UNFAIR PREJUDICE

1.1  Introduction

In the event of a dispute between a company and its shareholder(s), the shareholder(s) may approach the court with an unfair prejudice claim to protect their interests.

The legal framework for the Unfair Prejudice remedy is the Companies Act, CAP 486, Part XXIX titled ‘Protection of Members against Oppressive Conduct and Unfair Prejudice’. Section 780 titled ‘Application to Court by Company member for order under section 796’ provides;

  (1) A member of a company may apply to the Court by application for an order under section 782 on the ground—

            (a) that the company’s affairs are being or have been conducted in a manner that is oppressive or is unfairly prejudicial to the interests of members generally or of some part of its members (including the applicant); or

            (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be oppressive or so prejudicial.

The provision goes on to provide that;

(2)       In this section, “member”, in relation to a company, includes a person who is not a member of the company but is a person to whom shares of the company—

             (a)       have been transferred; or

            (b)       have been transmitted by operation of law.

We cannot look at unfair prejudice without taking into consideration the renowned case of Velani & 6 others versus Naran & 2 others [2021] KEHC 75 (KLR) [2021] KEHC 75 (KLR). In the said case, Justice Mativo pronounced himself on the unfair prejudice as follows;

“There are two elements to the requirement of unfair prejudice, and both must be present to succeed in a claim:

            (a)        the conduct must be prejudicial in the sense of causing prejudice or harm to the relevant interest of the members or some part of the members of the company (i.e. shareholders), and,

            (b)       it must be unfair.

Fairness is judged in the context of a commercial relationship, the contractual terms of which are, in the main, set out in the Articles of Association of the company and in any shareholders’ agreement. The starting point is therefore to ask whether the conduct of which the shareholder complains is in accordance with the Articles and the powers which the shareholders have entrusted to the board. The best protection for a shareholder is appropriate protection in the articles themselves. Therefore, if the conduct is in accordance with the Articles, to which the shareholder has agreed, it will be more difficult to succeed with an unfair prejudice petition.”(Emphasis Added)

From the preceding, in considering whether to bring a claim of unfair prejudice, one should consider if the conduct complained of deviates from the Articles of Association.

Before delving into how to make an unfair prejudice claim, we will consider examples of actions that may be termed as unfair prejudice and as outlined in the case mentioned above of

Velani & 6 others versus Naran & 2 others [2021] KEHC 75 (KLR) [2021] KEHC 75 (KLR).

      “The categories of conduct which may amount to unfairly prejudicial conduct are not closed. However, common examples of what may constitute unfairly prejudicial     conduct are:

• exclusion from management in circumstances where there is a (legitimate) expectation of participation;

• the diversion of business to another company in which the majority shareholder holds an interest;

• the awarding by the majority shareholder to himself of excessive financial benefits; and

• abuses of power and breaches of the Articles of Association. For example, the passing of a special resolution to alter the Company’s Articles may be unfairly prejudicial conduct if such alterations would affect the Petitioner’s legitimate expectation that he would participate in the management of the Company. Also, repeated failures to hold AGMs; delaying accounts, and depriving the members of their right to know the state of the Company’s affairs may all be unfairly prejudicial to a member’s interests.”

We shall now consider the following;

1.2. Who may bring an unfair prejudice claim;

An unfair prejudice claim may be brought by;

•  A member of a Company;
•  A non-member within the meaning of section 780(2) outlined above;
•  The Attorney General as per section 781 of the Companies Act.

1.3 What are the remedies available;

On filing an unfair prejudice claim in court, should it be deemed that there is unfair prejudice, the court may make orders for the protection of members as per section 782 and enumerated as follows:

• If, on the hearing of an application made in relation to a company under section 780 or 781, the Court finds the grounds on which the application is made to be substantiated, it may make such orders in respect of the company as it consider appropriate for giving relief in respect of the matters complained of.

•  In making such an order, the Court may do all or any of the following:

• regulate the conduct of the affairs of the company in the future;

• require the company—
• to refrain from doing or continuing an act complained of; or
• to do an act that the applicant has complained it has omitted to do;

• authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the Court directs;

• require the company not to make any, or any specified, alterations in its articles without the leave of the Court;

• provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.

