Legal-Notes-December-20141

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 [email protected]

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 [email protected]

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

[email protected]

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 & [email protected]

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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 [email protected]

Editorial Team: Anne Kiunuhe - [email protected] | Elizabeth Karanja - [email protected] | Olivia Kiratu - [email protected] | Patricia Fokuo - [email protected]

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

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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 & [email protected]

Anne Kiunuhe PartnerAnjarwalla & [email protected]

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. [email protected]

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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 [email protected]

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

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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 [email protected] Miles

John Miles has wide experience in international arbitration and investigation, and is a member of ICC’s Fraudnet. [email protected]

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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

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Philip KarugabaPartnerMMAKS [email protected]

Sheila PacutoAssociateMMAKS [email protected]

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

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Sheila PacutoAssociateMMAKS [email protected]

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 & [email protected]

New environmental laws in Zambia

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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.

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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 [email protected]

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 [email protected]

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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).

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(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 [email protected]

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. [email protected]

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 & [email protected]

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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 & [email protected]

“[G. Elias & Co.] make the effort to make sure they protect their clients thoroughly.”Chambers Global 2014

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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 [email protected]

Daniel NgumyPartnerAnjarwalla & Khanna [email protected]

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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


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.

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16 LegalNotes

Eyes on the Money

Ambareen BeebeejaunLegal ExecutiveBLC [email protected]

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

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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

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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 & [email protected]

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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

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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, [email protected]

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

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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!

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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.

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Agency ArrangementsWorking around local ownership requirements in the UAE

Harshil dalalAssociateAnjarwalla Collins & [email protected]

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

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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

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Whistle Blower Protection under environmental and employment law in South Africa

Marius DiemontPartnerWebber [email protected]

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








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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 [email protected]

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








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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 & [email protected]

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.

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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








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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 [email protected]

Prévot van der MerweSenior AssociateWebber [email protected]

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

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Daniel NgumyPartnerAnjarwalla & Khanna [email protected]

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.

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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








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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: [email protected]

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: [email protected]


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: [email protected]


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








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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.

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ALN Member Firms

BotswANACollins Newman & Co.Tel: +267 395 2702Email: [email protected]

BuruNdiMabushi ChambersTel: +257 22 217 475Email: [email protected]

EthiopiATeshome Gabre-Mariam Bokan Law OfficeTel: +251 11 551 8484/4096Email: [email protected]

KENyAAnjarwalla & Khanna (Nairobi)Tel: +254 70 303 2000Email: [email protected]

Anjarwalla & Khanna (Mombasa)Tel: +254 41 231 2848/9Email: [email protected]

MALAwiSavjani & Co.Tel: +265 182 4555Email: [email protected]

MAuritiusBLC ChambersTel: +230 403 2400Email: [email protected]

NigEriAG. Elias & Co.Tel: +234 14 607 890Email: [email protected]

rwANdAK-Solutions & PartnersTel: +250 25 257 0672Email: [email protected]

sudANOmer Ali Law FirmTel: +249 15 515 5554Email: [email protected]

tANzANiAATZ Law ChambersTel: + 255 22 212 0954/6Email: [email protected]

ugANdAMMAKS AdvocatesTel: +256 41 425 9920Email: [email protected]

zAMBiAMusa Dudhia & Co.Tel: +260 21 125 3822/62/66Email: [email protected]

Associate Firm

south AFriCAWebber WentzelTel: +27 11 530 5000Email: [email protected]

Regional Office

duBAiAnjarwalla Collins & HaidermotaTel: +971 44 529 091Email: [email protected]

Affiliates

JMiles & Co.Tel: +254 70 303 2000Email: [email protected]

Axis Fiduciary LimitedTel: +230 403 2500Email: [email protected]

Horizon Africa Capital LimitedTel: +254 20 374 2614/5Email: [email protected]

ALN headquarters

2nd FL, The Axis, MauritiusTel: +230 403 2400Email: [email protected]

ALN Management team

Apollo Centre, 2nd FL, Wing ANairobi, KenyaTel: +254 70 303 2000Email: [email protected]

ALN is an alliance of independent top-tier African law firms.

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