Post on 22-Jan-2018
ALN is an alliance of independent top-tier African law firms.
BotswANA | BuruNdi | EthiopiA | KENyA | MALAwi | MAuritius | NigEriA | rwANdA | sudAN | tANzANiA | ugANdA | zAMBiA
VoLuME No 13 | issuE 2 | dECEMBEr 2014
inside this issuethe Afro silk road
Reflections on Middle East and Asia investment into Africa
Agency ArrangementsWorking around local ownership requirements in the UAE
re-introduction of Capital gains tax in KenyaEffects and challenges
Chasing dirty MoneyCombating money laundering in Uganda
Eyes on the MoneyMauritius improves its image as an international financial centre
guest ColumnInsights from Mr. Dhrolia on investment from the UAE to Africa
and so much more...
According to the African Economic Outlook 2014 report, Africa maintained an average growth rate of approximately 4% in 2013. This compares to 3% for the global economy and underscores the continent’s resilience to global and regional headwinds. This reminds us at ALN that we are at the right place at the right time.
We feel that our direction as an alliance of independent top-tier firms accurately reflects Africa’s position as the new go-to continent. Trends, such as the discoveries of natural resources; the reduction of energy & infrastructure gaps and the increase of expendable finances, continues to intensify the world’s focus on Africa. We feel confident that our experience can guide investors in these core development sectors. To this end, ALN is organised into 3 sector groups designed to offer tailor-made and intergrated services that are involved in cross border work: Energy & Infrastructure, Financial Services and Natural Resources.
In addition, we have increased our efforts around our ALN Academy, a particular passion of mine. We are working to not only build the capacity of our lawyers, but other African lawyers. This is in recognition of our obligation as an organisation to give back to the continent. Indeed, it is time for Africa and time for African lawyers to take their place in shaping the continent’s destiny.
At ALN, we believe that our promise of exceptional service should not be extended to our existing clients but to all stakeholders who interact with us. Through Legal Notes, we hope to show that we not only have the expertise in the sectors we straddle but that we also possess a great will to play a part in Africa’s strong and prosperous change. We hope that you will enjoy this issue and, like us, get revved up and informed on the hot topics on the continent.
Best regards,
dr. Cheick Modibo diarraALN Chairmancmd@africalegalnetwork.com
A word from the Chairman
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
This is the time for Africa!
LegalNotes 1
WelcomeSince our last issue, we are proud to report that there have been several exciting developments at ALN. For one, ALN is now coordinating cross-border groups, focused around 3 industry sectors: Energy and Infrastructure, Financial Services and Natural Resources. These sector groups are designed to offer tailor-made and integrated services to businesses that are involved in cross-border work.
In addition, this year we covered the globe far and wide. In May, we sent a delegation to attend a high-profile Africa-focused seminar in Moscow, where we met clients such as EFESk, GPB, ALROSA, and Renaissance Capital among others. From Eastern Europe, we set our sights on the Far East and participated in this year’s Africa Infrastructure & Power Forum which was held in Beijing. Still in China, some of our lawyers attended the STEP Conference and the China Offshore Summit in Shanghai in October. Across the Atlantic; we visited New York and Washington DC where we built ties with individuals who, like us, are doing exciting things on the Continent. Finally, much closer to home we are proud to have been part of the Africa Legal Support Facility’s High Level meeting which was held in Kigali, Rwanda as part of AfDB’s 2014 Annual Meeting.
We are also proud to say that we have grown; we now have member firms and affiliates in 15 African cities, and boast of a team of 600 lawyers, all part of our commitment to connect you with the right lawyers in the right locations. We have also expanded our management team and we have now 7 dedicated professionals coordinating the network’s operations. Furthermore, through our ALN Academy, we continue to develop the capacity of our lawyers. To maximize our lawyers’ exposure and practical legal experience in 2014 alone, we organised 11 secondments to top London firms as well as 3 Intra – ALN secondments to our offices in Kenya, South Africa and Dubai.
As we welcome you to this issue, we are excited to share with you the insights we have gathered along the way, especially on the topics investors should be cognisant of as they operate on
this great Continent.
Dr. Michael H. Gera
ALN Chief Executive Officer
mg@africalegalnetwork.com
The Orient Express: Next Stop – AfricaAfrica is such an exciting place to be in right now, and we are both humbled and proud to be a part of it!
We have all heard the story of Africa’s rise. The Continent’s GDP growth is projected to rise above the 5% per annum mark. It is estimated that by 2020 more than half of African households will have enough income to splurge on non-essentials, and in 3 decades, Africa will have a larger working population than China.
Africa has attracted investor interest from the East and the West alike, but it is perhaps the aggressive courtship from Asia and the Middle East that has got people taking notice. Despite, or perhaps, because of Africa increasingly looking East, there has been renewed interest by Western nations in Africa. 2014 for instance, has witnessed a series of US-Africa summits and visiting investment delegations led by the Lord Mayor of London. The US Government also announced plans for American companies to invest USD 14 billion in Africa.
In this Edition of Legal Notes, we feature a special supplement on investment from the Middle East and Asia, with insight from senior ALN Partners and an interview with Mr. Alnoor Dhrolia whose investments cut across the UAE and Africa. Mauritius and the UAE continue to cement their position as preferred off-shore investment launching pads into Africa, while Nigeria, Kenya and South Africa continue to develop as on-shore gateways into the Continent.
We also discuss interesting recent legal developments and how they impact you. From Kenya, we update you on developments in tax regime and look at the challenges faced from the oil & gas discoveries including maritime disputes with Somalia. Uganda features discussions on the new insolvency and anti-money laundering laws and we discuss environmental issues in Zambia and South Africa, amongst many more interesting articles!
As always, I hope that you will find this Edition insightful, as you ponder on your next investment destination.
Anne KiunuheEditorPartner, Anjarwalla & Khannaak@africalegalnetwork.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
2 LegalNotes
Contents
This publication is designed to inform readers of legal issues in various African jurisdictions. The contents of this newsletter are intended to be of general use only and should not be relied upon without seekingspecific advice on any matter. If you would like to subscribe to Legal Notes or any other ALN publication, visit www.africalegalnetwork.com. For further information on Legal Notes, contact legalnotes@africalegalnetwork.com
Editorial Team: Anne Kiunuhe - ak@africalegalnetwork.com | Elizabeth Karanja - ewk@jmilesarbitration.com | Olivia Kiratu - onk@africalegalnetwork.com | Patricia Fokuo - pf@africalegalnetwork.com
The Afro Silk RoadReflections on Middle East and Asia investment into Africa ..................................................................................................................................................................................3
Chasing Dirty MoneyCombating money laundering in Uganda ..............................................................................................................................................................................................................6
The Green RevolutionNew environmental laws in Zambia ........................................................................................................................................................................................................................8
Guest ColumnInsights from Mr. Dhrolia on investment from the UAE to Africa ..........................................................................................................................................................................9
New JSE Listingrequirements in South Africa ..........................................................................................................................................................................................................................10
Naira for Senior CitizensReforms in Nigeria’s Pension Law .........................................................................................................................................................................................................................12
Re-introduction of Capital Gains Tax in KenyaEffects and Challenges ..........................................................................................................................................................................................................................................14
Eyes on the MoneyMauritius improves its image as an international financial centre .......................................................................................................................................................................16
Parting the SeasKenya’s maritime dispute with Somalia ................................................................................................................................................................................................................18
Rethinking the Hastings-Bass RuleThe final curtain for trustee liability avoidance in Mauritius? ........................................................................................................................................................................20
Agency Arrangements Working around local ownership requirements in the UAE................................................................................................................................................................................22
Whistle Blower Protectionunder environmental and employment law in South Africa ...............................................................................................................................................................................24
Insolvency in UgandaThe growing pains of a new regime ....................................................................................................................................................................................................................25
Expanding TerritoriesIs Kenya ready for an extended continental shelf? ..............................................................................................................................................................................................26
Affirmative Action and Discrimination in South AfricaThe Barnard Constitutional Case ..........................................................................................................................................................................................................................28
Gaining ResourcesTaxation of the extractive sector in Kenya ............................................................................................................................................................................................................29
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 3
IntroductionEveryone wants a piece of “Africa”, and as
2014 draws to a close, Africa undoubtedly
basks in the glory of being the coveted bride
courted by the East and the West alike. But it is
perhaps the “new flame” – the Eastern nations
– that has rippled the waters.
In its 2007 report titled “Asian Direct Investment
in Africa, Towards a new era of cooperation
among developing countries”, the United
Nations reported that between 2002 to 2004,
foreign direct investment (FDI) from Asia to
Africa had reached an annual figure of USD 1.2
billion, and predicted that this figure would only
go up. Ten years on, and FDI from just China to
sub-Saharan Africa in 2012 was over USD 18
billion, with annual trade volumes standing at
USD 210 billion in 2013. Annual trade between
Africa and the Middle East is today estimated
at USD 49 billion, with non-oil trade between
the UAE and Africa in 2012 estimated at USD
19.1 billion.
The Afro Silk RoadReflections on Middle East and Asia investment into Africa
The most notable investor countries into Africa
from the East have been China, India and the
UAE. New major investment partners from the
2 regions are rising, including Saudi Arabia,
Qatar and Kuwait in the Middle East, and
Japan, Malaysia, Korea, Indonesia and
Singapore in Asia.
So what has caused the rapid investment into
Africa from the East? Are these powerhouses a
threat to the dominance previously enjoyed
by Western countries in African investment? In
this edition of Legal Notes, we take a closer
look at African investment from the Middle East
and Asia, drawing on insights from Senior ALN
Partners in some of the top African investment
destinations.
Leading investments sectorsAccording to Mr. Atiq Anjarwalla, Senior
Partner at Anjarwalla Collins & Haidermota
in Dubai, the main sectors of interest for
investors from the East have been oil & gas,
energy, fast moving consumer goods (FMCG),
financial services and infrastructure.
China leads the charge when it comes to
extractives and infrastructure development,
with a lion’s share being taken by State-owned
enterprises. India is very active in the areas of
telecommunications and technology, agro-
processing and FMCG. One of the most iconic
entries by Indian investors into Africa was Bharti
Airtel’s USD 10.7 billion acquisition of the
African telecommunications assets of Kuwait’s
Zain a few years ago. Since then, other Indian
giants have followed suit.
Other Asian giants in Africa include Malaysia,
which in March 2013 was reported by UNCTAD
to be Asia’s top FDI provider in Africa, surpassing
that of China in 2011. Top Malaysian companies
in Africa include Petronas, the global oil giant
which has an 80% stake in Engen, a South
Africa petroleum company with interests across
Africa, and Sime Darby, the Malaysian energy
and agri-business conglomerate, which is the
Elizabeth Karanja Senior AssociateJMiles & Co.ewk@jmilesarbitration.com
Anne Kiunuhe PartnerAnjarwalla & Khannaak@africalegalnetwork.com
Atiq Anjarwalla Atiq has been ranked a leading lawyer in the banking, capital markets, energy and infrastructure, project development, M&A and project finance practice areas by IFLR 1000 2014. aanjarwalla@ach-legal.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
4 LegalNotes
world’s biggest palm oil producer, with
operations in South Africa, Liberia and
Cameroon.
The Middle East has been active in Africa for
several years, and with a booming economy
and deep pockets which are supported by
sovereign wealth funds, it has been expanding
its focus. There is huge investment in the
financial markets, real estate, hospitality,
logistics and FMCG and retail. Mr. Gbolahan
Elias, senior partner at G.Elias & Co of Nigeria
identifies the 3 major sectors that the Middle
East has been investing in Nigeria as being real
estate, financial services and trading.
