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We were voted commercial property Lawyer of the Year 2019
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NEW LAND LAWS PROTECT VULNERABLE SPOUSES IN THE EVENT OF MATRIMONIAL PROPERTY

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The New Land law particularly the Land Registration Act contains very protective provisions for spouses when it comes to matrimonial property. Prior to the enactment of the New Constitution, dealings in matrimonial property were governed mainly by family law doctrines and case law.

Well the good news is that the New Land Act contains specific provisions safeguarding and protecting a spouse’s interest to matrimonial property whether or not they are registered as owners. Before going into this, there are some cases where land is held in the joint names of two or more persons. Marital holding of property is just one example, where the property as a whole is held in indefeasible shares, meaning no spouse can claim a bigger stake in the asset than the other. The other could be in the case where two or more persons invest in land jointly in shares that are clearly defeasible such that it is clear that person A owns 50% while B owns 50%. The first type is called a joint tenancy while the second is a common tenancy. Common tenancies are mostly where the stake in the property is clear and is defeasible such that in the event one partner dies, then his share in the property transfers to his estate. In a joint tenancy if one of the partners dies, then his share automatically goes to the surviving partner. Part IX of the Land Registration Act refers to all such ownerships, whether they are joint or common as co-tenancies.

 

In a joint tenancy such as in a marriage, the new law provides that no joint tenant can unilaterally dispose of the property without the consent of the others. This means that in the case of a marriage one spouse cannot sell off the property without first seeking the other spouses ‘consent. In a joint tenancy if one of the joint tenants wishes to opt out of the ownership then his interest can only be transferred to the remaining joint tenants and no others. Any transfer of his interest to someone who is not a joint tenant shall be null and void. This clause is very important for both people who are married to know and is also important if you are purchasing property from a married couple. The consent of the other spouse must be sought. Ordinarily if a title is owned jointly by two persons then the transfer must also be signed by both of them.

 

It is interesting to note that the law says that there can be no other joint tenancy except in a marriage. Any other persons who wish to own their property as joint tenants can only do so with leave of the court. For example if it is a family owned business which is to continue in perpetuity, then the family cannot create a joint tenancy unless court permission is sought.

Section 93 of the Act clearly details the rights of a spouse over matrimonial property. One interesting provision is that where the land is held in the name of only one spouse but the other can show that they have contributed significantly to the improvement of that land, then the law expressly recognises their co-ownership even if there has been no registration to this effect. For example if you own a piece of land and say your wife has improved it either by maintaining it or improving it in some other way, then legally she becomes a co-owner of that land even if the title is only in your name. This provision is expressly contained in the Act and we wait to see how it will be effected.

 

Of even more interest is that when a lender is advancing to one person some loan against land as security, then the lender has the duty to inquire if the borrower has a spouse and if he does then he/she must show that they have sought their spouses consent to take the loan. The same with a sale of land. A person buying property is under duty to inquire if the seller has a spouse and if so, if the spouse has consented to the transaction. The law is clear that if it turns out that the consent of the spouse was not sought or if the borrower/seller gave false information to the third party regarding the spouses ‘interest then the transaction becomes null and void. Therefore next time you are buying land add this inquiry as part of your due diligence lest your transaction is declared null and void at the affected spouse’s instance.

 

These provisions are very helpful especially where one spouse hides their assets from the other or where one spouse is left with virtually no say in dealing with the matrimonial property. The law treats them like almost equals when it comes to matrimonial property.

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KNOW YOUR RIGHTS AS A SHAREHOLDER

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Under general principles of corporate governance, shareholders have certain rights that the board of directors must observe. In many companies, the board of directors and the shareholders are the same persons and therefore the chances of a conflict arising between the two parties is minimized. However in some other companies, the shareholders and the directors are different persons and therefore such companies require a higher level of corporate governance. Generally, the board of directors is responsible for determining the strategic goals of the company and ensuring that these are met. They are also responsible for the overall performance of the company and ensuring that shareholder wealth is maximized.  The board of directors is therefore responsible to the shareholders and any conflict of interest between the two should be well managed.

 

Shareholder rights have not been specifically defined in the Companies Act; however the same can be deduced from the memorandum and articles of association and some of the Companies law provisions. The articles of association generally provides for the manner in which the company should be governed and therefore in the event of mismanagement, shareholders can find reprieve through the Companies Act. Directors’ roles and responsibilities are set out in the Companies Act as well as the articles of association. This means that in the event of mismanagement of the company, a shareholder can seek redress from the court against the directors. Shareholder rights are set out under principles of corporate governance which unfortunately are not binding on the company. They however provide a guideline and benchmark for the board of directors on how to govern a company. The most important shareholder rights include increase and maximization of shareholder value and secondly, that shareholders have a right to access information that is held by the board. Therefore the board must divulge any information that it is privy to and that would affect shareholder value.

