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Lending Out Money Safely
Lending Out Money Safely 150 150 Admin_salclaw

lend money
We have time and again encountered clients who lend money to colleagues, friends, family and other acquaintances on the basis of a trust relationship and in most cases by a way of an oral gentleman’s agreement. It has however become evident that many of this debts are never paid the end result of such informal transactions being broken relationships, broken trust and losses made.
If you want to safely lend money to somebody who is personally known to you it is always advisable get a qualified advocate to prepare a legally binding loan agreement between you and the borrower. Where such an agreement specifically provides for the provision of security for the loan advanced.
It is always important therefore to demand for security where you are lending someone a huge amount of money that you cannot afford to write off. A security can be in the form of the following:
Chattels mortgage- this is a term used to describe a loan arrangement in which an item of movable personal property is used as security for the loan. A chattel mortgage is a loan that is secured by chattel rather than by real property. Where movable property will include cars, household items, form produce e.t.c. With a chattel mortgage, the lender holds a lien against the movable property (chattel) until the loan has been satisfied, at which point the borrower resumes full control of the chattel. In case of default the lender can exercise their right of repossession in respect to the chattel.
Another way in which a lender can secure a debt is by way of transfers, in this regard a loan agreement provides for the depositing of ownership documents of the security e.g. a log book, the loan agreement thereafter specifically provides for the execution of post dated transfer documents between the parties and where the borrower defaults then the lender through his lawyers will be at liberty to lodge the said transfer for registration and thereafter repossess the security.
A loan agreement can provide for the borrower to do a power of attorney in respect of the security in favor of the lender, and thus where the borrower defaults  the executed power of attorney is registered in favor of the lender and the lender gets the power to deal with the security as they please.
A loan agreement can also have guarantors who pledge to fulfil the borrower’s obligation should the borrower default.
In conclusion it is always important to visit an advocate for proper guidance on how to safely lend money.
Written by
Mweresa Eugene Sudi
SUDI & ASSOCIATES

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STANDARD OF PROOF IN IMPEACHMENT PROCEEDINGS
STANDARD OF PROOF IN IMPEACHMENT PROCEEDINGS 150 150 Admin_salclaw

audits, research & drafting
Burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required by law.In determining the burden of proof in impeachment proceedings has been debatable across the world, while contributing to the never ending debate Senator Miriam Defensor Santiago of the Senate of the Philippines while giving a keynote speech at the Joint Annual Convention Of The Philippines Society Of Hypertension said that, “an impeachment trial is a unique process, because it is a hybrid. Impeachment is both quasi-judicial and quasi-political. It is neither a civil case nor a criminal case. A criminal case is designed to punish an offender and to seek retribution. In contrast, impeachment is the first step in a process that tries to remedy a wrong in governance. It has been said that the purpose of impeachment is not personal punishment, but rather to maintain constitutional government, through the removal of an unfit official from a position of public trust.” The words quoted above are important in that they give the Kenyan Senate much needed direction on a question that has elicited unsettled debates depending which side of the road one lies
Therefore in determining the standard of proof, the question that comes to mind is the nature of impeachment proceedings i.e. are they civil, criminal or administrative. The standard of proof in civil cases in Kenya is on a balance of probabilities, while that of criminal cases is beyond reasonable doubt.
Proof beyond reasonable doubt is that degree of proof which produces a conviction in an unprejudiced mind which arises from moral certainty and not absolute certainty that the person to be convicted is guilty of a crime. One is therefore right to conclude that the end result of proving a case beyond reasonable doubt as is in criminal proceedings is a conviction. Bearing in mind the above it is therefore necessary to analyze the nature of each type of proceedings i.e. civil, criminal and administrative so as to determine the required standard of proof.
It is in order to conclude that impeachment proceedings are neither civil in nature nor criminal in nature. Impeachment proceedings are administrative in nature. Justice Joseph Story of the United States Supreme Court held that, “The design of impeachment is to remove the impeachable officer from office, not to punish. An impeachable act need not be criminal. That explains why the Constitution states that the officer removed shall be subject to prosecution in an ordinary criminal case” From the above quote it is clear that impeachment proceedings are not criminal in nature but administrative due to the simple fact that the end result is purely the removal of an officer from office.
Having determined that impeachment proceedings are neither civil nor criminal but indeed administrative in nature, the next question that arises is, what is the standard of proof in administrative proceedings?
Yale Law professor Charles Black Jr. who had published “Impeachment: A Handbook” in 1974. Prof. Black had written about “overwhelming preponderance of the evidence” as a suggested mid-level standard for impeachment cases. Black wrote: “Weighing the factors, I would be sure that one ought not to be satisfied, or anything near satisfied, with the mere ‘preponderance’ of an ordinary civil trial, but perhaps must be satisfied with something less than the ‘beyond a reasonable doubt’ standard of the ordinary criminal trial, in the full literal meaning of that standard. ‘Overwhelming preponderance of the evidence’ comes perhaps as close as can to denoting the desired standard.”
The words of Charles Black which we are swayed by, suggest that the standard of proof in administration cases should be high above a balance of probabilities as required in civil cases but should not reach beyond reasonable doubt as required in criminal cases. This assertion by Charles Black would be the most appropriate as it would guarantee the integrity of the impeachment proceedings

