C. MPUTHIAADVOCATES

Innovative legal solutions

Welcome to the inaugural issue of this newsletter, The C M Legal

Issue. The C M Legal Issue is a newsletter owned by C Mputhia

Advocates and its vision is to keep you informed. C Mputhia

Advocates' vision is to be a leader of change and growth in the

legal and business environment and this publication is one of the

tools we use to achieve this.

In our inaugural issue, we have carefully picked out topics that

changed the legal scene in 2014 and those that are likely to

change the legal scene in 2015 and beyond. The Capital Gains tax

comes into force this year. Find out how it will affect your

business in this issue.

Welcome to the first edition of our monthly Journal

The C.M Legal Issue

There has been a lot of controversy around the Security Bill. However is this controversy merited? In

this issue we give you salient provisions of this Bill and the new provisions it contains. It is now illegal

to publicly strip a woman on grounds of modesty (there should be a cause for celebration).

Many people pass themselves off as psychologists and counselors but fortunately there is a law that

regulates this sector to ensure that you are protected. Learn in this issue who a

counselor/psychologist legally is.

From our family law kitchen, we have two topics of interest. Before you tie the knot……consider

signing a property pre-nup as the Matrimonial laws for the first time recognize property pre-nups in

Kenya. Estate planning is a new concept in Kenya…..we take you through Njenga Karume's estate

planning as an example of good estate planning.

Advocates like Yours Truly, are now regulated in the use of social media…….before you touch the

“post” or “ share” think twice on the implications if you are an Advocate.

Join us in this learning experience…..at C Mputhia Advocates, we add value. Our duty is to keep you

updated on any legal changes that may affect you or your business.

Yours Truly

Cathy Mputhia

EDITORIAL

LSK REGULATES LAWYERS’ USE OF SOCIAL MEDIA

The use of social media by advocates is now

regulated as the Law Society of Kenya chose to

adopt the International Bar Association's

Principles on Use of Social Media by the Legal

Profession. The LSK is mandated by statute to

regulate the profession from time to time and

therefore the directive by LSK to all advocates to

adhere to these principles is binding. It is now

tantamount to professional misconduct if an

advocate uses his social media contrary to the

guidelines. The legal profession through the LSK is the first professional

association to regulate use of social media and perhaps other professional

associations as well as institutions can borrow from these guidelines. The

guidelines aim to promote and encourage professional responsibility in the usage

of social media by advocates.

The IBA has set out 6 principles the first one being

on independence. Use of social media should

ensure that advocates are impartial in giving

advice. Advocates are advised to consider the

implications of an online relationship on their

partiality. For example would it be appropriate

for an advocate to befriend a judge hearing his

matter, on Facebook? The rules do not give

examples or specific instances of relationships

that would be considered inappropriate.

Lawyers are expected to uphold professional integrity when using social media

and ensure that all their social media dealings uphold the integrity of the

profession. Lawyers are therefore discouraged from posting unethical or

unprofessional posts that are likely to go viral. This again is subject to debate. There

is no clear line between personal ethics and professional ethics. There are instances

of some advocates or upcoming advocates being caught up in scandals bordering

on personal ethics and morality. Many advocates are public figures and it is

inevitable that their personal lives are constantly subjected to public scrutiny often

through the social media.

Lawyers are encouraged to use privacy settings for their accounts and also

constantly review social media content. Where a lawyer presents himself as an

online legal professional then he has to clarify to the public whether his comments

are to be relied upon as professional advice. Advocates should adhere to the

Advocate's Act in use of social media as regards advertising. Lawyers are required

to uphold client confidentiality in use of social media and are also encouraged to

develop sound social media policies for their employees.

The rules can be customized for each profession or institution as they are a good

guide on usage of social media. However the rules seem to be limited as they serve

as guidelines and not clear cut legislation. For example the rules do not criminalize

any mis-use of social media. Not many countries have social media regulation

however in the instance that there is a specific regulation then it becomes easier to

enforce than general benchmarks.