1.4. Conclusion

Unfair prejudice is one of the legal remedies that a shareholder may invoke to protect their rights noting that the scope of actions on what constitutes unfair prejudice is wide. In addition, the remedies that are available upon filing of the suit are diverse.

REVISION OF FEES FOR IMMIGRATION AND CITIZENSHIP SERVICES

On 14^th November 2023 and vide Gazette Notice 14592, the Cabinet Secretary for Interior and National Administration revoked an earlier notice that introduced new immigration fees to allow for public participation. The new fees are now in place noting they were to be effective as of 1^st January 2024.

BELOW IS A HIGHLIGHT OF THE REVISIONS:

IMPLICATION OF THE CURRENT IMMIGRATION AND CITIZENSHIP FEES

In a country where people often mistrust the government, it would be important to cast through the veil and examine whether this decision is suitable for the economy. Kenya’s GDP as of 2023 was at 5.4% which is an improvement from the 4.8% in 2022.[1] In light of this, the economy seems to be doing quite well. In any case, emerging economies, such as Kenya’s, have consistently grown faster than advanced economies since 2000.[2] Consequently, it then begs the question of why the government would opt for a revision of the fees noting that immigration generally increases the GDP of the destination country.[3]

The increase in GDP is often because migrants are often motivated to move in search of better economic opportunities. They will work and thereafter spend in the destination country which then boosts the economy. It would then ideally be in the country’s interest to make favorable migration policies. To note though, immigration leads to high economic growth in advanced countries. However, this impact is not felt in developing countries in sub-Saharan Africa. [4] That, however, does not mean that Kenya cannot explore this area to aid in bettering the economy.

IMMIGRATION AND CITIZENSHIP FEES IN OTHER COUNTRIES: UNITED KINDOM (UK)CASE STUDY

To avoid the government’s move looking like one isolated case intended to increase revenue to the coffers with not much development to the country, let us look at the United Kingdom(UK). In the UK, immigration application fees change almost every year. [5]

The UK Courts in the case of Williams, R (on the application of) versus The Secretary of State for the Home Department [2015] EWHC 1268, while dealing with the question of high immigration and citizenship fees held,

“The Home Office Impact Assessment for the Immigration and Nationality (Fees) Regulations 2014 (“the 2014-15 Impact Assessment”) sets out the current overarching fiscal policy objective: “The Home Office must ensure that there are sufficient resources to control migration for the benefit of the UK in a way that achieves value for money for the taxpayer. Government intervention is necessary to ensure a balanced budget… The specific policy objective of this legislation is to generate sufficient income to ensure the Home Office has a balanced budget for the financial year 2014-15. This will enable the Home Office to run a sustainable immigration system – making timely, correct decisions on who may visit and stay and deterring, stopping or removing those who have no right to be here – in a way that achieves value for money for the taxpayer. Policy objectives on immigration and nationality fees are: (1) that those who benefit directly from our immigration system (migrants, employers and educational institutions) contribute towards meeting its costs, reducing the contribution from the taxpayer …”  (emphasis ours)

The Home Office is the entity in charge of immigration in the UK. In the above case, the courts were basically stating that high fees are essential to have the Home Office running and reduce the taxpayer’s burden.

This case was in regard to citizenship fees which had (approximately) doubled since 2011, while immigration fees had increased to ten times in the UK. In this case, the Applicant had applied for judicial review of the decision regarding his immigration application fee which he could not afford to pay. He argued that the British application fees were unsustainable. The Court ruled against him.

CONCLUSION

The Government of Kenya may need revenue and to borrow from the highlighted case above, if an increment in immigration and citizenship fees would reduce the tax burden, then by all means, this should be a welcome move. However, fee revisions should not discourage potential immigrants from Kenya.

HOW WE CAN HELP

Our Immigration team is always available to provide more insight on the implication of the fee revisions or any other immigration matter. Should you have any queries or need clarifications on the contents of this alert, please contact Mr. Elias Ahmed the Associate or Mr. Silas Gitari, the Managing Partner.