Big players in African real estate and hospitality
from the UAE include Isithmar, a Dubai-based
investment holding company, which together
with London & Regional Properties, a UK
investment group, bought Cape Town’s
prestigious V&A Waterfront for USD 910 Million
a few years ago. Investment from the Middle
East also includes the industrial sector. In
September 2014, a UAE sovereign fund,
Investment Corporation of Dubai (ICD) bought
a 1.4% stake in Dangote Cement, Nigeria’s
biggest company by market capitalisation, and
headed by Africa’s richest man, Aliko Dangote,
for USD 300 million. In early 2014, Al Futtaim,
a UAE conglomerate, took over CMC Holdings,
a giant automotive dealer in Kenya, for about
USD 90 million. Al Futtaim is also introducing
the giant French retail chain, Carrefour to
Kenya.
Preferred investment launching padsEvery investment needs a launching pad, and
this is no different for Eastern investors.
Mr. Roddy McKean, Director at Anjarwalla &
Khanna in Kenya, notes that there is increasing
regionalisation and regional hubs have
developed in East, West and Southern Africa.
Mr. McKean reckons that although Mauritius
has an important role as a financial structuring
gateway, the main business and transactional
gateways are Nairobi (Kenya), Lagos (Nigeria),
and Johannesburg (South Africa). In Nairobi,
many companies have seen an increasing
sophistication in the infrastructure (physical,
services and people), making it an obvious
choice for regional and pan-African
headquarters for a growing number of
i n t e r n a t i o n a l i n v e s t o r s .
Mr. Anjarwalla points out that the UAE is an
important jurisdiction favoured by investors
from the GCC due to familiarity, zero taxation
regime and double tax treaty network.
Aside from the above major hubs, there are also
emerging new investment centres in Africa. Mr.
John Miles, Director at JMiles & Co., foresees
Gbolahan EliasGbolahan has been ranked a leading lawyer in Banking, capital markets, debt, energy and infrastructure, project development, M&A and project finance practice areas by IFLR 1000 2014gelias@gelias.com
Abidjan in Cote d’Ivoire as a future investment
hub. The city recently regained its glory as the
headquarters of the African Development Bank
(AfDB), which had been moved to Tunis 10
years ago during Cote d’Ivoire’s civil war.
Another emerging hub is Accra in Ghana,
which enjoys relative political stability and
improving law and governance.
What are the reasons for investment?Interest in these sectors has been generated by
various factors.
Generally, African countries have made drastic
improvements in laws and processes on business
registration; protection of investment;
repatriation of funds and investment incentives;
political and macro-economic stability; and
availability of an educated human resource
pool. Mr. Anjarwalla notes that in addition,
“African governments have prioritised
investment in energy and infrastructure in line
with development plans, there has been
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 5
parties. Most contracts do not have dispute
resolution or governing law clauses, and parties
sometimes find themselves in complex and
expensive arbitrations for simple contractual
arrangements.
Any last words of advice?Investment from the Middle East and Asia is set
to only increase, as investment giants rise, and
new partners emerge.
For the African target, Mr. Miles advises that
one should maintain constant communication,
and perform in a timely way. The old saying
“This is Africa” or “TIA” should have a positive
and not a negative connotation. African parties
should internationalise, and in line with this,
Mr. Anjarwalla underscores that parties should
ensure that there have high levels of corporate
governance and strong teams as investors are
looking up for businesses that operate using
international best practices.
For the Middle Eastern or Asian investor,
Mr. McKean amplifies that there is a need to
get strong local partners, understand the
business environment and analyse the market
dynamics, which often differ greatly on a
country by country basis. According to him,
“Africa is often presented as if it is one country.
New investors need to understand that Africa is
a varied mix of 54 countries and each country
needs to be approached individually in its own
right. Just because one approach worked in one
country does not mean it will work in its
neighbour.”
These are wise words to take away, even as the
new Afro Silk Road develops, the African drum
beats and investors answer the roar of Africa’s
rise in the world economy.
reduction of corruption and enhanced rule of
law, and there is a young aspirational African
middle class that provides a ready market.”
According to Mr. Elias, other improvements
made by Nigeria include, better image-
promotion; reduction of external debt; increased
foreign exchange reserves; allowing non-
Nigerians to own Nigerian companies 100%;
and allowing the free repatriation of the
proceeds of foreign investment.
Investment partners from the Middle East and
Asia have been actively entering into treaties for
encouragement of investment with African
countries.
For instance, China has over 20 bilateral
investment treaties (BITs) with African countries,
including among others, Ghana, Tunisia, Egypt,
Kenya, South Africa, Mozambique and Mali.
India has BITs with Egypt, Ghana, Mauritius,
Morocco and Mozambique. The UAE has BITs
with Algeria, Egypt, Morocco, Mozambique,
Sudan and Tunisia.
UAE has double tax treaties with among others,
Algeria, Egypt, Sudan, Tunisia, Morocco,
Mozambique, Seychelles and Mauritius. More
recently, a UAE DTA with Kenya is expected to
come into force soon. China has DTAs with
among others, Egypt, Ethiopia, Morocco,
Mauritius, Seychelles, South Africa, Sudan and
Zambia. India has DTAs with among others,
Egypt, Kenya, Libya, Mauritius, Morocco, Sierra
Leone, Tanzania, Uganda and Zambia.
How different is the East from the West?A major difference in how the East invests into
Africa as compared to the West is that Eastern
investors seem to be more adaptable to the
local circumstances in African countries.
According to Mr. Miles, with South – South
investment, there is a clearer understanding of
methods of transacting and the realities of a
developing world. Mr. McKean agrees, and
adds that as Asian investors are already
operating in emerging markets at home,
generally, the risks and challenges of investing
in Africa are very familiar.
The adaptability factor has however been
criticised as being at times tolerant to repressive
regimes, bad governance and human rights and
labour violations. There is a balance to be
struck, as development should not only be
industrial and economic, but should also be
political and social.
There is still room for improvementDespite the strides that have been made by
African governments to foster investment,
Improvements still need to be made in order to
fully benefit from the growing relationship
between Africa and the East.
According to Mr. Elias, Nigeria needs to work
harder at reducing corruption and improving
security. Mr. Miles adds that African
governments need to work on expanding free
trade zones, allowing foreign ownership, and
easing up on work permit restrictions.
Investors from the East also need to move away
from common misconceptions that act as a
deterrent to investment. One of the prevalent
issues noted by Mr. McKean is that investor
perception of Africa tends most times to be
different from the reality. The press tends to
focus on the negatives rather than the positives,
and the risks are often overplayed due to a lack
of understanding. The positive things
happening on the ground are often not
publicised. Mr. Anjarwalla adds that a number
of investors do not appreciate the high level of
sophistication which has developed in the
African business community, resulting in
tougher competition.
In terms of contracting and business
relationships, one of the major issues that
Mr. Miles notes is largely ignored is front-
ending considerations of dispute resolution by
Roddy McKeanRoddy is an M&A and private equity specialist with a pan-African practice. He was ranked as a leading corporate lawyer Africa-wide by Chambers Global 2014.rm@africalegalnetwork.comJohn Miles
John Miles has wide experience in international arbitration and investigation, and is a member of ICC’s Fraudnet. jmm@jmilesarbitration.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
6 LegalNotes
Combating money laundering in Uganda
Chasing Dirty Money
IntroductionUganda has joined its East African neighbours of Kenya and Tanzania in the fight against money laundering by enacting the Anti-Money Laundering Act, 2013 (the “AML Act”) which came into force on 1st November 2013. The AML Act will provide a firm legal avenue through which the Government and key role players in the economy will work together to combat money laundering and related crimes.
Impact of the AML ActThe AML Act introduces the term “accountable persons” to include Advocates, financial institutions, real estate agents, investment dealers, brokers, and advisers licensed under the Capital Markets Authority Act (Cap 84), insurance companies, all licensing authorities, churches, Non-Governmental Organizations (NGOs) and other charitable organizations who, by the nature of their business or profession are deemed to be at risk of being involved in the different stages of money laundering or terrorist financing.
Obligations are imposed on accountable persons to establish and maintain appropriate policies and measures to prevent and detect situations where there may be a risk of money laundering.
Such obligations include carrying out due diligence on their customers or clients, recording of all monetary transactions over the sum of Ug. Shs. 20 million (approximately US$7,800), monitoring of cross border movement of currency and negotiable instruments,
monitoring and reporting of suspicious transactions, and maintenance of client records for over 10 years.
To ensure that the accountable persons meet their obligations, the Financial Intelligence Authority (the “FIA”) on 22nd August 2014, issued the FIA Guidelines requiring each accountable person to appoint a person at senior management level as the “Money Laundering Control Officer” (MLCO).
The MLCO will in addition to playing a liaison role between the FIA and the accountable person, ensure compliance with the AML Act.By imposing these duties on accountable persons, the AML Act puts them at the forefront of the fight against such crime.
However, it is not clear how a single set of measures can apply to such a diverse group of accountable persons, especially in an economy where large transactions can still be done on a cash basis.
The AML Act also introduces the term “politically exposed person”, defined as persons entrusted with prominent functions in the country such as senior politicians, senior Government, judicial or military officials. Accountable persons will have to put in place extra due diligence measures when dealing with such persons, including among others, establishment of appropriate guidelines to monitor their business, reasonable measures to establish the source of their wealth or funds. Such extra due diligence measures will help in dealing with the related crimes of corruption and mismanagement of government funds.
The Financial Intelligence Authority (FIA)The FIA is the administrative body under the AML Act, with a heavy mandate to combat money laundering including enacting policies, promoting awareness and understanding of the crime, supporting investigations, storing collected information, and setting guidelines for unsupervised accountable persons. The FIA has recently been set up and operating.
In a country with an already bloated cost of public administration, establishment of another public body is perhaps the last thing needed to restore the health of the public purse. With the Bank of Uganda already exercising a similar mandate in respect of financial institutions, a possible alternative would be to expand
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
Philip KarugabaPartnerMMAKS Advocateskarugaba@mmaks.co.ug
Sheila PacutoAssociateMMAKS Advocatespacuto@mmaks.co.ug
LegalNotes 7
its remit with further support. It is not far fetched to anticipate friction between the respective enforcement arms of the Police, Bank of Uganda and the new FIA on policing the issue.
To the financial institutions, the FIA may bring clarity as to whom to report suspicious transactions and other such matters. Under the Financial Institutions (Anti-Money Laundering) Regulations 2010, financial institutions are required to report such suspicious activities to the ‘national law enforcement agencies’- a term which was not defined. Financial institutions will have to comply with both these Regulations and the AML Act but, fortunately, there is not much divergence.
Principle of Equitable UtilisationThe AML Act lays down numerous orders that may be imposed by the court, such as document search orders and monitoring orders, emergency searches and seizures, confiscation and pecuniary orders.
as the tampering of records, obstruction of an official in the performance of his functions and tipping off.
The penalties imposed on the offenders are stringent and should be a deterrent if imposed judiciously. An individual who commits a crime under the AML Act will face between 5 years to 15 years in prison and/or be liable to a fine ranging from Ug. Shs. 660 million to Ug. Shs. 2 billion (approximately US$2,575 – US$780,340).
For a legal person (company) the fine imposed on the entity will range from Ug. Shs. 1.4 billion to Ug. Shs. 4 billion (approximately US$546,240 – US$1,560,680)
ConclusionFor an economy still seeing large cash transactions, money laundering is always a concern. The AML Act was long in coming but it is finally here. Uganda experimented with administrative measures to curb the use of cash transactions, through to regulations targeting banks and now graduating to an all-embracing law. The FIA has since its set up issued Guidelines aimed at fighting dirty money and giving the relevant legislation teeth. It remains to be seen how effective it will be?
“Clients are glowing about the [MMAKS Advocates] partners’ understanding of their issues and ease of interaction.” Chambers Global 2014
Persons in the real estate industry should take note of the restraining order which will affect land or real estate. It is intended to prevent the disposition of property and will be registered as a charge on land. Any subsequent dispositions or dealings on the land maybe set aside by the court.
International cooperationThe AML Act makes money laundering an extraditable offence and provides for mutual cooperation through exchange of information and resources with other countries to ease investigation of the crime, enforcement of the orders and punishments imposed by the courts.