These rules are subject to the Constitutional provisions on the freedom of speech

and opinion. It becomes difficult to entirely control how a professional uses his

social media account due to this freedom which supersedes any other

regulation. In some instances an advocate may give an open and honest critique

which though may be harsh, is his opinion which is protected by the

Constitution.

There is a challenge of regulating or policing the cyber world. There are no

geographical boundaries in the cyber world and there is a lot of use of aliases. In

my view, these guidelines may be difficult to enforce unless they contravene a

specific legislation for example communication laws, defamation and hate

speech. This is because they serve as guidelines on best standards. However the

guidelines would be very effective if the recommended standards are adhered

to. The same principles can be replicated in other institutions and professional

associations.

LAWYERS LIMITED IN USE OF SOCIAL MEDIA

Many wealthy families or individuals usually

plan their estates to ensure that upon their death

or incapacitation, then their estate will be

preserved from succession disputes from varying

interests. Estate planning is a tool that enables a

person control the disposition of assets even after

their death. A good estate plan seeks to minimize

tax and other liabilities and pressures on the

estate. Contrary to common myth, estate planning

should not only be a preserve for the extremely

wealthy but should also be done by every person

who has assets and dependents. In larger and

more complex estates, estate planning involves many professionals including

lawyers and tax professionals. There are several estate planning tools including

wills and family trusts. There are many dangers in not planning your estate and the

most obvious is the succession wrangles that come in with an intestate succession.

An intestate estate, that is one where the owner had not made provisions for

dispositions of assets, is subject to lengthy court processes. The likelihood of such

an estate being squandered is high. A second risk, is the likelihood of some of the

assets being left out of the estate, as the beneficiaries are not privy to know all the

owner's assets for example bank accounts and shares held.

Recently billionaire businessman Njenga Karume passed on, however he planned

his estate in a manner that can be emulated by many. First of all he had written a

will where he appointed executors and made dispositions of several assets to many

people. According to media reports, he transferred some of his properties to

beneficiaries before his death. This is prudent step as ownership is changed when

the owner is still alive and can therefore guide the beneficiary on sound

management of the asset. It gives ample time for the successor to acquaint

themselves with management of the asset for example a business. However, the tax

implication of such a transfer is high as the tax will be charged as if it were a normal

transfer. In the event of a transfer upon death, the tax payable is very nominal.

Therefore it is important to consider the tax liability of such a transfer.

Media reports state that the executors of Njenga Karume's estate formed a trust to

manage the remaining assets on behalf of the dependents. This is also a prudent

move as it ensures that the estate is professionally run. It also minimizes the

incidences of squabbles over the estate by the beneficiaries as the trustees are

impartial. It is however important to set out the roles of the trustees clearly to avoid

action by the beneficiaries. The trustees should also be well selected and if possible

trained beforehand on management of the trust to avoid action by beneficiaries.

Some of the dependents of the estate have taken the trustees to court over alleged

mismanagement.

It is said that Njenga Karume also formed a foundation to manage the estate for the

heirs and also appointed a board to manage one of his larger companies. It is said he

also employed professionals to run his businesses. This is also a good strategy to

ensure that businesses that form part of the estate continue to be run professionally

and maintains continuity of the same. The downside would be that the dependents

would not have a chance to run the business and this could defeat the purpose of

maintaining a legacy.

Media reports indicate that the succession of the estate has been smooth and

without many squabbles. This could be attributed to proper estate planning.

MANAGING YOUR ESTATE THE CASE OF NJENGA KARUME'S ESTATE

BEFORE YOU TIE THE KNOT...PROPERTY PRENUPS RECOGNISED IN KENYA

Matrimonial property has been one of the main

contentions for separating couples second to

issues of child custody. Issues to do with

matrimonial property have taken the center stage

in high profile divorce cases. Now unlike before

the Matrimonial Property Act was passed, it is

possible for couples to employ certain strategies

to ensure that in the event of a separation

matrimonial property issues do not become very

complicated.