[1] The World Bank in Kenya <Kenya Overview: Development news, research, data | World Bank > accessed 11^th October 2024

[2] *Perspectives on Global Development 2017: International Migration in a Shifting World (oecd-ilibrary.org) https://www.oecd-ilibrary.org/docserver/persp_glob_dev-2017 en.pdf?expires=1728898606&id=id&accname=guest&checksum=3F17816867AFEA07606CDDF23FA440EB page 29

[3]The Economics of Migration – Jonathan Portes, 2019 (sagepub.com)https://journals.sagepub.com/doi/full/10.1177/1536504219854712

[4]Migration to Advanced Economies Can Raise Growth (imf.org) https://www.imf.org/en/Blogs/Articles/2020/06/19/blog-weo-chapter4-migration-to-advanced-economies-can-raise-growth

[5] York, Sheona (2018) The ‘hostile environment’: How Home Office immigration policies and practices create and perpetuate illegality. Journal of Immigration, Asylum and Nationality Law, 32 (4). ISSN 1746-7632

COURT OF APPEAL EMPHASIZES ON THE SANCTITY OF TRADEMARK REGISTRATION

The Court of Appeal in Anthony Kiai T/A High Flyer Services and Publishers & another v Peter Mwangi Gichuki T/A High Flyer Publishers & another (Civil Appeal No. E003 OF 2021) recently emphasized on the process and importance of trademark registration.

In this case, the 1^st Appellant and 1^st Respondent were erstwhile business partners in an entity that started as High Flyer Services which was later registered as High Flyer Services Limited. They were engaged in the business of publishing books in a series known as Comprehensive Topical. They later parted ways and each continued with the same publishing business in their individual capacities.

A dispute arose in the year 2011 which led to the Appellants filing HCCC. No. 45 of 2011 citing trademark infringement as well as the tort of passing off. The 1^st Appellant case was that on 2^nd November, 2006, he registered a trademark that comprised an image of a flying eagle holding three books by its talons with the phrase High Flyer Series next to it.  Thereafter, the 1^st Appellant used his company, the 2^nd Appellant, in publishing, promoting, selling, supplying and distributing books under the said trademark. In 2007, the 1^st Appellant introduced and published the High Flyer Series Combined (8) Encyclopedia and updated it from time to time. The appellants further averred that the 1^st Respondent continued to publish books under the previous brand i.e., Comprehensive Topical. However, in 2011, the 1^st Respondent stopped using the said brand on his books and copied the design, name, content, pictures and colour of the 1^st Appellant’s books. The 1^st Respondent published a book known as Combined Encyclopedia            Standard 8 using the Appellants’ trademark. The 1^st Appellant further alleged that the 1^st Respondent had not only changed the brand name but he also had an image of a flying eagle holding a manuscript with its talons with the phrase High Flyer Series next to it.

The Respondents on the other hand filed a Defence and Counterclaim and contended that the 1^st Appellant illegally and fraudulently registered the trademark High Flyer Series in 2006 yet the mark had been extensively marketed and used by High Flyer Services and High Flyer Services Limited which they co-owned, and without the 1^st Respondent’s knowledge. He also claimed damages for loss of business.

The trial court held that the 1^st Appellant did not have good intentions when registering the trademark as his action amounted to stealing a march from the 1^st Respondent on the basis that they had both used the mark High Flyer Series as a business brand in their company. It was further held that the 1^st Appellant was quiet about the registration for about 4 years before putting up the notice in the daily newspaper, and that he had acquiesced to the 1^st Respondent’s usage of the trademark and could not be heard to cry foul. The Court subsequently dismissed the plaint and awarded general damages to the tune of Kshs. 20 million for the loss of business.

On appeal, the Court of Appeal relooked at the evidence afresh and came up with two issues for determination:

• Whether the trial court erred by failing to consider whether there was infringement of trademark; and
• Whether the court erred by awarding damages of Kshs. 20 million for loss of business.