Offences under the ActThe AML Act criminalizes any failure by an accountable person to perform the duties and obligations prescribed by the Act such as failure to identify clients, failure to keep records, and failure to report cash transactions. It also criminalizes acts done by an individual to abet or facilitate the commission of the crime such
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
Sheila PacutoAssociateMMAKS Advocatespacuto@mmaks.co.ug
8 LegalNotes
IntroductionZambia has recently enjoyed good economic
growth spurred by investments in mining,
construction, agriculture, transport and energy.
The increase in economic activity inevitably
exposes the environment to pollution and there
is an obvious need to preserve and manage
the environment while exploiting resources.
Alive to this need, the Government of Zambia,
in the year 2011 passed the Environmental
Management Act No. 12 of 2011 (“EMA”), to
provide for integrated environmental
management and the conservation of the
environment. The Zambia Environmental
Management Agency (“ZEMA”) was the new
regulator under the EMA. In November 2013,
the Government issued the Environmental
Management (Licensing) Regulations, 2013
(“Licensing Regulations”).
Effect of the Licensing RegulationsPrior to the enactment of the Licensing
Regulations, environmental licensing in Zambia
was regulated by several statutory instruments
issued between 1993 and 2001.
The statutory instruments included: Water
Pollution Control Regulations of 1993; Waste
Management Regulations of 1993; Pesticides
and Toxic Substances Regulations of 1994 and
2000; Air Pollution Control Regulations of
1996; Ozone Depleting Substances Regulations
of 2001; and Hazardous Waste Management
Regulations of 2001. All of the foregoing
statutory instruments were revoked by the
The Green Revolution
Licensing Regulations and in effect the various
licenses issued under the said statutory
instruments are now issued under the Licensing
Regulations.
The Licensing Regulations now broadly provide
for the following 5 types of licences, of which
one or all of the licences may be required by
a business in Zambia:
(a) an emission licence required by any person
who intends to emit or discharge a pollutant
or contaminant into the environment;
(b) a waste management licence required by
any person who intends to reclaim, recycle,
transport, transit, trade in, export waste or
collect and dispose of waste, construct or
operate a waste disposal site or facility for
the disposal or storage of waste;
(c) a hazardous waste licence required to
generate, treat, handle, transport, store,
dispose of, transit, trade in or export
hazardous waste;
(d) a pesticide and toxic substances licence
required to manufacture, import, export,
store, distribute, transport, blend or process
a pesticide or toxic substance; and
(e) an ozone depleting substance licence
required by importers, exporters, producers
or distributors of a controlled substance
or ozone depleting substance.
Licences under the Licensing Regulations are
valid for three years unless suspended, cancelled
or surrendered before the three year period.
Licences may be renewed for a further three
years. Licences cannot be transferred to a third
party without the prior approval of ZEMA
and where there is any change in the particulars
of a licence or the licence holder the licence
holder should notify ZEMA within fourteen
days of the change.
Another new feature of the Licensing
Regulations is a requirement for licence holders
to file returns with ZEMA. For most licence
holders, the requirement is to submit twice-
yearly returns.
There are various grounds on which ZEMA
may suspend or cancel a licence, including
fraud and breach of licence terms.
ConclusionEconomic activity is one of the main drivers of
development but development especially in
Zambia must be handled with care! What
remains after the mines have opened the earth
and extracted all minerals? How do we ensure
business operations do not leave behind a toxic
environment? These and other environmental
considerations should be at the core of all
stakeholders championing sustainable
development in Zambia. The Licensing
Regulations are a step in the right direction in
ensuring sustainable management of resources
and environmental preservation.
“[Musa Dudhia & Co.] acts for such well-known names as GE and Goldman Sachs and is particularly active advising on larger scale banking and finance transactions.”Chambers Global 2014
Gilbert ChamaSenior Associate Musa Dudhia & Co.gchama@musadudhia.co.zm
New environmental laws in Zambia
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 9
Mr. Alnoor Roshanali DhroliaMr. Dhrolia resides in Dubai, UAE, and is part of a family group that has been doing business in Africa for over 4 decades. Mr. Dhrolia’s group has invested in: mining and mining related services; steel rolling mills; agriculture; general trading; property development and construction (both conventional and affordable); and small to medium scale industries. The group is currently operating in DR Congo, Angola, Kenya, Mozambique and the UAE. Group offices are located in Canada, China, India, South Africa, Tanzania, Kenya, DR Congo, UAE and Angola.
Guest Column
Africa in many aspects is considered a big
unknown, resulting in individuals
refraining from venturing in. The
complications and corruption related
factors are often daunting. However, a
wide array of conventions and conferences
being hosted by Dubai has created a
strong awareness of Africa and the
ignorance that once existed is slowly
dissipating.
Q: In your view, is the new wave of
investment in Africa sustainable?
What can Africans do to gain the most
out of the investment from the UAE?
Mr. Dhrolia: Absolutely sustainable.
Africa has such a level of needs throughout
sectors and borders. The opportunities
that exist will cross many generations.
That is the exciting part. Joint ventures
need to be created with companies in the
region in order to bring finance expertise
and knowledge to Africa. There is immense
poverty in Africa, however, there is now a
generation that is able to afford getting
overseas education. They are coming back
and making a difference. This is one
strong area that we must partner into. We
need to bring more of the younger
generation back to bring new ideas and
ways of working. We need to create a very
strong vision for the continent and have
the courage to execute it… just like Dubai
has done!
Trade relations between the Middle East and
Africa are at all time high. The UAE remains
at the forefront of these relations and is the
Middle East’s largest FDI provider to Africa. In
this edition of Legal Notes, Anne Kiunuhe
and Elizabeth Karanja speak to Mr.
Dhrolia, and get his insight on doing
business between the UAE and Africa.
Q: What are the top 5 investment
destinations and sectors in Africa for the
UAE, and why are they favourites?
Mr. Dhrolia: Africa is the emerging continent
that presents tremendous business
opportunities. Nevertheless, many African
countries are perceived to be difficult to work
in and I feel that UAE Investors are quite
cautious. Most investors initially prefer the
more stable East African ones that pose
lower barriers to entry. However, the
seasoned UAE Investors are still heavily
invested in Nigeria, Ghana, Ivory Coast and
Angola. The primary sectors would be Real
Estate, Oil & Gas, Trading of FMCGs, White
Consumer Electronics, Telecommunications
and light industries.
Q: What sectors do you consider as
largely ignored in Africa, and having
great potential for future investment
from the UAE?
Mr. Dhrolia: Tremendous opportunities lie
in Agriculture, heavy industries and power
generation.
Q: What measures should African
Governments taking in order to bolster
UAE investment into Africa?
Mr. Dhrolia: Awareness is key. African
nations need to do effective investment road
shows. It would be essential to have inter-
governmental initiated business trips to
African countries, where one can see first-
hand what is on offer.
Q: How is investment into Africa from
the UAE different from investment from
traditional Western partners of the US,
UK and Europe?
Mr. Dhrolia: UAE has been able to unite
West and East very effectively. The region
hosts a diverse range of investors that are
doing business in and from UAE. Servicing
African countries either by way of products
or services is more simplified from UAE,
thereby making business easier.
Q: What are the common misconceptions/
myths that investors from the UAE have
towards Africa, and how are they being
busted?
Mr. Dhrolia: It is simply a lack of information.
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
Insights from Mr. Dhrolia on investment from the UAE to Africa
10 LegalNotes
For instance, sponsors, designated advisers,
auditors and independent experts. Instead of
the JSE going through the disclosures itself, the
JSE will be placing more reliance on these
parties to check the dissemination of
information to the market now that these
roles are well established and regulated.
Process for implementation of the amendments to the Requirements The JSE has clarified the process for
implementation of the amendments to the
Requirements. Key points include:
(a) All transactions concluded before 30th
September 2014 must be categorised and
announced pursuant to the old provisions
of the Requirements. Transactions
concluded on or after 30 September 2014
will be categorised and announced in
terms of the provisions of the amended
Requirements;
(b) The disclosure requirements applicable in
respect of the preparation of a circular for
a transaction will be determined by the
date of formal approval of the circular.
In other words, if formal approval is
provided before 30th September 2014, the
disclosure requirements of the old
Requirements will apply. However, if formal
approval is provided on or after
30 September 2014, the amended
disclosure requirements will apply; and
IntroductionThe Johannesburg Stock Exchange (JSE) is the
largest stock exchange in Africa, and is 19th
largest in the world by market capitalisation.
There are almost 400 companies listed on
the JSE across the main board and on the
alternative exchange (AltX).
The JSE is regulated by statute, and the latest
development has been the global amendments
to the JSE Listings Requirements (Requirements),
which were announced to the market on 30th
August 2014. These amendments became
effective on 30th September 2014, and
primarily affect financial reporting for listed
companies.
Reasons for the general reviewThe JSE recognised that, since the last review of
the Requirements, there have been significant
developments in corporate governing structures
Colin du ToitPartner Webber Wentzelcolin.dutoit@webberwentzel.com
requirements in South AfricaNew JSE Listing
and the quality of financial reporting as it
relates to listed companies. Contributing factors
are the Companies Act No.71 of 2008 (Act) and
the application of the King Report on Corporate
Governance (2009) (King III) and International
Financial Reporting Standards (IFRS) by
listed companies.
One of the aims of the general review was to
ensure that disclosure requirements be removed
that (i) no longer add regulatory value or (ii) are
now addressed through compliance with the
Act or IFRS.
The amended Requirements also seek to impose stronger regulations on professional advisers who play a key role in ensuring the integrity of disclosures by listed companies.
Elodie MaumeCorporate Professional Support LawyerWebber Wentzelelodie.maume@webberwentzel.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 11
(c) The amended conditions of listing in
respect of Main Board issuers and ALTx
issuers will apply in respect of a new listing
if formal approval is provided on or after
30th September 2014.
.
Key amendments to the Requirements:The following are key amendments to the
Requirements:
(a) There is enhanced responsibility of sponsors
in relation to listing applications. The JSE
will no longer pre-approve listing
applications in respect of classes of shares
already listed.
(b) Extra time is granted to directors to report
dealings in securities to issuers.
(c) There is a requirement for disclosure of
voting results on the JSE’s real-time Stock
Exchange News Service (SENS) within
48 hours of an AGM or general meeting.
(d) Subsidiary companies of listed issuers are
no longer required to appoint auditors and
to have their financials audited, but they
must still comply with the Act and their
memorandum of incorporation (MOI).
(e) Resolutions on certain corporate actions
may now be approved by way of written
resolutions subject to the provisions of
the issuer’s MOI.
(f) Financial criteria for listings on the Main
Board have been updated to align with
the current market conditions and to
allow an alternative entry point via a
net asset value test.
(g) A pre-listing statement (PLS) is only required
in respect of an issue of securities where
such issues, together with any securities
of the same class issued in the last three
months, would increase the securities in
issue by 50% or more (compared previously
to 25%).
(h) The Category 1 transaction threshold
increased from a percentage ratio of
25% to 30%.
(i) There is an amendment of the definition
of “related party” to exclude a director of
a subsidiary of the issuer, a director of a
subsidiary of the issuer’s holding company,
and a person which holds a 10% or greater
shareholding in a subsidiary of an issuer
(or a subsidiary of the issuer’s holding
company).
(j) There is introduction of a fast-track listing
process for companies applying for a
secondary listing on the Main Board,
provided such companies have been listed
for at least 18 months or more on an
accredited primary exchange (as determined
by the JSE).
(k) Repurchase programmes which are
implemented during a prohibited period
pursuant to a programme submitted to
the JSE prior to such period commencing
must now be executed by an independent
third party (and not the issuer).
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
(l) Pro forma financial effects are no longer
required in various instances and a less
onerous requirement applies depending
on the type of corporate transaction.
This summary does not cover amendments
in relation to ALTx.
ConclusionThe amendments to the JSE Listing Requirements
have broad ranging effects on corporate
governance and financial reporting on listed
companies, and their advisors. They will take
some getting used to, and we are on hand to
provide the guidance required to better
understand them.