Matrimonial property has been defined in the Matrimonial Property Act and includes matrimonial homes, household goods and any property acquired during the marriage. This definition is very wide and in my view it includes all property that is acquired by the couple when they are married. There are certain exceptions to the definition of matrimonial property including property held in trust for others. However looking at the definition of matrimonial property then intangible property like shares and even intellectual property would fall here. There is therefore great need to plan for your matrimonial property to ensure it does not form a contentious issue as the couple goes into marriage. Take the example where one spouse invents something during their marriage and is awarded a patent which when commercialized is worth billions of shillings. During divorce or separation proceedings would the other spouse be entitled to a share of this? In most parts of the USA intellectual property has been considered to form part of matrimonial property such that a singer's royalties can form part of matrimonial property. The definition of what matrimonial property is, is important because in the event of a divorce, this property will be subject to division/splitting as the court decides.Before the enactment of the Matrimonial Property Act in 2013, pre-nups were not common in Kenya. Even after the enactment of this Act, pre-nups are rare in Kenya. Most people do not know that the law recognizes pre-nups now. Section 6 of the Matrimonial Property Act allows couples to enter into written arrangements concerning matrimonial property before they enter marriage. The pre-nup will take precedence over other principles of settling matrimonial property, in the event of a divorce or separation.Pre-nups are advantageous for several reasons. One is that they provide a mechanism for couples to protect their separate property. Some property is acquired without any assistance of the other spouse for example intellectual property and therefore one party may desire for it to fall outside the definition of matrimonial property and not be subject to divorce proceedings. Pre-nups protect third parties who have an interest in the matrimonial property from the drastic effects of divorce. For example a company's management would be badly affected in the event that its shares fell subject to a matrimonial property dispute. This happened in a leading divorce case in Kenya where the company's shares became part of divorce proceedings. The company performance went down and other third parties were affected by the long divorce proceedings. Pre-nups can hedge this risk. Pre-nups preserve the value of property and also forms a hedge against property devaluation in the event of divorce proceedings. Pre-nups ensure the divorce proceedings are faster and neater. There is opportunity for less conict as there is little likelihood for any of the spouses to use matrimonial property as a revenge weapon against the other.

Pre-nups are advisable before entering into marriage if there is a sense of risk in the marriage, or where there is need to protect important assets in the event of a divorce. However pre-nups have also been known to bring about a lot of tension in a marriage and they seem to imply that the couple has trust issues with each other.

OUT WITH THE QUACKS: PSYCHOLOGISTS AND COUNSELLORS NOW REGULATED

A few years ago there was a story of a fatal life

coaching session in the USA. A participant in a life

coach session died of severe injuries caused by

following the advice of the “motivational speaker”

to push his body to the limits. We keep hearing of

cases where so called motivational speakers, life

coaches, counselors and therapists make their

clients worse rather than better by giving bad

advice. Unfortunately there has not been much

redress against bad professional advice given in

these sessions, except for recovery of damages

under the tort of law. Even then, it traditionally

remained hard to build up a case against such malpractice because the standard of

proof required to file such a case is high. Most of the times the so called

professionals made their clients sign indemnity forms that the clients would

indemnify the practitioners from any losses arising from the sessions.

The step to regulate counselors and psychologists through the Counselors and

Psychologists Act is very timely given the past practice where anyone was able to

hold themselves out as a counselor or psychologist without any regulatory

approval. The step to enact this law, upholds consumer rights especially for those

who use these services. Prior to this law, there was no regulation on counseling and

this therefore endangered the consumers and the public as they were susceptible to

quack advice. Services provided by quack counselors can end up being very

damaging to the consumer.