The court began by looking at the definition of trademark under the Trademarks Act, requirement for registration under the Act as well as opposition to registration upon advertisement of the same by KIPI. The Court noted that the 1^st Appellant lodged an application for registration of trademark which was subsequently advertised in the KIPI journal for 60 days and no objection was raised. The Court faulted the trial judge for failing to consider the relevant issue before him, to wit, registration of the trademark. It was held that upon making an application and the same being advertised in the KIPI journal, the 1^st Appellant had no obligation to inform the 1^st Respondent or any other party that he had intentions of registering the trademark.

The Court observed that the 1^st Respondent not only copied the 1^st Appellant’s book (Encyclopedia for Standard 8) but also used the 1^st Appellant’s trademark which was an infringement, and that this action intended to confuse the consumers of the Appellants’ products. The Court highlighted that the trademark was a combination of a flying eagle holding three books with its talons with the phrase High Flyer Series. However, the 1^st Respondent did not claim the flying eagle holding three books with its talons, yet the trademark comprised both the image and the writing. It is noteworthy that the 1^st Respondent admitted that in his Encyclopedia for Standard 8(New Edition), he had a brown flying eagle holding a manuscript with its talons with the phrase High Flyer Series and the book had yellow-green colour, similar to the appellants’ encyclopedia.

It was noted that in assessing trademark infringement, the Court ought to consider the likelihood of confusion on the part of the public. Further, the Court found that the trial judge erred for not appreciating the trademark as registered, the requirements of the law and for also finding that the 1^st Appellant acted in bad faith or fraudulently. The Court emphasized that the trademark ought to have been appreciated holistically i.e., the mark together with the phrase as opposed to looking at the phrase which is one single element. Section 7 of the Trademarks Act was relied on in showing that a proprietor of a valid trademark has exclusive rights to the use of the trademark and that the right is infringed when a person uses a mark that is similar or nearly resembling the trademark in question which is likely to cause confusion.

Finally, the Court analyzed the claim for loss of business and found that the same was not specifically pleaded. It was emphasized that claims of loss of business due to trademark infringement are akin to claims for special damages and must therefore be specifically pleaded and supported by evidence. In light of this, the award of Kshs. 20 million was overturned.

Conclusion

This case lays emphasis on the importance of trademark registration and the rights that accrue from such registration. It gives a proper road map of assessment of trademark infringement in order to ensure that no party suffers injustice as a result of improper assessment of infringement claims.

COURTROOM ALLIES: DECODING AMICUS CURIAE AND INTERESTED PARTY DYNAMICS

INTRODUCTION

In legal proceedings, parties may be designated as either “Amicus Curiae” or
“Interested party,” each carrying distinct implications and levels of participation. This
article aims to elucidate the circumstances under which parties assume these
designations and explores the extent of their involvement in legal proceedings.