In the United States there has been debate on the burden of proof required in impeachment proceedings. The argument of beyond reasonable doubt i.e. the highest threshold in proving a case has been argued by those facing impeachment proceedings, on the other hand the members of the houses of senate and congress have argued for a lower standard of proof. The argument on the appropriate standard of proof in impeachment proceedings was played out in the 1986 Senate impeachment trial of Judge Harry Claiborne, where the attorney’s of the judge filed a motion to designate beyond a reasonable doubt as the applicable standard for the Senate in reaching its determination in support of the motion they argued that the constitutional language made it clear that an
impeachment trial was in the nature of a criminal proceeding; the standard of proof in all
criminal trials is beyond a reasonable doubt; historically impeachments have been
conducted in the nature of a criminal proceeding; and the consequences for the defendant
were grave, requiring the prosecutors to be held to the highest standard of proof, beyond
a reasonable doubt. The response of the House Managers in opposition to the Claiborne motion noted that the reasonable doubt standard was designed to protect criminal defendants who risked forfeitures of life, liberty and property. Such a standard was inappropriate, they maintained, because the Constitution limits the consequences of a Senate impeachment trial to removal from office and disqualification from holding office in the future, explicitly preserving the option for a subsequent criminal trial in the courts. The end result was that the Senate refused to impose the reasonable doubt rule as the Senate standard, individual members undoubtedly applied that standard in their own minds when weighing the sufficiency of the evidence in the Claiborne case.
In summary the United States Senate has traditionally left the choice of the applicable standard of proof to each individual Senator. While rejecting a motion to make the criminal standard the standard in the Claiborne impeachment, the discussion made clear that it was simply a decision to allow each member to make that choice and not a repudiation of the standard itself. Individuals might apply that or any other standard of their choice. A walk through history and an examination of the discussions of legal commentators may aid individuals in weighing their choices, but provides no definitive answers. Indeed, such an exercise is perhaps most useful in highlighting basic questions that members will want to ask themselves when searching for the appropriate standard.
I support the position of the United States and more particularly the position of Charles Black i.e. the standard of proof should be higher than on a balance of probabilities and lower than beyond reasonable doubt due to the simple fact that impeachment is an administrative function of the Senate and though quasi judicial, it is neither civil nor criminal in nature. We are also guided by Professor
Rotunda suggests that the appropriate standard of proof should be “clear and convincing
Evidence, this is an intermediate standard used in some important civil cases, more than preponderance and less than a reasonable doubt. Clear and convincing evidence is typically defined as that measure or degree of proof which will produce in the mind of the trier of facts a firm belief or conviction as to the allegation sought to be established.”

Written by
Mweresa Eugene Sudi
Sudi & Associates

 

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The Fundamental Position of Legal Auditing in Corporate Kenya
The Fundamental Position of Legal Auditing in Corporate Kenya Admin_salclaw

Introduction

The business environment is getting more complex by the day with regard to the legal implications of transactions and relationships between companies and other stakeholders in the society. The emergence of an integrated global economy and international trade have in turn increased the rights and duties owed by the company to those more traditional ones. The responsibilities of a company and its leadership have widened from the traditional one to shareholders to a more diverse duty to the employees, consumers, suppliers and distributers, to the government and to the foreign governments in countries where the company operates or its products are sold.

The emergence of labor relations, environmental protection issues, consumer protection regime and the intergovernmental relations have brought about consciousness of rights and regulation of businesses compliance of which is required in most cases as a matter of law. This has resulted in a more complex legal regime in which the regulators in the society impose heavy fines and stringent measures, such as criminal prosecution, for non-compliance with the laws and regulations in place to the financial detriment of the company.

These transactional and contractual complexities require qualified, well-balanced and focused legal input so as to come up with remedies and preventive mechanisms to shield the company from possible legal conundrums by maintaining its legal health. Therefore, it is vital that the companies conduct legal audits to ensure the compliance with the laws and policies so as to prevent or minimize the risk of litigation.

What is a Legal Audit?