 

In as much as there is no direct law on shareholder rights, in my opinion some constitutional provisions can assist shareholders uphold their rights in a company. One such constitutional provision is found in Article 40 which guarantees that every citizen has a right to own property and also have their property protected by the state. Shares can be classified as property in as much as it is intangible property. When someone buys shares into a company, it forms part of his wealth and assets and therefore in my view, shares are property. Article 40 can therefore be used to uphold shareholder rights. Some of the protection that is granted to property owners under the Constitution is the right not to have their property arbitrarily acquired and that is forceful acquisition of the same.

 

Article 35 is the other constitutional provision that shareholders can resort to so as to uphold their rights. Article 35 guarantees the right to receive information and particularly information that is required to uphold another right. Therefore in my view, any information a shareholder would require to uphold his share value would fall under this classification. In the event that the board is not transparent or there is suspicion of dishonesty, then shareholders can seek orders founded on Article 35 compelling the board to release such information.

Other remedies available to a shareholder and that uphold shareholder rights include the Companies Act and the memorandum and articles of association. The memorandum and articles should therefore be drafted with this understanding.

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SEPARATING BUSINESS FROM FAMILY-MATRIMONIAL BUSINESSES

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Many SMEs in Kenya are family owned meaning that either the whole or a majority of the shareholding in the organization belongs to a family. Many people start a family business so as to preserve the technical knowhow within one family and also to preserve wealth in one family. Families with businesses in which technical knowhow is a key success factor would especially want to preserve ownership within the family. For example restaurants with recipes that have traditionally been handed down generations would like to preserve the secret within the family. Unfortunately family businesses do not always last long due to a number of managerial issues. In past articles on family enterprises which can be accessed at my blog www.commlawbiz.net, I have highlighted the need for family enterprises to install good governance structures and also instil good management principles in the organization.

 

However this time I want to zero in on a special type of family owned enterprise and that is the one owned between spouses. Many spouses start businesses with the hope that they will last and will leave a legacy for generations to come. While mostly this is the case, in some situations it is more complicated. Matrimonial disputes like divorce can crop up and affect the running of an organization owned between spouses.  Divorce is a very emotive situation especially if the divorce is hostile…..the business will feel the impact of a hostile divorce owned between two spouses. Without naming names, there was a high profile separation last year, between a couple who owned a business together in Lang’ata area. The separation trickled down to the business as litigation suits and applications over matrimonial property were filed. The business was affected not only due to the matrimonial dispute but also because of a negative image arising from the bitter divorce.

 

It is therefore important to consider shareholder agreements when a couple is starting a business together. The agreement should set out what would happen to the business if matrimonial issues cropped up. For example one spouse can opt to exit the business amicably. It is important to consider a win-win situation especially where children are involved. Another option is to employ arbitration and mediation to resolve the business ownership dispute.

 

When a decree order in a divorce is issued, most of the times this runs down to matrimonial property, including family owned businesses. Once ownership disputes check in then automatically management disputes will also arise. I heard of a very interesting case where a couple were going through a very bitter divorce to the extent that employees were also polarized by it. Some employees took the husband’s side while the others took the wife’s. The effect of this is that nothing could go on in the business. Some employees went to the extent of insurbodinating whichever spouse they were not supporting, further adding salt to injury.

 

In a leading Kenyan divorce cause Muthembwa vs Muthembwa, the respondent took out an originating summons against her husband that the properties acquired jointly between them during the marriage be shared equally between them. The husband’s response was the respondent had not made any direct contribution to the acquisition of the matrimonial property and thus was not entitled to a share. One of the issues for the court to decide was whether the divorce court has jurisdiction to deal with shareholding in a company in which the spouses were shareholders. It was held that the court cannot decline jurisdiction to deal with company shares in divorce proceedings as it would be unjust…the divorce court therefore had the authority to deal with the company shareholding as it was a subject of matrimonial proceedings.

 

This means that in the event of a divorce, company shareholding and company shares can be dealt with by the court according to family & matrimonial laws. Going back to the high profile separation of the two business people, had either party sought orders from the court on how to deal with the company shares, then the divorce court would have jurisdiction to determine issues of shareholding. In the quoted case, the court ordered a 50-50 shareholding between the two spouses.

