A six-year legal fight between fund manager Cytonn and the Capital Markets Authority (CMA) is set to drag on after the High Court ruled that a 2019 enforcement order still raises live constitutional and commercial questions, despite new market rules.
The High Court rejected an attempt by the CMA to terminate the case on grounds that it had been overtaken by changes in the law governing collective investment schemes.
The dispute dates back to December 2019, when the State regulator directed Cytonn Asset Managers Limited to suspend onboarding new clients and unit holders unless it secured a new trustee by the end of that year. The directive warned that failure to comply would trigger sanctions under the Capital Markets Act.
Cytonn, its chief executive officer Edwin Dande and Cytonn Unit Trust Funds challenged the order in court, accusing the regulator of acting maliciously, unlawfully and on what they described as “erroneous or non-existent” legal provisions.
Central to the petition were provisions in the Capital Markets (Collective Investment Schemes) Regulations, 2001, which limited trusteeship to banks and financial institutions and governed how trustees could resign or be replaced.
Cytonn argued that those rules were discriminatory, created governance gaps, and violated constitutional rights to equality, property, fair administrative action and a fair hearing.
While the case was pending, the regulator repealed the 2001 framework and introduced the Capital Markets (Collective Investment Schemes) Regulations, 2023, expanding eligibility for trustees and setting clearer procedures for their replacement. On that basis, the authority asked the court to strike out the case as moot.
The court partly agreed, holding that prayers seeking declarations on the constitutionality of the repealed regulations had “been overtaken by events and are therefore moot.”
However, it distinguished between defunct rules and past regulatory actions.
“The directive of December 20, 2019, remains a live controversy,” the judge ruled, adding that repeal of the regulations “does not extinguish the alleged violation of rights occasioned by the directive.”
Citing Supreme Court precedent, the judge emphasised that courts should avoid abstract or academic disputes but retain discretion where real consequences persist. A matter is moot only when it has “no practical significance or effect on the rights of the parties,” he said.
In this case, the petitioners continue to seek declarations, compensation and costs arising from the 2019 directive, remedies the court noted can only be granted through a full hearing.
The regulator had also argued that the legality of the directive had already been settled in an earlier 2020 ruling. The court was unpersuaded, finding that constitutional claims flowing from the directive still required determination.
The preliminary objection was dismissed, clearing the way for the case to proceed on its merits.
The decision keeps alive the legal challenge, with potential implications for regulatory accountability and investor protection in Kenya’s capital markets.