Elodie MaumeCorporate Professional Support LawyerWebber Wentzelelodie.maume@webberwentzel.com
Webber Wentzel won the ”Africa Law Firm of the Year” award in 2014.
12 LegalNotes
IntroductionAccording to the World Bank, out of Nigeria’s
population of about 158 million people, the
working age population is about 54%. A
growing concern in any emerging economy
is to ensure that the retirement benefits of its
working population are assured. This not only
serves as a motivation for the active workforce,
but also ensures that the retired workforce is
not a “burden” to new workforce in future.
Reforms in Nigeria’s Pension Law
Obianuju Ifebunandu AssociateG. Elias & Co. uju.ifebunandu@gelias.com
Naira for Senior Citizens
Nigeria’s pension system has undergone
significant changes since 2004. Prior to 2004,
Nigeria operated a combination of defined
benefits scheme (DBS) and contributory pension
scheme (CPS). In 2004, the Pension Reform Act,
2004 (“PRA 2004”) introduced a new pension
system based on a mandatory CPS. In 2014, the
PRA 2004 was repealed by the Pension Reform
Act, 2014 (“PRA 2014”), which among others,
enhances the benefits of contributors, prescribes
stiffer punishments for misappropriation of
pension contributions and assures the powers
of the National Pension Commission (PENCOM).
The enactment of the PRA 2014 is a welcome development towards ensuring a robust and effective pensions administration system in Nigeria.
The state of affairs prior to the 2004 reformsThe DBS was used primarily for Nigerian public
sector workers and employees of state-owned
agencies. There were combined elements
of DBS and CPS applicable to the private
sector. The DBS was plagued with a myriad of
problems. Public sector pensions were largely
unfunded due to its high dependency on
government budgetary allocation. Payment of
benefits became a burden on government with
successive governments, failing to pay pensions
and gratuities. Prior to 2004, unpaid pension
deficits was estimated to be over N2 trillion
(Approximately US$12.5 billion.)
Private sector pensions were also not immune
to problems, and were characterized by a low
compliance ratio due to ineffective regulation.
Many private sector employees were not
covered by any form of pension scheme or
retirement benefit arrangement.
In the 2010 case of Central Bank of Nigeria v. Amao, the Supreme Court of Nigeria advised
that “there must be a change of attitude in the
care and concern for our senior citizens in this
Chinedu KemaAssociateG. Elias & Co.chinedu.kema@gelias.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 13
country. There must be an assurance that our
old people will spend their retirement without
hassle and anxiety in the process of earning
their retirement benefits”.
Pensions ReformThe PRA 2004 established PENCOM to regulate
and supervise all pension matters in Nigeria.
The PRA 2004 also introduced a uniform and
compulsory CPS applicable to both public and
private sectors. Employers with five or more
employees were required to participate in the
scheme. The PRA 2014 improves this, and
allows employers with three or more employees
to participate in the scheme. Employees in
the informal sector (such as households, shop
owners, dress makers, temporary and casual
jobs are also covered by the PRA 2014.
Employees are required to open Retirement
Savings Accounts (“RSA”) with a Pension Fund
Administrator (PFA). The RSA remains with the
employee for life, even if the employee changes
his/her employer or a PFA. Subject to certain
exceptions, the employee may only withdraw
from the RSA on turning fifty years or upon
retirement.
To ensure that pension funds are fully funded,
the PRA 2004 provided for a contribution of
7.5% of the employee’s monthly emoluments
from both the employer and employee
respectively. The rates of contribution were
increased by the PRA 2014 to 8% and 10% of
the employee’s “monthly emoluments” for the
employee and employer respectively, defined
as “total emoluments as may be defined in the
employee’s contract of employment but shall
not be less than a total sum of basic salary,
housing allowance and transport allowance”.
This increases the base amount that is subject
to contribution. Pension fund assets currently
stand at N 4.21 trillion (approximately
US$26.3billion).
Pension fund investments payable as retirement
benefits, that is all interests, dividends, profits,
investment and other income accruable therein
are tax-exempt. Contributions by employees
form part of tax deductible expenses in the
computation of income tax payable. However,
voluntary contributions are taxable where the
contributions are withdrawn within 5 years of
the voluntary contribution.
PENCOM is authorized by the PRA 2014 to
establish a pension protection fund (“PPF”).
The PPF is to be funded from an annual
subvention of 1% of the total monthly wage
bill of public sector employees, the annual
pension protection levy paid by PENCOM and
all licensed pension operators and income from
investments of PPF. The PPF acts as a hedge
to ensure payment of minimum guaranteed
pension and compensation to pensioners for
any shortfall or financial losses from investment
of pension funds.
Employees aggrieved with their employers, PFAs
or PFCs were required under PRA 2004 to seek
redress from PENCOM, prior to approaching an
arbitral tribunal or the Investments and Securities
Tribunal (IST) (a specialized quasi-judicial body
set up by the Investment and Securities Act
2007). Under PRA 2014, the National Industrial
Court (a specialized court established by the
Nigerian Constitution for employment matters)
replaced the IST.
There are stiffer penalties under PRA 2014. For
instance, operators who mismanage pension
funds are liable on conviction to not less
than 10 years imprisonment and/or a fine of
an amount equal to three times the amount
misappropriated. The convicted person may
also forfeit any property or asset or proceeds
of any unlawful activity under PRA 2014.
ConclusionThe shortcomings of the pre-2004 regime
necessitated urgent reforms. The promulgation
of PRA 2014 underscores the importance of
pensions in the development of emerging
economies like Nigeria. Only time will tell
whether PRA 2014 will live up to expectations.
Chinedu KemaAssociateG. Elias & Co.chinedu.kema@gelias.com
“[G. Elias & Co.] make the effort to make sure they protect their clients thoroughly.”Chambers Global 2014
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
14 LegalNotes
IntroductionCapital Gains Tax (CGT) has been reintroduced
in Kenya after a 30 year absence. Effective 1st
January 2015, amendments to the Income Tax
Act (Chapter 470, Laws of Kenya) bring into
force CGT, which last existed in Kenya in 1985.
It is intended that CGT will apply on the gain
accruing to an individual or to a company on
the transfer of property situated in Kenya. In
the case of a company, CGT will apply on all
forms of property, including business assets,
immovable and movable assets, shares in
Re-introduction of Capital Gains Tax in KenyaThe effects and challenges
companies, intangible assets, obligations and
easements amongst others (except gains arising
from the transfer of motor vehicles are not
taxable for companies). In the case of individual,
CGT will apply only to immovable property and
marketable securities. The rate of tax will be
5% on the gain made. The ITA also provides
that the gain will not be subject to further
taxation.
Was it about time?Many economists are of the view that the
return of CGT in Kenya was long overdue. For a
number of years, the real estate market in
Kenya has grown in leaps and bounds and has
featured prominently on Knight Frank’s Prime
International Residential Index, taking 1st place
in 2011 and 2012 as the world’s fastest growing
property markets. It has long been viewed that
the Kenyan Government was not deriving
sufficient taxes in light of the super gains made
from rising property prices in Kenya. This was
coupled with the fact that other East African
countries, such as Uganda and Tanzania, both
had CGT legislation which contributed
significantly to the public coffers.
Indeed, Kenya had previously attempted to
reintroduce CGT through Finance Bill 2006,
which the Members of Parliament voted
against. In the face of growing budgetary
constraints, the Members of Parliament
approved the return of CGT albeit at a much
lower rate of 5% of the net gain made. This
may be contrasted with the significantly higher
CGT rate of 30% which currently exists in
Uganda and Tanzania.
Challenges ahead Having said that, implementation of the CGT
legislation as from 1 January 2015 will be
fraught with challenges. Firstly, the CGT
legislation is based on the system first
implemented in Kenya in 1970, which was later
suspended in 1985, with cursory changes made
to bring it back into force in 2014. Consequently,
the CGT legislation is outdated and not in line
with CGT legislation in jurisdictions with
developed tax systems.
Kenneth Kang’etheAssociateAnjarwalla & Khanna kkn@africalegalnetwork.com
Daniel NgumyPartnerAnjarwalla & Khanna dng@africalegalnetwork.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 15
“[Anjarwalla & Khanna] provides excellent client service and the lawyers are commercially switched-on. They can see the pitfalls in deals, they indentify the important issues and tackle them in the best possible way.”Chambers Global 2014
Kenneth Kang’etheAssociateAnjarwalla & Khanna kkn@africalegalnetwork.com
By way of illustration, Kenya’s proposed CGT
legislation will not have a system of indexation
or taper relief to adjust for the effects of
inflation on gains. Consequently, gains which
have accumulated over the last 30 years when
there was no CGT in Kenya will be subject to
CGT with no adjustment made to counter
inflation over that period. The absence of a
mechanism to take into account the effects
of inflation means that taxpayers will be taxed
on paper gains.
Another issue that will arise is that capital costs
will be deductible only on production of records
evidencing the initial cost of the asset at the
time of acquisition. Under Kenya’s income tax
legislation, a taxpayer is only obliged to keep
records for a period of 7 years. Most records
relating to property improvements would be
likely to be unavailable where the asset has
been held for a period exceeding 7 years. The
new CGT regime does not create transitional
rules as to how such assets would be treated.
Furthermore, a special regime is set to apply to
individuals who hold shares in listed entities.
The special regime proposes a CGT rate of
7.5%, which contradicts with the overall rate of
CGT of 5% introduced under the ITA. As it
presently stands, there is lack of clarity on the
rate which should apply, and this is likely to
create confusion once the law takes effect after
1 January 2015.
It is intended that responsibility to compute,
withhold and pay tax on the gain on listed
shares would be placed on stockbrokers.
Unfortunately, no consultation was done with
the stockbrokers and therefore at the time of
printing this article most of them remain
blissfully unaware of this obligation as from
1 January 2015. This will present a huge
administrative burden on the stockbrokers
which may lead to an increase in the brokerage
fees and commissions charged to investors.
All in all, the applicability of CGT on gains
arising from transfer of listed shares may
dampen investor appetite on the Nairobi
Securities Exchange.
There are additional challenges with the CGT
regime, such as lack of clarity as to the practical
measures to be implemented in collection of
the capital gains tax as well as how it will be
applied to non-resident persons who own
properties in Kenya in the absence of a
withholding tax regime that would
require the buyer to deduct and remit the
CGT in Kenya.
ConclusionThe impact of the reintroduction of CGT on the
Kenyan market and the investment climate is
something investors are no doubt closely
watching! It can be expected that several
changes to the CGT legislation may be
implemented in years to come, to clarify
the concerns that are highlighted above. In
addition, it is assumed that the low rate of
5% was set to allow for the introduction of
CGT in Kenya but would in years to come
be raised to match the rates applicable in
other East African Community member states.
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
16 LegalNotes
Eyes on the Money
Ambareen BeebeejaunLegal ExecutiveBLC Chambersambareen.beebeejaun@blc.mu
in line with stiffer regulation, and continue to
attract business.
AIFMD – The Gateway to fund marketing in the EUThe AIFMD is a European Union (EU) directive
framework which requires the European
Commission to prepare detailed rules on
various topics such as conditions and
procedures for the determination and
authorisation of Alternative Investment Fund
Managers (AIFMs) in the EU. Currently, non-
EU AIFMs are able to market the non-EU
Alternative Investment Fund (AIF) in Mauritius
through private placement rules only, subject
to satisfying the following three conditions:
(a) the requirement for a cooperation
agreement;
(b) the exemption of Mauritius and the
respective EU country from the list of non-
cooperative country and territory by FATF;
and
(c) compliance with disclosure and
transparency requirements.
While condition (a) must be satisfied by the
fund manager, conditions (b) and (c) are under
the responsibility of the non-EU fund manager’s
jurisdiction.
Mauritius has to date signed cooperation
agreements with 23 EU countries, and is
working with other EU regulators so that
Mauritius funds continue to be marketable
in the European space.
Mauritius improves its image as an international financial centre
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
IntroductionDoing business globally has been more difficult
in 2014, with the international business
community feeling the bite of cross-border
regulations on international financial centres.