 

Back to the argument that the ownership of an organization determines the managerial structure then it is safe to presume that when orders such as these are sought then the order given would have a direct impact on the organization…in terms of management and operations. I would assume that parties going through a nasty divorce would not be in a position to run their business together and therefore the business would face high chances of voluntary winding up. Perhaps the reason for determining shareholding is to assess the value of compensation awarded to each party, should the company be wound up.

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INSIGHT ON SALES AND MARKETING

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During the festive season, many businesses come up with innovative advertising campaigns with a bid to attract customers. The Christmas season has become very commercialized and advertisers are not to be left behind.

 

The main aim of advertising is to sell. Sometimes advertisements do not really focus on the welfare of the consumers as the main motive is to make sales. This has put advertisers and consumers on a collusion path as consumer rights activists argue that some advertisements take advantage of innocent consumers by misrepresentation. Some advertisements are inappropriate considering the cultural and societal norms of a country. An advertisement that goes down well with a segment of the population in a developed country may not go down well in Africa, due to cultural differences. Many countries are enacting stringent laws on advertising….with the spirit behind such laws being consumer protection. The consumer has always been viewed as innocent and vulnerable.

 

The advertising industry through whatever medium faces a number of legal issues.  These issues are peculiar to either the selling and advertising departments or to firms that specialise in advertising. Before creating an advertisement a number of legal issues must be considered and adhered to. Firstly in creating the advertisement the basic rights of citizens must be upheld as contained in the Constitution. Advertisements that are deemed to be discriminatory whether on gender, race or tribe must be avoided at all costs. Advertisements that promote hate speech should be avoided completely.

 

There is no specific law for the advertising industry. However a number of laws interface with advertising and which advertisers must always be aware of.  Consumer law is another law that must be taken into account. The rights of consumers are now enshrined in the Constitution. An advertisement must not be seen to be harmful to consumers. Other than upholding the basic rights of consumers, when doing an advertisement ensure that the advertisement is as factual as possible. False and misleading advertisements should be avoided at all costs. The tort of misrepresentation in advertisements has attracted a lot of litigation in the West. A new Consumer law has been scheduled as one of the laws to be passed by Parliament. The trend in Kenya might change with consumers being able to recover from advertisers as a result of misleading advertisements.

 

The issue of false and misleading advertisements may also attract sanction by the professional body that regulates marketing. Comparative advertising must be done with a lot of care. Comparative advertising occurs where an advertiser compares his products to a competitors ‘and urges the consumer to choose his goods over the competitor’s. It must be done with the provisions of the Competition Act in mind. Unfair trade practises must be avoided in advertisements….misleading comparative advertisements must also be avoided.

 

Intellectual property laws are important for the advertiser. Many advertisements are innovative and meet the criteria for copyright. Advertisements must always be copyrighted by the seller or the advertising firm where applicable. This means that no third party can use the advertisement in an unauthorized manner. Further the moral right of the creator must be upheld, meaning that use of your advertisement in a satire is illegal. The advertisement should also be trademarked where applicable.

 

Advertising firms must be cautious as to the extent of disclosure made to clients. When making presentations to potential clients, always ensure that a confidentiality agreement is already in place and where possible that your firm has ownership of the copyright in the work. Sometimes ownership of the work has to be negotiated beforehand….the client might insist on full ownership.

 

In making the advertisement unauthorized use of a third party’s intellectual property must be avoided. For example improperly including copyrighted songs or trademarks owned by others is illegal.

 

Depending on the mode of advertising used, a number of regulatory approvals have to be issued. For example distribution of flyers cannot be done without consent and approval of the Municipal Authority. It is also illegal to put up sign posts in public places without the requisite fees and licenses issued by the Municipal authority.

 

These are just but the main legal issues that advertisers must keep in mind when making advertisements.

 

The writer wishes you a Merry Christmas and a prosperous New Year.

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ROLE OF THE RESIDENT ASSOCIATIONS IN LAND USE PLANNING AND DEVELOPMENT

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Resident associations are groups that are formed by residents of an area for purposes of communing together and protecting interests of the area within which they reside. Their role as over the years evolved into that of a watchdog. Though some resident associations are very vibrant others have ignored their functions. As a property owner it is important to understand the importance of the resident associations. They have a significant impact when it comes to determining the use of land within their areas. Many resident associations have been viewed negatively by land owners but it is important to know what the law has to say about this.

 

Until recently no statute recognized their role but the Physical Planning Act provided an indirect way within which the associations actively ensured that they influenced land use approvals by the local authority. When a person applies for a change of user, the local authority gazettes the application and invites comments from the public. Resident associations use this forum to endorse the change and development thereafter or express their disapproval. An example of such a scenario is in the case of Ocean Freight (EA) Ltd v Esmailji & another.

