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

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

 

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

 

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

 

Proposed Law

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

 

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

 

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

 

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

 

Critique

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

 

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

 

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

 

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

 

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

 

Conclusion

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

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

What is Part-time Employment?

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

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

Pros and Cons of Part-time Work to Employees

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

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

Pros and Cons of Part-time Work to Employers

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

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

Rights of Part-time Employees under the Convention

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

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

Kenyan Jurisprudence

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

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

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

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

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

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

Parting Shot

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

Arbitration as a preferred method of dispute resolution has gained popularity in the recent past because it is considered to be flexible, allows for party autonomy and confidentiality, and more importantly, saves time and money in comparison to litigation. There is, however, increased concern and discussion around the costs of international commercial arbitrations and the length of time within which disputes are resolved.

It has been particularly noted that arbitral proceedings are increasingly exhibiting the negative aspects associated with litigation such as high costs, delay and inefficiency. The question of cost-effectiveness and efficiency in international commercial arbitration is one that cannot be over emphasised.

Parkinson’s law states that work expands to fill the time available for its completion. This adage is especially true where the person executing the task is remunerated on an hourly basis as is customary in most if not all international arbitrations. In the context of an international arbitration, this means that the lengthier the proceedings, the higher the costs.

Fortunately, arbitration as a dispute resolution mechanism is designed to allow parties to control the costs and the procedure or process within which this can be done. Party autonomy in arbitration means that parties are the masters of the arbitration process, and they can determine and agree on virtually all the steps taken from the commencement to the conclusion of the arbitral proceedings. If utilised effectively, party autonomy can be a powerful tool for controlling the costs and avoiding delays in arbitral proceedings.

In this article, we discuss various factors that parties to arbitral proceedings must consider if they wish to have the dispute resolved in a cost effective, expeditious and efficient way.

The general costs associated with international arbitration mainly include the arbitrators’ fees and expenses, legal or other costs of the parties such as witness expenses, investigation fees, expert witnesses and the fees and expenses of the arbitral institution concerned. Interestingly an analysis of the breakdown of general arbitration costs done by Louis Flannery of Stephenson Harwood reveals that administrative costs (fees of the administering institution) amount to two percent (2%) of the total cost, the arbitrator’s fees and expenses amount to sixteen percent (16%) of the total cost, while legal counsels’ costs for legal representation amount to eighty-two percent (82%) of the total cost.

What this data shows is that greater focus should be on bringing down the costs for legal representation. In this article, we identify various stages of an arbitration at which costs may be controlled.

a) Administering Bodies and Institutional Rules

From the outset, the parties should decide between an institutional (or administered) arbitration versus an ad hoc (non-administered) arbitration. There are numerous institutions that provide assistance in running the arbitration in exchange for a fee. These institutions assist in the administrative aspects of the arbitration such as organising hearings, handling communication between the parties and the arbitrators, and handling payments. However, they do not decide on the merits of the dispute – this is left entirely to the arbitral tribunal. An ad hoc arbitration on the other hand, places the burden of running the proceedings on the parties and the arbitrators. However, parties may choose a set of arbitration rules designed to aid in ad hoc arbitrations such as those developed by the United Nations Commission on International Trade Law (UNCITRAL).

An institutional arbitration may particularly be beneficial to parties without arbitration experience as it will provide guidance and avoid time consuming discussions between the parties on preliminary issues that are incidental to the main dispute.

Examples of leading international arbitration institutions include; the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), the American Arbitration Association (AAA), the International Centre for Settlement of Investment Disputes (ICSID), China International Economic and Trade Arbitration Commission (CIETAC), and the World Intellectual Property Organisation (WIPO). However, some of these institutions are specific to certain types of disputes, for example, ICSID only caters to legal disputes arising out of an investment between a state party to the ICSID convention and a national of another state party to the ICSID convention.

It should be noted however, that fee structures differ depending on the institution, with some institutions charging on the basis of the amount in dispute and others charging on a flat hourly rate basis. The decision to use or not to use an administering body and institutional rules or institutional rules will have an impact on the costs of the arbitrations and parties are encouraged to compare costs of the various institutions beforehand.

b) Drafting the Arbitration Agreement

A well drafted arbitration agreement or clause will avoid preliminary arguments such as whether the dispute is subject to arbitration. Disputes as to the meaning or scope of the arbitration agreement clause are ordinarily determined first and tend to substantially add to the length and cost of the arbitration. Parties should as far as possible, avoid attempting to limit the scope of disputes that are subject to the arbitration unless special circumstances require it. This is because, even when drafted carefully, exclusions may provide an opportunity for preliminary arguments to be raised regarding the jurisdiction of the arbitral tribunal to hear and determine the dispute.

