The Capital Markets Authority (CMA) directed Minnesota Coffee Marketers Ltd to withdraw a consignment of coffee from trading at the weekly Nairobi Coffee Exchange (NCE).
This follows trading malpractices that include the diversion of funds from the coffee auction and non-compliance with a regulation restricting the trade in the commodity to growers only.
The brokerage company is licensed to sell coffee on behalf of Coffee Management Services Ltd.
The withdrawal of the coffee consignment from the auctions was effected on April 25, 2024, with the regulator citing violations of the Capital Markets Act and Capital Markets (Coffee Exchange) Regulations, 2020.
The regulations require entities trading in coffee at the NCE to be growers of the cash crop and the proceeds of the sales to be remitted by coffee buyers or roasters through a direct settlement system for onward transmission to the service providers and net payment to the grower.
According to CMA, the proposed mode of settlement and distribution of the proceeds for sale 27, including the sale catalogue submitted by Minnesota Coffee Marketers Ltd to the NCE for trading coffee at the auction on April 30, 2024, failed to comply with the Capital Markets (Coffee Exchange) Regulations, 2020.
CMA’s sanctions to Minnesota were delivered on April 25.
The Coffee Management Services Ltd opted to challenge the regulator’s decision through the Capital Markets Tribunal.
It sought orders to file an appeal against CMA’s decision out of time as well as an injunction to stay the implementation of the regulator’s decision pending the hearing and determination of the application as well as the hearing and determination of the appeal.
However, the Capital Markets Tribunal in a ruling delivered on July 23, dismissed the appeal because Coffee Management Services Ltd violated the trading regulations and failed to adhere to internal review mechanisms for resolving trading disputes with the regulator.
“In the upshot, the Tribunal finds no merit in the application, and we proceed to make the following orders: (a) The applicant’s (Coffee Management Services Ltd) Notice of Motion dated June 5, 2024, is hereby dismissed with costs to the respondent (CMA)” the Tribunal said.
“(b) Consequent to the order above, the applicant’s appeal lodged without the leave of the Tribunal by way of a Memorandum of Appeal dated June 5, 2024, is also struck out,” says the ruling delivered on July 23” it added.
This means that the CMA decision to suspend the coffee consignment kicks in immediately.
The tribunal contended that Coffee Management Services Ltd is not a coffee grower under the Capital Markets (Coffee Exchange) Regulations, 2020 and that the company is neither a Co-operative Society, union, association, or estate as provided in the regulations.
According to the regulations coffee ‘grower’ is any person who cultivates coffee in Kenya and may for purposes of licensing under the Crops (Coffee) (General) Regulations, 2019, and includes co-operative societies, unions, associations, or estates.
The provisions also provide that a coffee grower or its authorised representative supplies through the coffee exchange all the necessary particulars of the grower to the appointed financial institution providing the direct settlement system to the grower, for purposes of initiating the settlement system.
The tribunal noted that there exists a three-tier appellate process for a person aggrieved by the decision of the CMA with the High Court being the last resort, but the Coffee Management Services Ltd opted to seek judicial review in the High Court before exhausting other options.
The first tier of appeal is to the authority, the second is the Capital Markets Tribunal, and the jurisdiction of the court is invoked as an appeal in the third tier.
“Going by the finding of the court, it is also clear to the tribunal that the Applicant (Coffee Management Services Ltd) went to court in the first instance while well, aware that the law provided for mechanisms it ought to have exhausted,” the tribunal says.
“We have considered the applicant’s explanation for the delay, but we are not persuaded that the same is justified.
“The applicant elected to challenge the decision of the respondent (CMA) through a Judicial Review process in court and ought to live with the consequences of the outcome”
The coffee broker, however, said it complied with the CMA's directive and continues to trade on the NCE as a licensed agent.
Editor's note: This story has been revised to correct an earlier version of this article that had erroneously stated that Minnesota Coffee Marketers Limited had been suspended from trading at the Nairobi Coffee Exchange (NCE). The correct position is that a directive issued by the Capital Markets Authority (CMA) only required Minnesota Coffee Marketers to withdraw a particular consignment of coffee from the NCE auction owing to a breach of regulations. We apologise to Minnesota Coffee Marketers Limited and CMA for any inconveniences caused by the erroneous report.