Since the early 1990’s, the Mauritian government
has been pro-actively adhering to international
pressures to ensure the competitiveness of
the financial sector.
Mauritius continues to make great strides at making the jurisdictions and its Funds more marketable in the international space by recently adhering to the United States’ (US) Foreign Accounts Tax Compliance Act (FATCA) and the European Union’s (EU) Alternative Investment Funds Managers Directive (AIFMD).
The survival of an international financial centre
rests on its continued competitiveness in the
face of an increasingly tougher regulatory
regime. A financial centre tends to be rated
by the ease of which international players can
access its services, the safeguards it can provide,
and the value it can bring to the transaction
when structured through its jurisdiction.
Centres characterised by low or zero taxation,
light financial regulation, banking secrecy and
anonymity have been favoured structuring
jurisdictions.
However, reforms undertaken by governments
in response to initiatives of supranational
organisations like the Organisation for Economic
Cooperation and Development (OECD), the
Financial Action Task Force (FAFT) and the World
Bank have meant that international financial
centres need to constantly evolve their product
LegalNotes 17
“BLC Chambers is well respected for its prominence in commercial and corporate work, particularly in relation to the establishment of funds targeting investment in India and Africa”Chambers Global 2014
instead of having each client individually
register with the IRS.
The MRA acknowledges the prevalent
uncertainties amongst stakeholders regarding
FATCA implementation in Mauritius and it is
expected that guidance notes will be issued to
address these concerns. However, it is unlikely
that guidance from local administrators of
FATCA would be persuasive in the absence of
rulings and guidance from the designers of the
model. One should expect that these will come
in time, by trial and error, on a case-by-case
basis, and unfortunately not, to say the least,
without feathers being ruffled.
The path forwardAdherence to international standards is a
painstaking but necessary process. Jurisdictions
which show reticence in compliance quickly
fold to the flock when brandished as
‘uncooperative’ with the attendant sanctions
and economic repercussions that come with
being listed on some ominous ‘blacklist’. On
the other hand, a delicate balance is required,
as over-regulation dis-incentivises investors
and leads to dampened growth.
Today, norms that require financial transactions
to be fair and transparent are the sine qua
non for survival and growth – as it should be.
It is expected that Mauritius will continue to
take a pragmatic and balanced approach to
regulation, as it continues in its development
as a leading financial centre in Africa.
In May this year, the Financial Services
Commission of Mauritius (FSC) signed a
Memorandum of Understanding (MoU)
with the European Securities and Market
Authority (ESMA), providing for the sharing
of information and cooperation between
the regulators.
AIFMD will be a game changer for fund
managers who, prior to the establishment of
a fund, would send out ‘teaser’ documents
and draft term sheets to present the prospect
and get a feel of the demand market before
embarking on establishment and full-fledged
road shows. Very often, at that time, the choice
of a fund domicile would not have been made,
and the decision would be taken after discussing
investor preferences. However, after the coming
into force of the AIFMD, such approach would
be considered as marketing. Funds may have
to first set up the fund and obtain the relevant
licences in Mauritius and, thereafter apply for
authorisation with each EU regulator before
being able to approach European investors.
Further compliance hurdles are expected down
the road as European Regulators move further
along towards the ‘passport’ regime.
FATCA – International tax collectorsFATCA is a US legislation enacted in 2010, aimed
at collecting information to facilitate taxation on
residents’ investments abroad. FATCA requires
foreign financial institutions (FFIs) to provide
the US Internal Revenue Service (IRS) with
information about financial accounts held by
US taxpayers, or by foreign entities in which US
taxpayers hold a substantial ownership interest.
The legislation has significant implications on
non-US financial institutions given the penalty
for non-compliance – a hefty thirty per cent
(30%) withholding on US sourced income.
In an attempt to minimise the compliance
burden on Mauritius financial institutions, the
Government of Mauritius had, in December
2013, entered into the reciprocal Model 1
Intergovernmental Agreement (IGA) and a Tax
Information Exchange Agreement (TIEA) with
the IRS. As such, Mauritius-domiciled FFIs report
directly to the Mauritius Revenue Authority
(MRA), which then passes the information to
IRS.
Mauritius enacted the FATCA Regulations 2014
(the Regulations) to translate the provisions
of the IGA and TIEA in Mauritius legislations.
Uncertainties remainDespite the enthusiasm of the Mauritius
government to cooperate with FATCA
movement, uncertainties remain on critical
definitions, for instance:
(a) Whether the definition of an “FFI” captures
business entities which are merely trading
or carrying out activities that would, under
local legislation, not be considered as
a “financial institution”.
(b) How far up in a structure do FFIs have to
probe to track down potential US persons
involvement.
(c) Whether it is sufficient for an agent, like
the local administrator of a business (a
customary service offered by corporate
services firm in all IFCs) to register with
the IRS on behalf of the offshore entity
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
18 LegalNotes
IntroductionSomali is at loggerheads with Kenya on the
ownership of the potentially oil rich region that
borders the two countries.
According to an annual review by global
financial firm KPMG, as recently as 2012, Kenya
had no proven oil or gas reserves. This however
changed when Tullow Oil, a UK exploration
company, discovered oil deposits in Turkana
along the Great Rift Valley. Additionally,
international oil and gas exploration companies
that were prospecting along the larger East
African coastline had discovered vast natural
gas deposits off the coasts of Mozambique
and Tanzania.
This prompted exploration at the Kenyan coast
as it lies on the same geographical plane.
Australia’s Pancontinental Oil and Gas Company
Parting the SeasKenya’s maritime dispute with Somalia
announced that it had discovered offshore
oil and gas reserves off the Mombasa
coastline, which prompted Kenya to expand
more exploration blocks and offer the same
for sale to exploration companies.
Somalia claims that some of the blocks
within which Kenya has issued exploration
contracts lie within Somalia waters, and on
28th August, 2014 Somalia instituted
maritime dispute proceedings against Kenya
at the international Court of Justice (the
“ICJ”), the principal judicial organ of the
United Nations (“UN”).
In its application, Somalia requested the ICJ to determine, on the basis of international law, the complete course and
geographical coordinates of the single maritime boundary dividing all the maritime areas appertaining to Somalia and to Kenya in the Indian Ocean, including the continental shelf beyond 200 nautical miles.
The basis of Somalia’s claimThe Somali government in its application
contends that the maritime boundary between
the Parties in the territorial sea, exclusive
economic zone (EEZ) and continental shelf
should be established in accordance with the
United Nations Convention on the Law of the
Sea (“UNCLOS”). Somalia relied on Article 15
of UNCLOS which provides that where the
coasts of two States are opposite or adjacent
to each other, neither of the two States is
entitled to extend its territorial sea beyond the
median line (of the low water point at the
State’s coastline). This can however only be
changed if there are any special circumstances
allowing such change, if there is an agreement
between the two States or there are historical
justifications for such a change. From the
provisions of Article 15 of the UNCLOS, a line
would be drawn that is equidistant between
the coastlines of the two States for natural
resource sovereignty.
Although Kenya has not filed an official reply
on the issue, Somalia in its application had
argued that Kenya’s current position on the
maritime boundary is that it should be a
straight line emanating from the Parties’ land
boundary terminus, and extending due east
Akash DevaniPartnerAnjarwalla & Khannaard@africalegalnetwork.com
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
LegalNotes 19
Fact About Kenya: In 2013, Kenya attracted the second-highest number of FDI projects (+25.9%), in Africa behind South Africa.
along the parallel of latitude on which the land
boundary terminus sits, through the full extent
of the territorial sea, EEZ and continental shelf,
including the continental shelf beyond 200
nautical miles.
Somalia further added that the delineation
procedure of EEZ’s set out under Article 74 of
the UNCLOS should be the guiding block in
establishing a clear maritime boundary between
Kenya and Somalia. Article 74 of the UNCLOS
principally sets out the procedure to be
followed, which encourages parties to reach
mutual agreement, failing which the States
concerned shall resort to the procedures set out
in the UNCLOS.
In 2009, Kenya signed a Memorandum of
Understanding (“MoU”) with Somalia which
Kenya claimed had set the maritime boundary
running due east along the line of latitude.
However, Somalia counter argued that the
purpose of the MoU was not to demarcate the
maritime boundary but rather to grant non-
objection to Kenya’s May 2009 submission of
claim to the UN Commission on the Limits of
the Continental Shelf to delineate the outer
limits of Kenya’s continental shelf beyond the
200 nautical mile limit. Somalia’s parliament
however rejected this MoU in August 2009,
claiming that Somalia was adhering to the
appropriate requirements for delimitation of the
continental shelf, not agreeing to a maritime
boundary with Kenya.
.
Jurisprudence of maritime boundary disputesThe general rule applied in maritime boundary
disputes by the ICJ has always been that unless
the conditions set out under Article 15 of the
UNCLOS are fulfilled, the default remedy
would be the adoption of an equidistant line.
This was applied in the 2009 case concerning
the Maritime Delimitation in the Black Sea
(Romania v. Ukraine). The case involved similar
circumstances as the present Kenya-Somalia
case, whereby there was a dispute as how the
maritime boundary in the Black Sea would be
delineated between Romania and Ukraine.
The ICJ in arriving at its decision held that
pursuant to Article 15 of the UNCLOS, there
were no special circumstances for change of
the maritime boundary between Romania and
Ukraine, there was no agreement between
the two states and there were no historical
justifications for such a change.
Of course, the dispute between Kenya and
Somalia would need to be determined taking all
matters into account and not just having a
blanket application of the equidistant line
principle. Out of interest, if one was to follow
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
the equidistant line principle, part of Tanzania’s
Pemba Island would squarely fall within Kenyan
waters. It will be interesting to follow Kenya’s
arguments in this regard.
ConclusionEven though these kinds of disputes take a long
time to be decided upon, the possible
ramifications of a decision of the ICJ will
nonetheless be momentous for Kenya and
Somalia. Further, depending on the decision,
this might affect existing disputes touching on
ownership of offshore oil and gas resources
in Africa, such as the recently filed Ghana –
Ivory Coast dispute.
It will be interesting to follow how Kenya and
other African countries deal with these and
other emerging issues that will follow the
discovery of offshore natural resources.
20 LegalNotes
IntroductionFor around four decades, the rule established
in the famous 1975 English case of Hastings-
Bass allowed trustees and other fiduciaries to
avoid liability for their decisions and acts
(especially tax liability) by applying to the court
to set aside a decision made by the trustees,
if the decision had unforeseen negative
consequences for the trust.
On 9th May 2013, the United Kingdom
Supreme Court handed down its much-
anticipated judgments in the long-running
cases of Pitt v Holt and Futter v Futter whose
effect is to limit the scope and reliance of the
Hastings-Bass rule.
The origin of the Hastings-Bass ruleThe Hastings-Bass rule originates from the 1975
English case of Re Hastings-Bass deceased
where Buckley LJ stated that:
Assad AbdulatiffManaging DirectorAxis Fiduciary Limited, MauritiusAssad.Abdulatiff@axis.mu
Rethinking the Hastings-Bass Rule
“…where by the terms of a trust…a trustee is
given a discretion as to some matter under
which he acts in good faith, the court should
not interfere with his action notwithstanding
that it does not have the full effect which he
intended, unless (1) what he achieved is
unauthorized by the power conferred upon
him, or (2) it is clear that he would not have
acted as he did (a) had he not taken into
account considerations which he should not
have taken into account, or (b) had he not
failed to take into account considerations
which he ought to have taken into account.”
That was essentially a negative statement that
a disposition would not be set aside (by the
court) merely because the trustees had
misunderstood its true effect. This has evolved
into a positive rule that if a trustee, acting under
a discretion, embarks on a transaction or
decision which in effect is different from that
which was intended, the court will interfere
with the trustee’s action and set it aside.