1. AMICUS CURIAE
   An Amicus Curiae is simply a friend of the Court. In Kenya, the Mutunga Rules define a
   ‘friend of the court’ as an impartial expert on the cases’ subject matter, benefiting the
   court with their expertise. An amicus curiae provides the court with important
   information to aid in decision-making.
   The Supreme Court in the case of Trusted Society of Human Rights Alliance v
   Mumo Matemu & Others (2015) eKLR set the standards for the joining of an amicus
   curiae. The court held that the Constitution of Kenya, 2010 requires the court to develop
   the law to the extent that it does not give effect to a fundamental right or freedom and
   adopts an interpretation that promotes the same. This, the Court argued, was the very
   foundation for well-informed inputs before the Court, which inherently, justifies the
   admission of amici curiae. Specifically, the Court was emphatic that an amicus curiae
   ought to come into the proceedings on a foundation of neutrality. In simple terms, an
   amicus curiae joins only to assist the Court in arriving at a just determination. They
   should therefore be impartial.
   On the procedure of admitting an amicus curiae, the Mutunga Rules provide that a
   person may be admitted as a friend of the court either on oral or written application or
   on the court’s own motion if the court is satisfied that the person has expertise that may
   benefit the court in determining the matter before it.
   Moreover, Rule 54 of the Supreme Court Rules of 2012 provides that the Court may in
   any matter allow an amicus curiae or appoint a legal expert to assist the Court in legal
   submission, or at the request of a party or on its own initiative, appoint an independent
   expert to assist the Court on any technical matter.
   Further, it provides that the Court shall before allowing an amicus curiae, take into
   consideration the expertise, independence and impartiality of the person in question
   and the public interest or any other relevant factor it deems fit. Lastly, it provides that
   the fees and expenses of an advocate or expert appointed by the Court on its own
   motion shall be paid out of the Judiciary Fund in accordance to the scale of the Fees set
   out by the Chief Justice from time to time.
2. INTERESTED PARTY
   Section 2 of the Mutunga Rules provides that an interested party is a person or entity
   that has an identifiable stake or legal interest or duty in the proceedings before the
   court but is not a party to the proceedings or may not be directly involved in the
   litigation.
   The basis for joining a person or entity as an interested party into proceedings are
   founded in the Constitution of Kenya, 2010 under Articles 3 and 258 which mandate
   any person, regardless of personal injury, to defend the Constitution. These provisions
   bestow every person, natural or juristic, a locus standi before any court in the event a
   right or freedom is or likely to be breached.
   In addition, Article 22 gives every person claiming that a right is being denied,
   breached, infringed or threatened a right to institute proceedings in court. It further
   provides under sub-article 2 (b) and (d) that the proceedings may be instituted by a
   person acting on behalf of a class of people or an association acting on behalf of its
   members. This provision allows joining of societies, persons acting in matters of public
   interest, and professional organizations to be joined in matters of public importance.
   The Supreme Court in the Communication Commission of Kenya & 4 others v
   Royal Media Services Limited & 7 others [2014] eKLR provided the qualifications for
   one to be joined as an interested party. The Court relied on the holding of the High
   Court in case of Meme vs Republic [2004] 1 EA 124 where the court held that joinder
   of the interested party would result in the complete settlement of the matter in dispute,
   provide for the protection of the rights of party which would otherwise be adversely
   affected and to prevent a likely course of proliferated litigation. The court further noted
   that two key questions need to be answered in determining whether or not to join a
   party into the proceeding. These questions are: what is the intended party’s state
   and relevance in the proceedings? and, will the intended interested party suffer
   any prejudice if denied joinder?
   In accordance with Order 1 Rule 10(2), an interested party can be joined into
   proceedings either on application by the party or by the court on its own volition. A
   party applying to be joined into proceeding will do so vide a Notice of Motion supported
   by an affidavit stating the reasons why the party should be joined as an interested party.
   In conclusion, the role an interested party plays in proceedings cannot be understated.
   The role of an interested party in proceedings serves to protect the rights or an interest
   of a party that was not included ab initio. An intended interested party must demonstrate
   that they have an interest in the proceedings that would otherwise be adversely
   affected. The joinder of an interested party seeks to ensure that a matter is completely
   settled.

CONCLUSION

In conclusion, unlike an amicus curiae, an interested party has a direct interest in the
subject matter of the suit and will be affected by the Court’s Judgment. An amicus
curiae, on the other hand, serves as an “advisor to the court” rather than to the parties
involved. They are not bound by the resulting judgment, except as a matter of
precedent. Additionally, amici curiae cannot be perceived as extensions of the court;
they should not advance any party’s case and must not extend their participation into
the realm of an interested party in legal proceedings.

THE ENFORCEABILITY OF A LETTER OF OFFER IN A PROPERTY TRANSACTION

The Letter of Offer, sometimes referred to as a letter of intent, is a document typically drafted by the Vendor in a property transaction where the Purchaser expresses their interest to purchase the land for a certain price. Usually, the Purchaser pays a reservation fee, which is nominal compared to the deposit required under an Agreement for Sale.

A party that has signed a Letter of Offer may be legally bound to honor it, depending on how the letter is drafted. In conventional transactions, a Letter of Offer generally includes a provision stating that it is non-binding. Even without such a provision, a court might rule that the letter is merely an expression of intent.

Is a Letter of Offer a legally binding document? To answer this, it is essential to understand the different types of Letters of Offer that may exist. 