A legal Audit is a systematic review of the company’s transactions, contracts and practices to establish its legal status, identify potential legal problems and help minimize its legal liability. It involves inspections of the company’s activities to establish their compliance to its constitution, the national and the international laws as the case may be. A legal Audit seeks to establish the adherence to all laws, rules and regulations that are applicable to the company in undertaking its objectives.

Who does it?

A legal audit is done by a lawyer who may be an in house counsel or an external lawyer. The benefits of it being done by an in house counsel is that he already knows the internal processes and therefore will save time. However, it is more advisable to have an external lawyer to do the audit so as to bring in a new perspective of the processes.

It is also advisable to bring in a lawyer who is a qualified advocate so as to be covered under the advocate-client privilege and also so that incase there is an additional transaction or litigation work to be pursued he has the capacity to undertake it without putting the company in a further legal abyss. The advocate-client privilege will be vital in safeguarding the company’s information, documents and communication revealed to the lawyer so as to avoid their being used in litigation against the company.

When is it done?

The instances or intervals within which a legal audit ought to be done will depend on the particular company concerned. Several factors will guide the decision such as the size and structure of the company, the complexity of the industry or the transactions and the frequency in the change of laws and policies in the sector. However, the audit should be done periodically and with guidance as to the company’s last audit.

It is also advisable for a company to order a legal audit immediately a board or a management team is dismissed and a new one is appointed. This should be done especially if the previous board is accused of past legal improprieties or questions have been raised on the company’s legal position.

What does it involve?

The conduct of a legal audit is normally focused on compliance to existing laws and policies. This may be with regard to the whole company, especially if a legal audit has never been done before, or it may be focused on a certain set of transactions, law or policy as the management will decide or focused on the company’s potential problem areas with the lawyer’s advice.

Every audit is usually unique based on the company, the transaction or subject to be audited or the lawyer undertaking the audit. However, one thing that stands out is that thelegal audit is usually required to evaluate the company’s current andfuture legal issues in light of the company’sneeds and industry standards and to come up with effective solutions for the organization.

Generally, the lawyer comes up with an Audit Plan which is discussed with the management and approved. Once approval has been obtained, the lawyer comes up with a questionnaire which is submitted to the company’s employees with the relevant knowledge for answers and also requests for documents to be submitted for review. The Lawyer then reviews the company’s transaction files and processes either randomly selected as is done in the accounting audits or the whole files with regard to the subject which is normally based on the complexity of the audit.

The Audit may focus on various subjects including the form of business organization that is most suitable, review of taxation law compliance, review of Intellectual Property issues and use of internet, Human resources and employee benefits, ongoing and threatened lawsuitsand Corporate Governance which is currently an important requirement when dealing with international investors and doing business in some of the developed countries among others.

If the Lawyer requires any clarification as to the documents submitted or answers given he may interview the employees either by phone or in person. The Lawyer will thereafter come up with an initial list of findings which will be submitted to the management for their feedback. After this the lawyer will analyze the findings and come up with recommendations which will be included in an Audit Report stating whether the company is compliant or not.

A written Audit Report is then issued and personal training sessions with the relevant employee carried out, if possible, with the aim of addressing the specific issues uncovered and promoting the best possible practices within the company.

Why is it important?

The main benefit of carrying out a legal audit is to identify the company’s legal liabilities and risks beforehand and come up with a way of averting potential lawsuits and penalties. This is a sure way of saving the company’s money in litigation costs and other unnecessary expenses. The audit also examines the company’s contractual position with its employees, customers and other players such as insurance and proposes possible remedies if potential problems are identified. In such a case it will go a long way in averting personnel problems as the lawyer conducting the audit can review and suggest updates in the company’s contract and policies so as to avoid issues such as unfair labor practices, discrimination and sexual harassment.

It also helps the company become or remain compliant with the laws and policies in place as it exposes the laws that have not been complied with and provides for ways of complying with them thus safeguarding the company’s legal position. It fosters observance of rules and regulations in place, especially in a regulated industry, thus saving the company money that would be spent on the settlement of hefty fines imposed as a result of their breach.An example is with regard to the burgeoning environmental laws and policies coupled with strict regulators where such an audit will help the company to be steadfast in complying with the complex area of law. This also results in enhanced compliance reputation which is a sign of quality.

A legal audit is also an opportunity to update the company’s records, registrations, and licenses with a view to promotingits rights and legal position.Once the employees and the management have been trained on the compliance issues it will lead to improved internal processes and systems. It can also focus on such issues as the company’s tax requirements with a view to establishing the company’s position and finding ways of lessening its tax liabilities.

It also demonstrates that the company’s directors and management have carried out due diligence with regard to the activities undertaken thereby minimizing their exposure to personal liability.