Evolution from a negative to a positive ruleProbably the earliest application of the Rule was
in the 1990 English case of Mettoy Pension
Trustees Ltd v Evans, decided some 15 years
after the Hastings-Bass case itself. Citing
Hastings-Bass, the judge accepted that an act
of trustees could be voided if they “did not
have a proper understanding of the effect of
their act” and if “had they had a proper
understanding of it, they would not have acted
as they did”. Warner J held that:
“Where a trustee acts under a discretion given
to him by the terms of the trust, the court will
[emphasis added] interfere with his action if it is
clear that he would not have acted as he
did had he not failed to take into account
considerations which he ought to have taken
into account.”
This judgment marked a shift from the negative
nature of the rule as in the case of Hastings-
Bass (“the court should not interfere with
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
The final curtain for trustee liability avoidance in Mauritius?
LegalNotes 21
his action…unless”) to a positive rule allowing
the court to interfere (“the court will interfere
with his action if…”).
Use of the rule to avoid unforeseen tax liabilitiesSince Mettoy, there have been many cases in
the United Kingdom in which the rule has been
applied, especially in relation to tax matters. For
example, in Sieff v Fox, the advisers to trustees
wrongly advised the trustees about the tax
consequences of exercising a power of
appointment in a certain way. As a result, a
large unforeseen capital gains tax liability arose.
The court held that the appointment would be
set aside on the basis of the Hastings-Bass
principle.
Naturally, the avoidance of tax liability meant lost revenue for the tax man. Until 2008, UK’s tax authority, Her Majesty’s Revenue and Customs (HMRC), had declined invitations to be joined as a party and to take an active role in the proceeding of a Hastings-Bass application.
This state of affairs led Lloyd LJ in Sieff v Fox
to suggest that HMRC should consider changing
their position.
In June 2006, HMRC issued Tax Bulletin 83 in
which it indicated a change in their approach
towards future Hastings-Bass applications and
stated that the HMRC would give consideration
to participating in cases where large amounts of
tax are at stake and/or where it is felt that we
could make a useful contribution to the
elucidation and development of the principle.
In the 2009 Guernsey case of Gresh v RBC
Trust Company (Guernsey) Ltd, the HMRC
applied to be joined as a party to the
proceedings.
Hastings-Bass in the offshore worldThe Hasting-Bass principle was also popular in
the offshore world and has been applied in
a number of cases in Jersey, Guernsey and
the Cayman Islands.
It is not surprising that the Hastings-Bass rule
has often been described as a ‘get out of jail
free’ card for trustees who may otherwise have
been the subject of a claim in negligence or
breach of trust because their actions had
resulted in a loss to a trust.
A game change in 2013: Pitt v Holt and Futter v FutterThe case of Pitt v Holt concerned a discretionary
trust that was established in accordance with
legal advice and intended to be a tax efficient
structure. However, the advice had failed to
take into consideration inheritance tax
consequences and there was a significant tax
liability due. The trustees sought to have the
trust set aside under the Hastings-Bass rule
or on the ground of mistake.
The case of Futter v Futter also concerned an
unforeseen time capital gains tax, which
resulted when powers of advancement were
exercised. Again, incorrect legal advice had
been given that the advancements would be
tax efficient and the trustees sought to rely
on Hastings-Bass to have the transactions
declared void.
At first instance, both cases were successful.
On appeal, the Court of Appeal and the
Supreme Court held the rule in Hastings-Bass
had been incorrectly applied in these cases,
suggesting that the rule has been misapplied
by the lower courts in other cases.
The Supreme Court has now confirmed the
Court of Appeal’s decision that the approach to
take in these cases is that the trustees’ act is
not void if it is within the scope of the power
that they are purporting to exercise, but that it
may be voidable at the instigation of a
beneficiary, only if it can be shown to have
been in breach of the fiduciary duty of the
trustees to take into account relevant matters,
which may include fiscal considerations.
Fact About Mauritius: Mauritius is a free market economy. There is no limit on transferring profits, dividends and capital out of the country.
ConclusionThe above cases have far reaching consequences
and may well mark the end of the Hastings-Bass
rule albeit in the form that it has been applied
of late. It appears from the Pitt and Futter
judgments that challenge the exercise by
trustees of a discretionary power will only be
successful if there is a breach of fiduciary duty
by the trustee. Thus, it is unlikely that an
application for a decision to be set aside in
cases where a trustee has taken expert advice
(which turned out to be wrong) will be
successful.
The reaction of the offshore world to this
judgment has been swift with Jersey amending
its trusts law – through the Trusts (Amendment
No 6) (Jersey) Law 2013 – to introduce the
rule in Hastings-Bass in the statute books.
Other jurisdictions may well follow suit, so
the curtain may not have been drawn up
completely for the Hastings-Bass rule yet!
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
22 LegalNotes
IntroductionThe UAE, which continues to be the premier
trading hub of the Middle East, is rebounding
from the property market crash and there is
renewed foreign interest in the Emirate of
Dubai building up towards the international
trade exposition to be hosted by Dubai in
the year 2020.
Nonetheless, there exists a measure of
protectionism with respect to certain economic
activities. For instance, under the Commercial
Companies Law of the UAE, every company
established and operating in the mainland UAE
(not in the free zones) is required to have at
least 51% local equity participation.
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
Agency ArrangementsWorking around local ownership requirements in the UAE
Harshil dalalAssociateAnjarwalla Collins & Haidermotahdalal@ach-legal.com
Many foreign businesses find the mandatory local majority shareholding rules prohibitive and thus opt to conduct business in the UAE through distribution/agency/franchisee arrangements with local entities.
While such arrangements would help mitigate
the strict local ownership rules, they do give rise
to other risks, as discussed below.
Distribution and agency arrangements under UAE lawIn the UAE, distributorship and agency
arrangements are regulated by the Federal Law
No. 14 of 1988 (the Commercial Agencies
Code) and the Federal law No. 18 of 1993 (the
Commercial Code). Although, the primary
legislation dealing with agency arrangements is
the Commercial Agencies Code, which is wide
ranging and covers distribution and franchise
arrangements. There is no strict distinction
between distributorship or agency or franchise
arrangements under the UAE law. The courts
look to the Commercial Code when the
Commercial Agencies Code is silent on any
point.
The Salient features of the Commercial Agencies
Code are below:
Establishing the relationship
Only a UAE national or a company owned
fully by UAE nationals can act as an agent/
distributor.
Every distribution/agency/franchise arrangement
is required to be registered with the Ministry of
Economy, UAE, within 6 months from the
execution or effective date. Under the
Commercial Agencies Code, no lawsuit will be
heard with respect to such arrangement if the
same not registered with the Ministry. However,
in practice, the UAE courts have taken
cognizance of unregistered agency/distribution/
franchise contract and dealt with them suitably.
In respect of a registered agency/distribution/
franchise contract, the Committee established
under the Commercial Agencies Code shall
have exclusive jurisdiction over the disputes
LegalNotes 23 LegalNotes 23
as to what would amount to a “material
reason”. Therefore, it is essential that the
principals (especially foreign principals) have an
appropriate contract in place with strict (pro-
principal) termination provisions covering
circumstances which are expressly agreed
by both parties to constitute material reasons
for termination/non-renewal. For instance, a
provision to the effect that the
agent/distributor/franchisee is not complying
with the provisions of pricing, sales targets,
non-compete, or in case of consistent breach
or misrepresentation.
Upon termination of an arrangement, the
agent/distributor/franchisee is entitled to receive
appropriate compensation from the principal if
the contract is terminated in any other manner
by the principal. There is no statutory prescribed
quantum of compensation and thus, this is
a matter of the Committee’s discretion.
ConclusionAs can be seen from the above, the requirements
under the Commercial Agencies Code in its
current form, tends to favour the agent/
distributor/franchisee. However, careful
structuring of the agency/distribution/franchise
arrangements and drafting of suitable
agreements can go a long way in reducing the
risks of an arrangement being deemed to fall
under the Commercial Agencies Code.
arising between the principal and the agent/
distributor/franchisee and arbitration clause has
been held to be unenforceable. However, the
Committee’s decision can be appealed to the
UAE courts.
Contractual rights of an agent
Once a contract of commercial agency/
distribution/franchise is registered, the agent/
distributor/franchisee gets exclusive agency/
distributorship/franchise in the relevant goods
or services for that particular Emirate,
irrespective of any provisions of the contract to
the contrary. The principal cannot appoint any
other agent/distributor/franchisee for such
goods and services in the same Emirate and if it
does so appoint, the original agent/distributor/
franchisee can claim the commission with
respect to the transactions concluded by such
other agent/distributor/franchisee and even
from transactions concluded by the principal
itself.
Under a registered agency/distribution/franchise
arrangement, the agent/distributor/franchisee is
entitled to prevent products subject to such
arrangement from being imported into the
UAE, if such agent/distributor/franchisee is not
the consignee.
Termination of an agency arrangement and
effects
The principal can terminate an agency/
distribution/franchise contract or refuse to
renew the same only in the following events:
(a) upon the mutual consent of the agent/
distributor/franchisee and the principal; or
(b) if there is a material/fundamental reason for
the principal to terminate the agency/
distribution/franchise contract or refuse its
renewal and the principal successfully
proves the same before the Commercial
Agencies Committee or the UAE courts; or
(c) upon issuance of a final judicial ruling to
terminate the agency/distribution/franchise
contract.
The principal is barred from appointing and
registering a replacement agent/distributor/
franchisee if the earlier agency/distribution/
franchise contract has not been terminated
in the prescribed manner.
Under the present law, the principal cannot
terminate the agency/distribution/franchisee
contract or even refuse to renew an expired
agency/distribution/franchisee contract unless
there is a “material reason” for termination or
non-renewal. It is worthwhile to note that the
term “material reason” is very broad and
circumstantial, which gives wide discretion
to Committee (which has historically been pro-
agent/pro-distributor/pro-franchisee) to decide
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
24 LegalNotes
IntroductionThe recent case of Potgieter v Tubaste
Ferrochrome and Others (JA71/12) [2014]
ZALAC 32 (Potgieter case), was primarily an
unfair dismissal disputed. However, various
issues arose which amplified the notion of
whistle blower protection in South Africa’s
employment and environmental law.
The caseA disgruntled former employee of Tubaste
Ferrochrome released a report to the media in
which the employee alleged that his employer
did not have adequate measures in place to
address the water pollution that its operations
had caused. The employee argued that the
disclosure of information was not as a result of
his dismissal, but that he was acting in the
public interest by disclosing the environmental
degradation and possible offences caused by
his employer.
The court made several significant statements
regarding whistleblower protection in terms of
section 31 of the National Environmental
Management Act No. 107 of 1998 (NEMA), as
follows:
(a) the fostering of a culture of disclosure of
information is a constitutional imperative
which, in terms of the whistleblower
protections offered in NEMA, is in the public
interest and in the interest of protecting the
environment;
(b) due to the possible liability which could be
imposed on an employee for environmental
offences caused by an employer, even after
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
Whistle Blower Protection under environmental and employment law in South Africa
Marius DiemontPartnerWebber Wentzelmarius.diemont@webberwentzel.com
employment is terminated, and the fact
that the disclosure was made in the public
interest, the employee had acted in good
faith; and
(c) an organisation may suffer reputational
damage as a result of disclosure of sensitive
information, but that public interest may, in
certain instances, outweigh the interests of
protecting the reputation of an organisation.
What this means going forwardThere are practical implications arising from the
Potgieter case which should be considered,
including:
(a) Privileged information: the mere fact that
information is sensitive does not preclude it
from being a protected disclosure in terms
of the Protected Disclosures Act, No. 26 of
2000 (PDA), or NEMA. Where information is
not protected by legal privilege i.e.
attorney-client privilege it may be
disclosed, and such disclosure will be
protected, provided that certain
requirements are met. Importantly, where it
can be proved that the information was
disclosed in the public interest, the
disclosure may be protected;
(b) Protection of employees: clear policies,
procedures and training should be
implemented by employers to ensure that
employees are aware of whistleblower
protections and what information would
constitute a protected disclosure; and
(c) Extension of protection afforded to
whistleblowers: in the 2014 budget
speech of The Minister of Justice and
Correctional Services on 15 July 2014, it
was indicated that the protection afforded
to whistleblowers is likely to be extended in
the future and legislative amendments to
the PDA are currently being drafted.