The Conditional Letter of Offer

A Letter of Offer can be conditional, usually contingent on the Purchaser entering into a formal contract or Agreement for Sale. This type of offer letter implies an understanding to formalize the contract. If the Purchaser does not sign an Agreement for Sale by the specified deadline, the offer expires, the Vendor can accept other offers, and the Purchaser forfeits the reservation fee. Essentially, such a conditional offer letter is not binding.

The principle here is that an agreement to enter into a contract is not yet a binding contract. When many terms are not finalized and there is room for further negotiation, the law does not recognize it as a binding agreement. This was affirmed in Charles Grenier Sdn Bhd v. Lau Wing Hong [1997] 1 CLJ 625, where the Federal Court recognized that a contract to enter into a contract does not have binding effect.

Similarly, in East African Fine Spinners Limited (in receivership) & 3 Others vs. Bedi Investments Limited (1994) eKLR, Gicheru JA referred to Winn v. Bull (1877) 7 Ch D 29, noting that a proposal expressed to be subject to a formal contract means it is dependent on that formal contract being prepared and executed. This position was upheld in Kessel Homes Limited v John Kimotho Nginga & another [2021] eKLR as well as Mwago v Kings Pride Properties Limited (Civil Appeal E148 of 2022) [2023] KEHC 21733 (KLR) (Commercial and Tax) (29 August 2023) (Judgment).

In Keppel v. Wheeler & another (1927) 1 KB 577, it was held that accepting an offer subject to a contract means the matter remains under negotiation until formal contracts are exchanged. Therefore, Letters of Offer made subject to a formal contract or Agreement for Sale are not legally binding.

The Unconditional Letter of Offer

An unconditional Letter of Offer has no conditions attached. Once accepted, the Purchaser is bound to complete the purchase and cannot cancel the agreement for any reason. Similarly, the Vendor, upon signing the Letter of Offer, is obligated to sell the property to the Purchaser. Unless it explicitly states that it is non-binding, an unconditional Letter of Offer is a binding document.

The Courts have shown flexibility in analyzing the enforceability of Letters of Offer in property transactions, albeit rare. For example, in the Malaysian case of Syarikat Pertanian Emmal Sdn Bhd v. Tractors Malaysia (1982) Sdn Bhd [2009] 4 MLJ 223, the court considered whether a binding contract was formed when the Vendor accepted the Purchaser’s offer to buy land and requested a 5% earnest deposit. The Purchaser issued a letter of intent and enclosed the earnest deposit, leading to a dispute when the Vendor attempted to withdraw the accepted offer.

The court examined the pre-contract documents and found that the duly signed letter of acceptance, including all material terms, was sufficient to form a contract. The essential terms—parties, price, property—were all identified, and the intention to enter a contractual relationship was evidenced by the earnest deposit. Referencing Damon Cia Naviera SA v. Hapag-Lloyd International SA [1985] 1 All ER 475, the court noted that payment of a deposit is a term of the contract, not a condition precedent to the formation of contractual relations.

The conduct of both parties indicated an intention to enter into a binding agreement. Consequently, the High Court ruled in favor of the Purchaser, allowing specific performance of the agreement with costs.

Conclusion

In conclusion, the enforceability of a Letter of Offer in property transactions hinges on its content and the conduct of the parties involved. Courts will consider these factors to determine whether a binding agreement exists. Conditional Letters of Offer generally are not binding, while unconditional ones can be, unless explicitly stated otherwise. Understanding these nuances is crucial for both Vendors and Purchasers in navigating property transactions.

How we can help

At AGO Advocates LLP, we are committed to ensuring all our clients comply with all legal and regulatory requirements. In this regard, our services include structuring commercial and conveyancing transactions to conform to the intention of the parties as well as comply with the legal tenets that govern such transactions. Get in touch for any inquiry via (+254) 020-22 11122 /0100 211 122 or info@agoadvocates.com

CHALLENGES IN ENFORCEMENT OF TRADEMARK RIGHTS IN KENYA

1. Introduction

A Trade Mark is a sign which serves to distinguish the goods or products of an industrial, commercial or organizational enterprise or a group of such enterprises from others in the same market. The sign may consist of one or more distinctive works, letters, numbers, drawings or pictures, monograms, signatures, colors or combination of colors.