The Consumers and Psychologists Act states that all psychologists and counselors

must be registered under the Ministry of Health through the Counselors and

Psychologists Board; which is the board charged with regulating the industry. The

same Act also provides for a Counselors and Psychologists Society to which every

person who qualifies to be a counselor/psychologist must be registered. This

society is the equivalent of the professional body in the industry. This society is

expected to set up industry benchmarks and also protect the public from any losses

arising out of the profession. Standards of the profession are issued by a Council

established under the Act.

The Act also sets out eligibility criteria for counselors and psychologists. They must

have a degree in either counseling or psychology and they must also pass the board

exams. The person must also be morally fit and proper to hold a license as a

psychologist/counselor. This regulation therefore means that quacks will be

weeded out of the industry and only qualified persons can practice as such. It is an

offence for a person who is not qualified to hold himself out as a

counselor/psychologist. The offence is punishable by fining and imprisonment.

Colleges that purport to offer counseling or psychology courses must be registered

under this law. The colleges must meet the eligibility requirements before they can

offer any courses on the same. It is an offence for any learning institution to offer

counseling or psychology courses without having been registered under the Act.

For persons already in private practice, the Act allows you to continue with your

practice without having taking a license however this is only for one year after the

commencement of this Act. The law requires you to apply for a license thereafter.

This law is welcome as it protects the public from quacks. It also provides industry

benchmarks therefore improving the quality of services for the consumer. It

encourages competition in the industry and limits the number of participants to

only those who qualify.

IS THE SECURITY BILL, 2014 THAT CONTROVERSIAL….OUR VIEW

The newly assented to Security law has generated

a lot of outcry from various quarters such that

some people who took a dissenting view could not

wait for the festivities to be completed but sought

to seek redress in court just two days to Christmas.

The application for conservatory orders was not

granted in the first instance and this means that

Kenya now has a new security law.

The new security law is basically an amendment of

already existing security laws to either input

stricter penalties for various offences or altogether

criminalize certain actions which were previously not criminal. The Public Order

Act and the Penal Code have been greatly amended by this new law. The big

question begs then, what is the controversy surrounding this law?

Firstly the fact that it imposes stricter penalties for already existing offences does not

go well with very many persons. The reason there is a penal law, and that is a law

that stipulates punishment of offences is to deter persons from committing various

offences. The court has jurisdiction to award anything from the minimum to the

maximum sentence and the judicial officer takes many things into account when

giving a sentence for example where the offender is a first time criminal and so on. In

my view, the penalties imposed by the laws are reasonable for there indeed is a need

to deter criminals from committing certain offences. Recently Kenya took global

stage due to increased incidences of women being forcibly stripped. A law that

imposes a strict penalty for perpetrators of such crimes would serve as a deterrent.

A light sentence would encourage repeated offences but strict penalties discourage

security offences.

The main cause for outcry though has been an amendment to the Penal Code

through the new security laws, by making it an offence to publish, broadcast,

distribute through print or electronic means images of dead or injured persons and

which is likely to cause alarm. Definitely this will impact a lot of persons. The media

will be affected by this amendment and so will ordinary persons. This law makes it

an offence to circulate e-mails or even use social media that contain the offensive

material. Therefore this is a new law that will also impact social media.

There are various laws that provide on usage of social media indirectly and

therefore users of social media should take into account what kinds of posts they

make. The law does not limit the offence to terrorist's activities only but is wide. The

law considers the intent of the publisher or broadcaster for it clearly states that

anyone who committees the offence with bad intention has committed an offence. Is

this provision reasonable? I have no problem with it, for there was an urgent need to

limit circulation of such images through the social media.

I am at least happy that next time somebody sends me graphic videos of beheadings

and causes me sleepless nights, there is a redress for me. There was also an urgent

need for responsible use of social media. The Constitution meanwhile provides for

freedom of speech, information and so on. However there is a need to limit these

rights with respecting others (the dead, injured) and also keeping in mind security.

Nobody would be pleased to see a picture of themselves injured, doing rounds on

social media. For me, I actually welcome this law.

