proper contractual framework for its activities. These may cover simple issues like the right employment contract for staff, terms of initial investment, not having the right shareholding and governance structure, improper or inadequate business plan, contractual arrangement for clients (especially where these are major clients) to secure receivables, proper documentation on title to assets including intellectual properties of the start-ups, etc. Without the right foundation, one is not able to build and scale up operations of the start-ups leading to their inevitable demise. Advice on each of these is vital for the survival and growth of start-ups.

• Not dealing with founder’s dilemma – Whilst the cultural setting in Ghana seems to require involvement of owners for a venture to succeed, advice on two factors is crucial. The first relates to how the founder’s ideas are capitalized to become assets of the start-up with commensurate compensation – usually future consideration – to the founder. This also involves issues of knowledge transfer which must be factored into terms under which the founder works for the start-up. Secondly, how the founder is protected to maintain some level of control through the various stages of growth of the start-up with a good transition process is key. This requires having good advice on shareholding structure, consideration for founder’s shares, in-built succession plan in governance structure, among others. Also, the recognition by the founder that he or she cannot do it alone is critical. This requires engaging the right mix of people to constitute a team that is able to deliver at the various stages of the growth of the business.

• Lack of title to assets and terms of acquisition – failing to document the assets of start-ups, hampers the ability of the start-ups to access credit. Proper documentation of assets requires right advice on acquisition of title acquisition and having an asset register. Documentation is especially required in acquisition of immovable property – land and buildings. It is also required for securing occupation of office space. For example, a start-up may rent an office without any proper tenancy agreement and once the landlord gets an insight into the operations of the start-up, he demands exorbitant rents which the start-up is unable to pay, leading to eviction and disruption of the business operations. As part of the documentation for start-ups, creation of asset register may also be very useful.

• Failure of legal and tax compliance – the law affects every aspect of business operations. Operating without complying with the law only leads to adverse consequence. All the above pitfalls and challenges also have legal implications. It is, therefore, important to ensure that, right from the conception stages, one obtains the right and full legal advice on all aspects of the business operations. The tax implication should not only be understood as a requirement to pay taxes. There are tax benefits and tax breaks available to start-ups. However, these are based on compliance with legal requirements. Obtaining the right legal advice will ensure start-ups take advantage of such benefits. The compliance requirements should not only be limited to specific jurisdictions. With the introduction of Africa Continental Free Trade Agreement (AfCFTA), seeking the right advice enables start-ups understand how they can take advantage of and be able to reach wider markets created under the AfCFTA to start-ups the scale-up or collaborate with others that may be seen as competitors.

Knowledge, they say, is power. Having the right information enables one avoid pitfalls. Start-ups, in particular, requires the right information to avoid failing. Experts are able to advise and guide start-ups to overcome the numerous pitfalls they face. Whilst the issue of cost may be raised as a stumbling block for obtaining the right advice, firms have adapted and are willing to engage with entrepreneurs to provide advice and guide such start-ups at very low rates or on a pro bono basis as part of their own business development initiative to grow with the start-ups. Start-ups should, therefore, seek out such firms. The government has launched the YouStart Ghana Initiative. It is recommended that not only should the government be making funds available to youth entrepreneurs, it should create the ecosystem to provide full advice on the above issues.   

Conclusion

In conclusion, great opportunities exist for start-ups on the continent to become unicorns. Even if they do not achieve the status of unicorns, they may grow to the likes of Chippers Case, Andela, Opay, Wave, Flutterwave, Interswitch, Esusu, Jumia and Fawry, which are leading the way to be unicorns. The key is seeking and obtaining the right advice to move brilliant ideas from the incubation stages to viable successful businesses providing products and services to fill the numerous market gaps on the continent and in Ghana in particular.