The following marks can be registered in Kenya:

1. Trademark for goods;
2. Trademark for services;
3. Collective trademarks;
4. Certification trademarks;
5. Defensive registrations;
6. Parts of marks; and
7. Series of marks

The advantages of the registration of a trade mark is that the registered owner gets the exclusive right to use the registered mark, distinguish between competing goods and services in the market and is entitled to institute proceedings and recover damages for infringement.

Kenya applies the Nice Classification (11th edition – 2017), and a trademark proprietor may apply to register a mark in more than one class through a single application. The registration process involves examination, advertisement and possible opposition by members of the public before issuance of the certificate of registration. Where a notice of opposition is filed against an application, the registration process will stop and opposition proceedings will commence in which the applicant bears the burden of proving that the opposition lacks merit or is not justified. Trademark registrations are valid for 10 years and may be renewed for further consecutive periods of 10 years each.

2. Legal Framework for Enforcement of Trademarks

3. Institutional Framework for Enforcement of Trademarks

4. Challenges in Enforcement of Trademarks

a. The provisions governing Trade Marks are fragmented in different statutes.

b. There are insufficient criminal sanctions. The penalties (both pecuniary and custodial sentence) for infringement of trademark rights are too lenient and do not act as a deterrent.

c. There is no single institution primarily tasked with the role of enforcing trademarks. They each handle different aspects or types of infringements. This can lead to laxity, turf-wars and confusion as to which body to approach to enforce the trademarks rights.

d. Lack of sufficient knowledge, expertise and capacity of trademark laws, rules and international best practices, by the enforcement institutions and the judiciary.

e. Corruption is rampant. For example, counterfeit goods are allowed to pass through our borders illegally under the watch of the police and customs officials.

f. There is limited funding and personnel at the enforcement agencies.

5. Recommendations

I. The Kenyan legal framework should be amended to include types of infringement of the trademarks, to expand the statutory law on trademark infringement and to enhance trademark offences.

II. The institutions tasked with trademark enforcement should be amalgamated to create a multi-sectorial agency to enforce the trademark rights.

III. Different initiatives should be created for capacity building of enforcement institutions, through training and secondment of these officials in countries and international organizations that have exemplary trademark enforcement practices.

IV. The judiciary should train and appoint specialized judicial officers who are knowledgeable and have expertise and diverse knowledge on trademarks in order for jurisprudence to be expanded in this area.

The Intellectual Property team is always available to provide more insight to the provisions of this Act. Should you have any queries or need clarifications on the contents of this alert, please contact Ms. Gakii Kaburu the Associate or Mr. Silas Gitari, the Managing Partner.

SMART CONTRACTS: THE FUTURE OF TRANSACTIONAL PRACTICE

Introduction

The concept of block chain technology is still new and its utilization at the inception stages. Simply put, a block chain is a database (public or private) that records information in a systematic basis and on a platform that is visible and accessible by users simultaneously. Block chains therefore assist in assuring that transactions or requests introduced onto the networks can be validated in a decentralized system by means of algorithms. Therefore, any transaction or request entered can be assessed or audited by other participants and is not susceptible to unauthorized alterations.

Owing to the decentralized manner in which the block chains can be operated, they hold the potential to irredeemably alter many aspects of transactional practice. There are many examples that already illustrate the potential of block chain. These include crypto currencies such as ethereum and bitcoin. Furthermore, Fintechs are already using block chains to effectuate cross border micro payments and in stock trading. Based on the fact that their use ensures immutable, safe and automated execution of agreements, they are going to completely disrupt contacting for the better.

Block Chains and Smart Contracts

As illustrated above, the qualities of certainty and automated execution make block chains one of the most disruptive technologies yet to be seen. If used in the area of concluding contracts- as smart contracts-intermediaries such as investment advisers, lawyers, architects et al are eliminated from the contracting process because the process becomes peer to peer. Smart contracts are platforms or computer programs that can help facilitate contracting; that is negotiation, reaching consensus and execution of contracts by use of the block chain concept.