Women should celebrate that it is now a specific crime for anyone to strip them

naked with a view of undermining their morality. The sentence is ten years for

anyone who does that. I know many people welcome this provision.

Another welcome provision is that it is now criminal for public officers to aid

crime, facilitate irregular entry into the country, hide criminals or issue fake

paapers to criminals. It's also a crime for anyone to jeopardize security operations.

I personally think Kenya has attained a great milestone in legislating security.

Now implementation is what is needed.

CHANGES IN KENYA'S FINANCIAL ENVIRONMENT IN 2015

The Finance Bill 2014 came into force on January st1 2015 and it is going to change the financial

environment in which businesses operate. The

Finance Bill was assented in August 2014 and

comes into effect this year. It is therefore

important to know some of the changes that are

likely to affect you or your business this year.

The main change in the financial environment is

on taxation. The Finance Act has provided

several amendments to the Income Tax Act and

therefore has drastically changed the tax

environment in Kenya. While not everyone may be affected by the changes in the

taxation laws, a number of businesses or individuals will be affected by these

changes. The Act has re-introduced the capital gains tax which had been scrapped

in 1985 to attract foreign investors. Back then the capital gains tax was payable on

any transfers on real estate and stocks. The tax was scrapped and what we had

instead was a stamp duty of around 4% of the value of the property. Capital gains

tax is now payable at 5% on the net gains of transferring a property that means

selling price less purchase price. All property is subject to capital gains tax

including real estate property, intellectual property and shares or stocks. Capital

gains is a tax that is payable where the property is situate in Kenya despite the

country of jurisdiction where a person or business resides.

Capital gains tax is a complicated tax that will take time for businesses to

understand and it will likely complicate transactions. Previously when

transferring property, all one had to do is get a government valuer to value the

property and the purchaser would pay 4% of whatever value was yielded by the

valuation. The new tax is likely to be too high in some cases, for example where the

property was acquired years ago and has appreciated. It is also likely to favour

properties which have been recently acquired or have not appreciated. Questions

as to evidence of purchase price remain; in as much as land records indicate the

purchase price through the transfer document.

Capital gains tax is applicable to all property held in Kenya which means that cross

border transactions will be affected. For example, mergers & acquisitions,

acquisition of property or intellectual property in Kenya shall be affected whether

or not the acquiring entity is local or foreign. Analysts argue that the tax may

discourage foreign investment into the country. The definition of immoveable

property has been widened to include mining and petroleum rights, therefore the

oil, gas and mining industry shall be affected by the tax. There is a whole schedule

in the Finance Act on taxation of this sector. This comes at a time when the country

is making oil discoveries and where the mining laws are set to change soon.

Therefore investors in this sector should now acquaint themselves of the new laws

on taxation if this sector.

A few amendments have been made as to what may be tax deductible and this

includes expenditure on vacations paid for by employers till July 2015. Therefore it

may be prudent for businesses which regularly pay for vacations for their staff to

take advantage of the tax incentive offered until July 2015. The business can pass a st

policy that all staff vacations that are to be paid for should be taken before July 1

2015.

The definition of some terms in the Competition Act has been made wider

therefore market leaders in each sector are bound to be affected by such

amendments as contained in the Finance Act.

The changes in the Finance Act are going to change the business environment in

2015. It has been argued that the introduction of the capital gains tax will benefit

the whole economy as through this tax the government will be able to meet

revenue needs. The real estate sector is booming and there is a lot of potential in

the sector in terms of budgetary needs. We wait to see how the regulators will

implement the Finance Act.

Have a prosperous New Year.

The C.M Legal. Issue is owned by C.M Advocates

Contact us:

C.Mputhia Advocates, 2nd Floor, Room 210 Tana House

Karen Shopping Centre

Tel: 020 2513422

Email: cmputhia@cmadvocates.co.ke

Website: www.cmadvocates.co.ke

@cm_advocates

C.Mputhia Advocates