The consequences of failing to comply with the laws and policies are grave and costly. Some of them include the revocation of licenses, legal action against directors for breach of trust, fines being imposed against the company, losing existing tenders and the company being involved in ultra vires transactions which may occasion the directors being personally liable.

Conclusion

A legal audit is vital for any company and will go a long way in helping to avoid unnecessary losses and penalties that might lead to the business suffering unnecessary costs or at the extreme closing up. It will enable a company to achieve its objectives with minimal risk to its management, employees and shareholders. Kenyan businesses should, therefore, embrace the idea of a legal audit as it is a sure way of minimizing the potential exposure of the company to lawsuits and penalties.

Prepared by
Collins Bush Wanjala
Consultant
Sudi & Associates

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Legal Basis for Property Rates
Legal Basis for Property Rates Admin_salclaw

Legal basis for property rates

Article 209(3) (a) of the Constitution of Kenya gives County governments the power to impose property taxes. Land rates are just but one of the many kinds of property taxes that the County governments can impose. Such kind of property taxes plays a major role in the financing of local authorities not only in Kenya but across the world. Land rates are an avenue by which County Governments are meant to raise revenue to supplement what the National Government is devolving in order ensure the respective development agenda is achieved. Thus the most important form of tax collected by local authorities now County Governments in Kenya are the rates which are levied on land and buildings. The Valuation Rating Act Cap 266 and Rating Act Cap. 267 are the basis of rating. Under the law, rates in Kenya are payable by individual property owners, business and the government. They are payable to the local authority in which the property is located. Remissions are given for timely payments, while rate payers are penalized for payments outstanding after the year they fall due.

In our country the valuation of property tax by local authorities as they were before the enactment of the new Constitution is guided by the Valuation of Rating Act. Assessment is done using an area rating (based on size) in combination with either an ad valorem system based on land or on both land and buildings. All local authorities levy the property tax based either on area and/or unimproved site valuation. Buildings are not taxed in Kenya i.e. only land is taxed. Typically area rating is used in the more rural counties while ad valorem land taxation is used in the more urbanized areas. Some local authorities use both area rating and site valuation rating simultaneously.

There are institutions which are by law exempted from payment of rates, including cemeteries, hospitals, public religious worship places, museums and national parks, etc. These institutions are specified in the Rating Act and are gazetted with the approval of the Minister.

Land owned by the National Government in Kenya is taxed by the county governments like it is private property such taxation is facilitated by Section 23 of the Rating Act which is the basis upon which the National Government pays rates to the Local Governments (Counties) in the form of Contribution in lieu of rates. In accordance with the Rating act such contribution is compulsory by the National Government the government however has not been making full payments in respect of the said rates. The law and literature available does not also define what contribution in lieu of rates is.

It is clear that property taxes are meant to contribute to a substantial amount of the revenue that county governments collects, it is possible therefore that the National Government, the Legislature, the Judiciary and other state organs might own a substantial amount of Land in the Counties and thus if such state organs refuse to pay property taxes on the basis that they are government, then we will cripple devolution by limiting the revenue raising capacity of the respective County Governments.

In other jurisdictions the government is exempted from paying property taxes, in our jurisdictions the government pays property taxes in the form of contribution in lieu of rates, in jurisdictions like South Africa and Namibia a 20% reduction is provided on tax owed with respect to government land, while in other jurisdictions the Government makes a lump sum ad hoc contribution to local authorities for services rendered in lieu of paying explicit property taxes.

Options to be considered in Kenya

  • Kenya has the option of maintaining the current system where the National Government makes compulsory contributions in lieu of rates. This system should however be changed and aligned with the new devolved structure as provided for the Constitution of Kenya 2010.
  • Kenya has also the option of exempting state organs from paying property taxes completely. Such a system will however cripple the revenue raising capacity of county governments because state organs own a large acreage of land that is within the jurisdiction of County Governments.
  • Kenya can adopt the system that was provided for in the Local Authorities Transfer Fund Act where 5% of the National Revenue collected went to local authorities. Such a mechanism however may not be practical because the Constitution already provides that not less than 15% of the national revenue shall be devolved to the Counties. Thus if such an idea is to work the wording should be to effect that a percentage of the national revenue shall be collected and devolved to the Counties for the purposes of paying land rates for land owned by the National Government. Such percentage should be calculated after stock taking to determine how much land is owned by the National Government in each county.

In light of the above and the fact that the it is clear that there is lack of a clear policy direction with respect to implementation of Article 209(3) (a) that gives County Governments the mandate to impose property taxes on the National Government and other state organs.

Written by
Mweresa Eugene Sudi
Sudi & Associates

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