ConclusionThe environment is a major concern, especially
as South Africa races to develop existing and
new found natural resources. In an industrial
outfit, the employees are the ones with first-
hand knowledge of the environmental impacts
of the company’s operations. Going forward,
employers should consider the implications of
the Potgieter case in formulating both their
environmental and employment policies.
LegalNotes 25 33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
IntroductionUganda has taken great strides in revamping its
insolvency law.
In 2011, the Insolvency Act was enacted, presenting a stand alone law dealing comprehensively with personal bankruptcy and corporate insolvency.
All aspects of insolvency were stripped from the
Companies Act and consolidated with the law
on personal bankruptcy to create this new Act.
The old provisions were also dusted off and
updated to keep abreast with developments in
insolvency. Regulations are also being rolled out
to complete the revamping process.
The faults of recent application A recent decision of the High Court however
confirms indeed that a new law is only a start,
it must be followed quickly by sensitization of
the Judiciary and training of the legal and
business communities.
In the 2011 corporate insolvency case of
Venture Communications Uganda Ltd, the
company petitioned for winding up on the
grounds of inability to pay its debts. The
Company had for several years in its operations,
suffered severe business losses, it was unable to
pay its debts and had not paid dividends since
incorporation. Among its creditors were an
unsatisfied judgment creditor, and the Uganda
Insolvency in UgandaThe growing pains of a new regime
Rehema NakiryaAssociateMMAKS Advocates nakirya@mmaks.co.ug
Revenue Authority (URA). The Company
sought to bring its misery to an end and have
its affairs lawfully wound up in the interests of
all its creditors.
Surprisingly, URA led the charge in opposing
the winding up of the Company arguing that
the petition had been brought in bad faith and
was tainted with fraud in a bid to avoid
payment of the outstanding debts. URA’s case
was that the directors of the Company had
drawn money from its accounts, ignored their
tax obligations and failed to keep proper books
of accounts as required by the Income Tax Act.
URA concluded that this was a tax evasion
scheme, that if the winding up order was
made, before the creditors’ claims were settled,
the interests of justice would be defeated.
There was no evidence that any returns had
been filed so as to assess whether the Company
was indeed operating at a loss. There were also
no statement of accounts of its assets and
liabilities so as to help Court arrive at an
informed decision as to whether or not the
Company was solvent. It also emerged that the
Company disputed the debt claimed by URA.
The Court ruled that a winding up petition
could not be premised on a genuinely disputed
debt and therefore dismissed the petition.
The decision is unfortunate. The principle cited
by the Court to dismiss the petition is applicable
only in cases of creditor winding ups not
winding up instituted by the debtor itself.
Further, the arguments by URA completely
ignore the proper course of action of aggrieved
creditors who believe that company directors
have had their hand in the till. Such creditors
should not resist the winding up petition, but
rather permit it, join the creditors committee of
inspection and work with the liquidator to trace
any of the company assets that may be in the
hands of the directors or elsewhere.
This decision denies companies in financial
difficulties the remedy of winding up. One
wonders if the doors of Venture Communications
are still open for business? Will the Court be
paying their rent and providing an indemnity to
the Directors for the civil liability for trading
while insolvent?
ConclusionThe insolvency law is aimed at allowing
companies which find themselves in financial
difficulties to stop operations, wind up and
distribute whatever is left of their assets in an
equitable manner to their creditors. The
insolvency law has in place mechanisms which
are intended to protect the company, the
creditors, its investors and the public.
While euthanasia may still be covered in legal
and moral controversy, its corporate equivalent
has never been in any doubt. Until now! There
is clearly more thought needed in applying the
Insolvency Act in Uganda, and it is hoped that
this is realised for future application.
26 LegalNotes33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
IntroductionKenya submitted an application to extend its
continental shelf on 6th May, 2009 to the
Commission on the Limits of the Continental
Shelf (CLCS) in accordance with Article 76
paragraph 8 of the United Nations Convention
on the Law of the Sea (UNCLOS). Kenya’s
argument is that its actual continental shelf
extends beyond the 200 nautical miles provided
for by UNCLOS and that it therefore has a solid
case for the extension of its continental shelf up
to the maximum legal distance of 350 nautical
miles from Kenya’s baseline (shoreline). This
means that Kenya’s continental shelf may
potentially extend to cover an additional area of
approximately 103,120 square kilometres of
Expanding TerritoriesIs Kenya ready for an extended Continental Shelf?
Kelvin AsigeAssociateAnjarwalla & Khannakba@africalegalnetwork.com
Mohamed KaregaAssociateAnjarwalla & Khannamak@africalegalnetwork,com
the Indian Ocean. Currently, Kenya has maritime
rights over approximately 198,534 square
kilometres.
What is the Continental Shelf? A simplified version of the UNCLOS definition is
that a continental shelf is the gradual extension
of land into the sea bed before the continental
drop. It includes the sea bed and sub soil.
The Constitution of Kenya 2010, defines public
land to include territorial waters, the Exclusive
Economic Zone (EEZ), the sea bed and
continental shelf and held by national
government in trust for the Kenyan people and
administered by the National Land Commission.
The application for extension of Kenya’s Continental shelf limits shall therefore give Kenya exclusive rights to, among other things, apply its jurisdiction within the newly acquired area and consequently, extract any natural resources within this territory, including oil and natural gas.
Applications for continental shelf extensions are
time consuming and take several years to
process. The CLCS places significant reliance
upon scientific evidence relevant to any
application.
In 2001, Russia planted its flag on the sea bed
in the North pole claiming the same to be its
territory. Together with this claim, Russia made
a submission to the CLCS for extension of its
continental shelf and the same was deferred as
further scientific data was required. The country
was not able to carry out further research until
2007.
In anticipation of a successful extension application …Kenya has been spurred to prepare to explore
the benefits that such an extension may bring
it. An example is the commissioning of Kenya’s
very first research vessel, ‘RV Mtafiti’ on 27th
January, 2014 for the purpose of carrying out
marine and aquatic research, and also for
providing up-to-date data on the country’s fish
population and capacity which will in turn
LegalNotes 27
Fact About Kenya:Tullow Oil PLC and its partner Africa Oil Corp. have discovered an estimated 600 million barrels of oil since their first find in 2012.
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
enable Kenya to explore the viability of deep
sea fishing.
The ‘RV Mtafiti’ also has the capacity to map
out offshore oil and gas reserves.
Another recent development in marine
exploration in the East African waters involves a
world renowned seismic data service provider -
the SeaBird Exploration Plc (SeaBird), which was
awarded a contract for the acquisition of a 2D
survey in East African marine waters, covering
Kenya’s and Tanzania’s combined coastline.
Commencement of the Survey was to begin in
February and will cost approximately USD 17
million which is quite an investment for both
Kenya and Tanzania. The results of the survey
(in 2-D, 3-D and 4-D seismic data) will no doubt
be used in maximizing East Africa’s offshore oil
and gas potential.
A case of putting the cart before the horse …?Before Kenya is able to enjoy the benefits of an
eBefore Kenya is able to enjoy the benefits of
an extended continental shelf, it needs to tackle
several hurdles.
The first is the looming maritime boundary
dispute between Kenya and Somalia, which is
discussed in greater detail in another article in
this Edition. This dispute has led to a temporary
halt in the consideration of Kenya’s application;
at least until the boundary dispute is resolved.
Secondly, an extension of its EEZ means that
Kenya will be responsible for a greater area of
ocean space – and will be answerable for what
happens within it. The East African coastal
States, Kenya included, currently lack adequate
naval infrastructure to patrol and secure their
waters. A striking proof of this situation is the
formation and deployment of the Combined
Task Force 150, a British-led coalition of naval
forces comprising of naval fleets from around
25 countries with a mission to counter piracy,
smuggling and other illegal activities in the
Horn of Africa Region. Kenya does not form
part of this coalition. In April 2014, Australian
naval forces, which are part of the Combined
Task Force 150 intercepted and destroyed
approximately 1 tonne of heroin on board a
dhow off the coast of Mombasa. It is reported
that this was at an area located about thirty (30)
nautical miles from Kenya’s baseline, well within
Kenya’s continental shelf limit of two hundred
(200) nautical miles.
Taking on a greater area of responsibility
without the requisite naval infrastructure to
secure it may well be counter-productive. It is
hoped that there are plans for this.
ConclusionAn extended continental shelf will be of
immense benefit to Kenya in terms of exploiting
potential in fishing and oil & gas off the coast.
There are various hurdles to be dealt with, and
it is hoped that the Government will address
these adequately as it seeks to realise its Vision
2030 development goals.
Mohamed KaregaAssociateAnjarwalla & Khannamak@africalegalnetwork,com
28 LegalNotes
“... we are mindful of our historic and moral responsibility in the global struggle against racism, racial discrimination and other intolerances”South Africa President Jacob Zuma, UN General Assembly, 2014
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
IntroductionEarlier this year the Constitutional Court
handed down its eagerly awaited judgment in
the unfair discrimination case brought by Lt-Col
Renate Barnard against the South African Police
Service (SAPS), years after Barnard first initiated
her claim in the Labour Court (in 2007).
At its core, the case addresses the constitutionality of affirmative action measures which have been adopted pursuant to the Employment Equity Act, No. 55 of 1998 and whether the implementation of such measures amounts to unfair discrimination.
The caseBarnard, a white female, was employed by the
SAPS as a lieutenant colonel. On two occasions
she applied, and was rejected, for promotion to
the post of superintendent, even though she
was identified as the best candidate for the
position.
SAPS justified the decision not to promote her
on the basis that her promotion would not
have been consistent with its employment
equity plan.
The Constitutional Court rejected her claim, on
the basis that affirmative action measures are
lawful and constitutionally sound. However the
courts can intervene by reviewing the content
of such measures, and the manner in which
affirmative action measures are applied.
Affirmative Action and Discrimination in South AfricaThe Barnard constitutional case
Pamela SteinPartnerWebber WentzelPamela.stein@weebberwentzel.com
Prévot van der MerweSenior AssociateWebber WentzelPrevot.vandermerwe@webberwentzel.com
The lessonsImportant lessons from this judgement include
the following guidelines:
(a) Measures directed at remedying past
discrimination by the promotion of
employment equity are constitutionally
protected, however they should also not
be punitive nor retaliatory and cannot be
an end in themselves;
(b) Affirmative action measures are not unfair,
but they must target a particular class of
people who have been susceptible to unfair
discrimination in the past and should
promote the achievement of equality;
(c) The courts have the power to judge whether
affirmative action measures comply with
the above criteria;
(d) The courts have the power to assess
whether the manner in which affirmative
action measures are applied, are lawful;
(e) Affirmative action measures must ensure
that only suitably qualified people benefit
from them; and
(f) Affirmative action measures must be flexible
and inclusive, and an employer may not
establish an absolute barrier to the future or
continued employment or promotion of
people who are not from designated
groups.
ConclusionThe Barnard constitutional case confirms that
affirmative action is lawful and constitutionally
sound, but that the courts can review the
content and the manner in which the measures
are applied. This has major implications on
South Africa’s developing labour and
discrimination law.
LegalNotes 29
IntroductionThe Finance Act, 2014 has introduced a new
taxation regime for the extractive industry
which has repealed the previous regime which
existed under the Ninth Schedule to the Income
Tax Act (Cap. 470, Laws of Kenya) (the ITA).
The changes have abolished the withholding
tax (WHT) regime that was applicable on farm-
out transactions and share sale transactions,
relating to interests in exploration and
production blocks and other interests in the
extractive industry and have attempted to align
the provisions in the ITA to the tax provisions in
current Production Sharing Contracts (PSCs).
We discuss below some of the key amendments.
Taxation of net gain
With effect from 1 January 2015, farm-out transactions will be taxed on the gain where the net gain will form part of the taxable income of the transferor and will be taxed at the corporation tax rate in certain circumstances.