 

Some of the resident associations are just groups of the residents that are not registered entities. Others are registered entities and much organised examples are Runda Association, Karen and Langata District Association, Eastleigh Business District Association. These associations create legal vehicles within which the residents use to enforce their interests especially in land use planning and enforcement of physical planning zoning laws. A good example is the Runda Association which is very vibrant and active even at the stage when property owners apply for building plans approvals.

 

In some extents and particularly in the case of Karen and Langata District Association they have in a bid to tame ad hoc development in the area, published rules in respect to land use and development for those areas. The rules were made under Local Physical Development Plan of the area and presented to the Nairobi City Council for approval. The Nairobi City Council is yet to approve them. These are examples of active associations with sufficient clout to affect property owners’ rights particularly the land use aspect. In the case of Karen and Langata District Associationthe same, obtained orders from the court requiring the rates collected in their area under the Rating Act be placed in a special fund that will be applied to the benefit of the area residents.

 

Whereas for some property owner’s resident associations may not have sufficient power for others it is a different issue. In the context of development housing (apartment), estates and gated communities the associations may not take shape of amorphous groups or registered associations. They take the form of Management Companies. These have much more control over their residents. Their rules are integrated into the title documentation i.e. Lease or in cases of property under the Sectional Properties Act the corporation created for management purposes has power to make by laws. This structure in the case of apartment, estates & gated communities makes it mandatory for the property owner to get requisite consents before utilising the property for different purposes.

 

Urban Areas and Cities Act, 2011

However, a new Act, the Urban Areas and Cities Act of 2011, has now provided a structured manner in which citizens and even resident associations will be integrated to the affairs of the town. The Act provides that a city or urban area shall develop a system of governance that encourages participation by residents in its affairs, and shall establish appropriate mechanisms, processes and procedure for, consultative sessions with locally recognized resident organisations; and also for reporting to the residents.

 

The Act requires the citizens be involved in the preparation, implementation and review of the integrated development plan which every city and municipality must have. Therefore as a property owner and legal representative in determining what use to put your property it might be prudent to consider the local resident organisations and consider their input.

 

For resident associations it is important to be aware of the New Act and the power that the association holds when it comes to governance in terms of land use. It is important for the residents associations to designate representatives to enable participation as provided for in the Urban Areas and Cities Act.

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RIGHT TO LIFE AND INTELLECTUAL PROPERTY

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Kenyan courts have in a judgement, P.A.O & 2 others versus the AG, upheld the notion that the right to life supersedes any others persons intellectual property rights. A brief explanation is this, when you are granted an intellectual property right by the state  especially in the form of patents, then it means that nobody else can use that same information or invention without your permission. It basically grants you a monopoly over the invention made. In some instances, especially in the medicinal and pharmaceutical field, granting a manufacturer unlimited patent over the medicines made could endanger the life of millions.

 

This Kenyan judgement has upheld the right to life and categorically stated “the right to life, dignity and health takes precedence over any intellectual property matters including patents.” In Kenya, judgements made by the High Court remain binding and form part of law in what is known as case law. Therefore this judgement will definitely shift the Kenyan pharmaceutical field. The losers obviously will be the manufacturers who will have to contend with generic drugs being allowed in the market. The winners (and thankfully so) are the many Kenyans who depend on generic drugs to manage their conditions. The other winners are manufacturers of generic drugs who face a hostile legal environment in other countries. Generics are classified as counterfeit goods in other countries and are therefore subject to destruction. This destruction has had effects in Kenya where it has been reported that sometimes there are shortages of generics because the drugs me were destroyed en route to Kenya. Globally, it has been a long standing debate as to how far should one person be granted monopoly rights when the issue concerns inventions vital to preserve human life. Perhaps the thinking behind this is that, granting one person monopoly, may lead to very high unaffordable prices to the masses, control of production and many other dangerous methods that may threaten human life.

 

In other jurisdictions, generic drugs have been classified as counterfeit goods and therefore subject to seizure and destruction. This Kenyan judgement is very clear that no intellectual property right should threaten human life.

 

Very briefly, the petitioners were all adult persons infected with HIV and depended on generic drugs for a long time, to manage the condition. The Anti-Counterfeit Act contains a vague provision on the definition of counterfeit goods and this definition may include generic drugs, unless it is clearly stated that generics are not counterfeits. The Anti-Counterfeit Act gives the authority a lot of enforcement powers including seizure and destruction of any counterfeits. The effect is that it could have been legally possible for generic drugs to be destroyed on the assumption that they are counterfeits. The respondent in their defence said the petitioners’ fears were unfounded for the spirit of the Act was to protect the public from the harmful effects of counterfeits. I wrote on this issue some years back….arguing from the side of the petitioners and again arguing from the side of the respondents. Counterfeits are very harmful, and the rationale behind making the Act was to protect Kenyans from their harmful effect. However the petitioners argued that they have depended on generic drugs for long and it is these generics that have preserved their life. Leaving the Act as it is, would endanger their life and their health.