A good arbitration agreement or clause should be clear and should specify the number of arbitrators, the arbitration institution and rules if any, the seat of the arbitration, having regard to practical considerations such as neutrality, availability of hearing facilities, proximity to witnesses and evidence. While the seat of the arbitration does not determine the governing law of the contract and the merits, it determines the law that governs certain procedural aspects of the arbitration. Where parties choose institutional arbitration, ideally, the rules adopted should coincide with the institutional rules. It is also advisable that the parties use the model clause recommended by the institution as a starting point for drafting the arbitration agreement as this would have been tried and tested.

c) Choice of Counsel

Given the significant costs and expenses of international arbitrations, it would be foolhardy for a party to declare a dispute and initiate arbitration proceedings without first carrying out a cost benefit analysis. A lawyer with experience in international arbitration and is familiar with the fee structure and workings of the various administering bodies would be in a position to provide a legal opinion on the merits of the dispute which can then assist a party to take a commercial view on the matter.

Ultimately, the parties should set a realistic budget for the arbitration at the initiation of the arbitration and cross-check with their legal counsel on whether the funds set aside will suffice. Parties may also require that their counsel seek their approval before exceeding a set limit.

The choice of legal counsel is therefore vital if a party is to keep the costs and length of the arbitration down. Parties are encouraged to select lawyers with a reputation for efficiency and availability. Selected lawyers should also have specific arbitration expertise as opposed to litigation. In fact, there is nothing to prevent a party from interviewing or pre-screening potential legal counsels and requiring that they confirm their “availability for an efficient and reasonably expeditious schedule.”

d) Terms of Reference and Case Conferences

The terms of reference and case management conferences have been hailed as the kernel of cost-effectiveness in international arbitration. Both are very useful tools for managing arbitrations in order to ensure the fast and efficient progress of arbitral proceedings as they set out framework of the arbitration from the beginning to the end.

The terms of reference are drawn and signed by mutual consent of the parties and include information relating to the parties and arbitrators, a summary of the pleas and defences of the parties, the claims, the dispute in question, and the procedural provisions which shall be applied. More importantly it may be used to compel the parties to provide case summaries in order to narrow down the issues and empowers the arbitral tribunal to decide procedural issues while dispensing with physical meetings as much as possible and using conference calls.

At this stage, parties may also consider whether it is necessary to join other parties or consolidate disputes with a view to avoiding a multiplicity of suits thereby cutting down costs and enhancing efficiency.

e) Evidence Production, the Hearing and the Award

The production of numerous unnecessary documents that are not material to the matters in dispute can spike the costs of arbitration and cause significant delays in the expeditious resolution of the dispute. It is therefore imperative that parties produce only those documents that are material to the dispute rather than all documents that are relevant to the dispute. For example, there is no need to produce documents in respect of non-controversial facts. Parties should also agree on an organised system of producing and identifying the documents and as far as possible avoid duplication and adopt a coherent system of numbering. As a general ruleall documents should be submitted in electronic form and should be considered authentic unless their authenticity is challenged. As a preliminary matter, parties should consider whether it is entirely necessary to have an oral hearing, and whether the dispute can be determined on the basis of the documents produced by the parties. This can significantly cut down the on the costs of witnesses, accommodation, travel expenses, hiring a venue among others. It also greatly reduces the length of the arbitration.

The existence of a hearing agenda, a fixed timetable and time keeper as well as regular “housekeeping” sessions throughout the hearing aid in saving time. Other considerations include, whether the location of the hearing is convenient for all parties, whether the number of witnesses may be limited, whether consecutive hearing dates can be scheduled to avoid back and forth travel and minimise travel costs and conducting a pre-hearing conference in order to discuss logistics of the hearing; At the end of the hearing, parties should seriously consider whether closing submissions are necessary, and if they are, they should elect to have either oral or written submissions but not both. It will also save time and costs for the arbitral tribunal to specify the questions that they wish to be addressed in the closing submissions.

The arbitral tribunal must use its best efforts to submit the draft award to the administering institution as quickly as possible and within the timeline set by the administering institution if any and must ensure that time has been reserved in their diaries after the hearing for deliberation on the dispute. It may be prudent to select an administering institution that scrutinizes and reviews the award before it is issued as it avoids further litigation that may be initiated in local courts as grounds for setting aside the award.

Conclusion

Whereas there is a wide range of tools and devices that are available in arbitrations to ensure that the arbitration is conducted cost-effectively and efficiently, the ultimate decision depends on the various stakeholders involved in international arbitration that are key in monitoring and determining the ultimate cost and length of the arbitration. These are, the parties to the arbitration (or in-house counsel), external counsel, and the administering institution the arbitral tribunal, all of whom have a role to play in assessing the objectives and merits of the arbitration, drafting the arbitration agreement, engaging in pre-arbitration negotiations, setting a budget for the arbitration, selecting the arbitral tribunal, determining the procedure and procedural rules applicable to the arbitration among other matters. Arbitration may indeed be cheaper than litigation. However, in the realm of international institutional arbitration, the cost-effectiveness of the arbitral process requires conscious effort from the various stakeholders.

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.