The amount of the net gain which is subject
to income tax in Kenya is:
(a) where the interest derives more than 50%
of its value directly or indirectly from a
mining right, an interest in a petroleum
agreement, mining information or
petroleum information in Kenya, the full
amount of the net gain; or
Gaining ResourcesTaxation of the extractive sector in Kenya
(b) for any other case, the net gain is
apportioned in proportion to the value of
the interest derived directly or indirectly
from Kenya as against the total value of
the interest.
The income tax is only due where the value of
the interest in the entity derives 20% or more
of its value directly or indirectly from a mining
right, an interest in a petroleum agreement,
mining information or petroleum information
in Kenya.
Underlying ownership The New Ninth Schedule also introduces an
obligation to notify the Commissioner if there
is a 10% or more change in the “underlying
ownership” of a mining licence holder (a
Licensee) or production sharing contract holder
(a Contractor).
The term “underlying ownership” extends to
the holding of any interest in an entity directly
or indirectly through interposed entities.
Accordingly, changes of ultimate ownership
anywhere in the world resulting in the direct
or indirect change of 10% or more of a licensee
or a contractor would be notifiable to the
Kenya Revenue Authority (the KRA) through
the Commissioner.
Tax inclusivityThe New Ninth Schedule also recognizes that
the Government’s share of production is
inclusive of the taxes of the petroleum company.
However, tax inclusivity is only with respect to
the income arising from petroleum operations
undertaken by the contractor, and will not
extend to taxes arising from farm-out
transactions.
Work obligations
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
Kenneth Kang’etheAssociateAnjarwalla & Khanna kkn@africalegalnetwork.com
Daniel NgumyPartnerAnjarwalla & Khanna dng@africalegalnetwork.com
30 LegalNotes
Fact About Kenya:Kenya has the most advanced capital market in the EA region and has over 60 listed companies on the stock exchange.
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
One key issue which has been unclear is with
regard to the tax treatment of future work
obligations taken up by a farmee. The New
Ninth Schedule has clarified that such work
obligations will not be considered to be part
of the farm-out consideration and will be
excluded from the net gain arising from
farm-out transactions.
Ring fencing of petroleum blocksRing fencing of petroleum blocks has been
introduced, and expenditure incurred in a
particular block can only be offset against
income derived from that block.
Petroleum Operations Expenditure The New Ninth Schedule broadens the allowable
deductions available to contractors. During the
exploration stage, capital expenditure incurred
will be granted an allowance of 100% in the
year which it is incurred.
During the development phase, expenditure
incurred in undertaking operations authorized
under a development plan is deductible at the
rate of 20% over a five year period upon
commencement of production, but provided
these expenses had not been previously
deducted in the exploration expenditure.
Operating Losses Previously there were limitations on the period
which tax losses could be carried forward.
Under the New Ninth Schedule, such losses
can be carried forward until the loss is fully
deducted (or the petroleum operations in the
contract area cease).
Withholding tax The New Ninth Schedule has introduced
withholding tax at the rate of 10% on dividends
paid by a petroleum company to a non-resident
entity. Previously, such dividends were not
subject to taxation. This has created some
confusion, as the model PSC provides that
WHT on dividends is borne by the Government’s
share of profit oil. Interest will now be subject
to withholding tax at the rate of 15%, which is
an increase from the previous rate of 10%.
Natural resource incomeA payment for a natural resource is subject to
withholding tax at 5% or 20% (depending on
the residence status of the recipient) of the
consideration for the right to take a mineral or
living or nonliving resource from land or sea.
There is however a lack of clarity on what
constitutes a “Natural Resource Income”, and
whether this would extend to the sale of
hydrocarbons for instance.
Decommissioning ExpenditureContractors shall be allowed to make
deductions for amounts transferred to escrow
accounts for purposes of financing
decommissioning expenditure and also for the
actual decommissioning expenditure incurred,
provided the latter is not paid for from money
out of the escrow account.
Thin capitalization rules The debt to equity ratio for purposes of the
thin capitalization regulations set out under the
ITA shall be 2:1, unlike the case with other
foreign controlled companies in other industries
in Kenya for which the ratio is 3:1.
Sub-contractors’ Taxation The term “subcontractor” has been defined to
include resident persons (individual, company,
partnership, trust or government) supplying
services to a contractor in respect of petroleum
operations.
Subcontractors who are non-resident (and do
not have a permanent establishment in Kenya)
will be subject to withholding tax at the rate of
5.625% (which is final tax) on the gross
amount of the service fee, and at the rate of
20% of the gross fees paid, where the fees
are paid by a licensee under a mining right.
Subcontractors with a permanent
establishment in Kenya will be taxed at a rate
of 37.5% on adjusted profit.
Conclusion
The New Ninth Schedule is a welcome move in
the taxation of the extractive sector, and has
addressed various concerns which have been
raised by industry players over the last couple
of years. However, some key issues need to be
considered further, these include the
applicability of deemed interest on funding
provided for pre-development activities,
clarification on what constitutes “Natural
Resource Income” and clarity on whether
reimbursement of expenditure and
mobilization / demobilization expenditure for
sub-contractors is outside
the scope of taxation in Kenya, amongst
other concerns.
LegalNotes 31 33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
ALN Sector Groups
Representative Deals• Proparco and Standard Bank (Mauritius): in connection with a US$ 75
million financing and a US$ 25 million additional financing to the Export Trading Group of companies.
• African Export-Import Bank: advising on a US$ 83 million bridge financing to a telecommunication infrastructure sharing company.
• Standard Chartered Bank: advising on the advancement of a loan facility worth US$ 1.5 million to NNPC on behalf of its subsidiary PPMC.
Head: Iqbal Rajahbalee Contact: financialservicesgroup@africalegalnetwork.com
Total Value of deals in 2013: US$ 4.89 billion
Representative Deals• Triumph Power Generating Company: acting for the sponsor in connection with the
development and financing of an 83MW, US$ 150 million thermal power plant.
• IFC and the Government of Zambia: advice in connection with the construction of the US$ 1.5 million Kafue Gorge Dam construction project.
• Lake Turkana Wind Power Project: Acting for the sponsors of the US$ 833 million, 300MW Turkana wind power project.
Heads: Amyn Mussa and Phillip KarugabaContact: energyandinfrastructuregroup@africalegalnetwork.com
Total Value of deals in 2013: US$ 3.72 billion
Representative Deals• NNPC: acting with the consortium of Chinese contractors and financiers in Nigeria
for an estimated value of US$ 14 billion.
• Norlisk Nickel: acting as lead counsel on the Botswana aspects of its worldwide acquisition of Lionore, a US$ 7 billion transaction.
• ZCCM: acting as local counsel in a US$ 50 million mining transaction involving the Zambian government.
Head: Sonal SejpalContact: naturalresourcesgroup@africalegalnetwork.com
Total Value of deals in 2013: US$ 23.07 billion
ALN’s continued success in advising on cross-border matters comes from our “one firm” approach of collaborating in virtual teams across multiple offices. ALN is organized into sector groups designed to offer tailor-made and integrated services to businesses that are involved in cross-border work. To this end, ALN coordinates cross-border groups focused around industry sectors including Energy and Infrastructure, Financial Services, and Natural Resources.
32 LegalNotes33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
36 | LEGAL NOTES | APRIL 2013
G. ELIAS & COK-SOLUTIONS & PARTNERS
JMILES & CO
ATZ LAW CHAMBERS
NIGERIA
MABUSHI CHAMBERS
About ALNALN’s firms are in Africa. Our lawyers are African. We understand the issues from start to finish because we have been doing African deals from our inception. With ALN you get the benefit of internationally-trained lawyers who live and work where the deals are happening. We offer seamless legal advisory and transactional services on complex and multi-jurisdictional matters due to our thorough understanding of the local and regional landscape, cultural and business practice. Each ALN member firm is a recognized leader on the continent with a strong track record in advising domestic, regional and international clients on commercial and legal issues. Our member firms are recognized as leading law firms by international directories including Chambers Global. Legal 500, and IFLR 1000.
ALN also works closely with its regional office in the UAE, affiliates in Kenya and Mauritius and its associate firm in South Africa.
33
Anjarwalla & Khanna is the largest
corporate law firm in Eastern Africa. The
firm is ranked first in Kenya by various
legal guides, including Chambers Global,
IFLR 1000, Legal 500, PLC Which Lawyer
and Euromoney Guide to the World’s
Leading Project Finance Lawyers.
Introduction
Kenya has seen a significant rise in infrastructure developments in the recent past, especially in the fields of real estate development, energy and transportation infrastructure. This has been caused by various factors including a demand for housing by the rising population, infrastructure demands caused by growing investor interest in the country and the Government’s Vision 2030 development blue print, whose aim is to achieve industrialization by the year 2030.
Putting together an infrastructure project, be it skyscrapers, roads, power projects or a real estate development involves amalgamating several constituent elements. An integral ingredient to any project is the construction contract which sets out the terms and conditions pertaining to the carrying out of the main building works in respect of the project. A well drafted contract that is clear on the terms could have a significant effect on the cost, timing and completion of the project.
What should a project contract provide for?
The key concerns for most developers of a project are as follows:
• ensuring that works are completed in accordance with the construction programme for the project;• ensuring that the works are completed within budget;• where projects are to be financed, ensuring that the risk allocations in the various project contracts will be
acceptable to potential lenders and financiers; and • ensuring that the works are fit for purposes.
Undertaking infrastructure projects in Kenya:Get the contract right!
Aleem Tharani I Anjarwalla & Khanna I at@africalegalnetwork.com
KENYA
ALN Member Firms
BotswANACollins Newman & Co.Tel: +267 395 2702Email: partners@collinsnewman.bw
BuruNdiMabushi ChambersTel: +257 22 217 475Email: ajnmabushi@africalegalnetwork.com
EthiopiATeshome Gabre-Mariam Bokan Law OfficeTel: +251 11 551 8484/4096Email: info@tgmblawoffice.com
KENyAAnjarwalla & Khanna (Nairobi)Tel: +254 70 303 2000Email: nbi@africalegalnetwork.com
Anjarwalla & Khanna (Mombasa)Tel: +254 41 231 2848/9Email: mba@africalegalnetwork.com
MALAwiSavjani & Co.Tel: +265 182 4555Email: savjaniandco@africa-online.net
MAuritiusBLC ChambersTel: +230 403 2400Email: chambers@blc.mu
NigEriAG. Elias & Co.Tel: +234 14 607 890Email: gelias@gelias.com
rwANdAK-Solutions & PartnersTel: +250 25 257 0672Email: info@ksolutions-law.com
sudANOmer Ali Law FirmTel: +249 15 515 5554Email: omerali@omeralilawfirm.com
tANzANiAATZ Law ChambersTel: + 255 22 212 0954/6Email: info@atzlawchambers.com
ugANdAMMAKS AdvocatesTel: +256 41 425 9920Email: info@mmaks.co.ug
zAMBiAMusa Dudhia & Co.Tel: +260 21 125 3822/62/66Email: info@musadudhia.co.zm
Associate Firm
south AFriCAWebber WentzelTel: +27 11 530 5000Email: webmaster@webberwentzel.com
Regional Office
duBAiAnjarwalla Collins & HaidermotaTel: +971 44 529 091Email: info@ach-legal.com
Affiliates
JMiles & Co.Tel: +254 70 303 2000Email: info@jmilesarbitration.com
Axis Fiduciary LimitedTel: +230 403 2500Email: trust@axis.mu
Horizon Africa Capital LimitedTel: +254 20 374 2614/5Email: info@horizonafrica.com
ALN headquarters
2nd FL, The Axis, MauritiusTel: +230 403 2400Email: alnhq@africalegalnetwork.com
ALN Management team
Apollo Centre, 2nd FL, Wing ANairobi, KenyaTel: +254 70 303 2000Email: alnhq@africalegalnetwork.com
ALN is an alliance of independent top-tier African law firms.