Many Kenyans depend on generic drugs with a majority not even being able to afford basic health care. It would be drastic to outlaw generic drugs from the Kenyan market and thereby threatening the lives of millions. This is one of the rulings that I have strongly supported as it guarantees the rights to life for many. Rather than grant one entity monopoly rights it is better to preserve the lives of millions.

 

The ruling made was to the effect that certain provisions of the Anti-Counterfeit Act are a threat to human life.

What does this ruling mean to interest parties? For the pharmaceuticals it is a big loss as they have to face competition from generics and legally so. This will affect any license holders, importers and retailers of original drugs as the market is open for competition and legally so. Generic drug manufacturers have a reason to smile as they can relax and carry out their business without fear of the law. I foresee a situation where Kenya will be a hostile legal environment for makers of original drugs while a favourable legal environment for makers of generic drugs. Makers of generic drugs have suffered a lot of losses in other countries where there products are seized and destroyed, so maybe we shall have more of the generic drug manufacturers eyeing Kenya as a suitable base.

 

The public is the biggest winner here.

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THE RIGHT OF INFORMATION VIS A VIS THE CONSTITUTION

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The Constitution provides for freedoms that were previously not contained in the old constitution. One of the many new additional rights is that every citizen has a right to receive information held by the state and that the state will publish any important information affecting the nation.

 

This right was previously not accessible under the old dispensation. Inclusion of this right would mean that the state is under obligation to publicise and publish any information that touches on the country. It makes it easier for civil rights organizations, NGOs involved in activism and other human rights activists to access this information unlike in the previous dispensation when such groups had to fight hard to get information from the state. In previous dispensations people who were found with information classified as “confidential” were charged with sedation and other treasonable offences. Information concerning the state was held almost solely by the state. There was a lot of state propaganda and sugar coating in previous dispensations. However the situation now is such that it is easier for citizens to get information from the state as it is now recognised as one of the fundamental rights of citizens.

 

However in as much as Article 35 provides for the right to be informed, it is reasonable to expect some limitations especially when it comes to issues bordering on state security and other information held by the state confidentially and that would be necessary for protection of public. It would be unreasonable to expect the state to publish details of all its operations including military, security and other intelligence information. Therefore this Bill is limited in as much as it has not been clearly stated what the incidences of limitation are. It is not clear exactly what the state is required to publish and what it cannot publish.

 

Under Article 24 there are general limitations to the bill of rights under Chapter 4 of the Constitution taking into account the nature of the right and other considerations. Most individual rights are limited on public security grounds. For example freedom of speech and freedom of the media could be limited on grounds of public security.

 

The only rights which are unlimited are protection from torture, cruelty and human degradation as well as freedom from slavery and servitude. This means that the state and certainly no institution can pass any decrees to limit these rights. Some institutions like schools unknowingly pass rules that may infringe on these constitutional rights. Therefore it is for institutions to be very careful when making their rules and regulations for they should not breach any fundamental rights.

 

Ever since the new Constitution was promulgated the number of constitutional references have increased especially on the fundamental freedoms. Sometime last year a foreign based civil rights organization filed a constitutional reference under Article 35 seeking some information held by the state to be made public. The court however held that this right is only available to Kenyan citizens.

 

An interesting provision in the same Article 35 is that every citizen has the right to receive information held by any other person necessary for the exercise or protection of any fundamental right. With strict interpretation it would seem that if any other person or institution has any information that would impact on any other of the fundamental rights owes you a duty of disclosure in so long as you seek to exercise your fundamental rights.

 

Under Article 35 (2) every person has the right to correction of untrue information or misleading information that affects the person. The Article does not state against whom this right would be applicable. Article 20 of the Constitution states that the bill of rights is applicable to all state organs and persons.

 

One way that Article 35 may be applicable especially when trying to enforce this right against private institutions would be in the case you would need medical reports from a hospital and the hospital refuses to release those reports on institutional regulations. In such a case, a suit filed on grounds of protection of the right to health and life would supersede any institutional regulations.

 

Some decisions taken by state institutions may also be subjected to this right especially when it comes to protection of the fundamental right of equality and freedom from discrimination.

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