Smart contracts utilize the concept of block chains by introducing the necessary algorithms into a network/block chain where the interactions over the algorithms are not limited to a single person or entity. An obligation such as payment for the transfer of an electronic security may be effected from Party A to Party B once Party B meets the requirements of the algorithms that have been set in the block chain to be necessary steps for the transfer of property in the security to A in fulfilment of party B’s obligations to party A. Upon meeting the requirements of the algorithms, there is an automatically legally binding agreement without human intervention, a central depository or an intermediary such as an agent or stock broker.

The Upside of the use of Smart Contracts

Generally, smart contracts engender certainty in that contracts are automatically executed once the conditions required are met and third parties are eliminated in that interactions are purely between the contracting parties. The following are some of the specific benefits that derive from the use of smart contracts:

1. Better efficiency in transactions- Immediately upon fulfilment of requisite conditions, the contract is executed automatically
2. Reduced transactional costs associated with third parties. Use of third parties such as transactional advisers and intermediaries such as central depositories, stockbrokers and agents generally is eliminated
3. Transparency is enhanced due to the visibility of the chain to other members who validate transactions, there is therefore some form of automated internal control
4. Risks of contractual breaches is greatly reduced. Obligations ought to be met before the automated execution.

Challenges of the use of Smart Contracts

Despite the foregoing, even at these initial stages of development; certain challenges can be foreseen. These include:

1. There is no room for the intervention of regulatory agencies such as the Consumer Protection Agency, the Competition Authority of Kenya and the Capital Markets Authority.
2. Despite the decentralized nature of the block chain platform on which smart contracts operate, there is still a risk of hacking. Bit coin has been found to be susceptible to transfer Trojans and Ethereum which mixes the concept of block chains and smart contracts has also been found wanting. Further, DAO, Parity, Coindash and Etherpary have lost millions of dollars to hacking.

Potential future uses of Smart Contracts in Kenya

1. Supply Chain Management

In supply chain, once an order is placed, before the actual products reach the person placing the order, there are several intermediaries. The intermediaries in the case of a supply chain include professionals, customs agents, banks and other government officials. These categories of intermediaries act as administrators or validators at different points in the process of the transfer of property. If the smart contract aspect of block chains is utilized, the person placing an order and the recipient can interact on the networks without need for intervention by the intermediaries.

1. Land Transactions

Governments including Honduras, Ghana and Georgia are already undertaking projects aimed at administration of land through block chains. The Kenyan government should embrace the use of public block chains in order to automate records involving the ownership, use and transfer of land. This will eliminate corrupt practices that have shrouded land transactions over the years.

1. Stock Trading

Smart contracts can also be utilized for purposes of trading in stock exchanges. The nature of the contracts will enable instantaneous execution of contracts upon fulfilment of requisite inbuilt conditions. Since the contracts are negotiated and executed on peer to peer basis and intermediaries such as stock brokers, transactional advisers are excluded, the process of stock trading is made more efficient and cheaper.

1. Protection of Intellectual Property

Intellectual property owners have borne the brunt of internet sharing of copyrighted material.  Upon loss of control of copyrighted material, there have been immense financial losses in terms of potential earnings. Through smart contracts, the access and purchase of such material can be automated and therefore reduce the possibility of copyright infringement and redistribution. These forms of contracts are already widely used with software licenses.

1. E-Commerce

Smart Contracts can be used in the online purchases of goods and services where the type of contracts is in the form of click wrap contracts. This can be used to facilitate online transactions in which the user must agree to terms and conditions prior to using the product or service.

Conclusion

There is undeniable evidence that smart contracts will alter the conduct of transactional practice. It will greatly enhance efficiency in the manner in which contracts are concluded and executed. Further, if governments fully utilize smart contracts in the conveyance of both real and movable property, corruption will be greatly reduced and transactional turnaround times slashed by more than 50%. Evidently, there is a possibility that entities which do not adopt to the changing times will be overtaken by technology.

Consequently, the law will have to evolve to support and fortify the technology in order to effectuate its uptake. On the other hand, commercial lawyers must keep themselves abreast of these new developments in order to ensure that all possible loopholes including vulnerability or loss that may emanate from an agreement arising out of a smart contract is mitigated. These are factors that will help mitigate the challenges arising from the use of smart contracts.