When the news broke last year that the Director of Public Prosecutions had instituted criminal charges against the lawyer who was involved in the registration of CMC Di Ravenna-Kenya branch, the company implicated in the Arror/Kimwarer dams saga, commercial lawyers went into a panic.
The DPP had charged the lawyer alongside the company and its directors with various offences relating to an alleged conspiracy to defraud the country of millions of shillings and fraudulently acquiring public property.
More than Sh19 billion was allegedly lost in the Arror and Kimwarer dam scandal in a well choreographed corruption syndicate.
The lawyer challenged the DPP’s action in the High Court on grounds that he was improperly charged since he was not a director, shareholder or official of the company; that his involvement was limited to being the company’s “authorised person” in Kenya pursuant to the provisions of the repealed Companies Act (Cap. 486).
In response, the DPP contended that by virtue of that role (as well as being a director, which the court found to be untrue), the lawyer was culpable for the actions of the company including criminal offences committed by it and its officers.
In a judgment delivered by Justice Mumbi Ngugi on May 12, 2020 in the case of Richard Mabele v. The Director of Public Prosecutions and two others (Anti-Corruption & Economic Crimes Division, Petition No.4 of 2020) the High Court halted the lawyer’s prosecution on grounds that it was an abuse of the court process and an improper exercise of the DPP’s discretion conferred under the Constitution.
The matter of lawyers acting as local representatives of foreign companies in Kenya has become a hot topic since the enactment of the Companies Act, 2015. The repealed Act simply required a foreign company seeking registration in Kenya to appoint a Kenyan resident as its “authorised person” ’ for the limited purpose of accepting on its behalf the service of process and any notices required to be served on the company. It is instructive to note that the lawyer in the above case was appointed under this law.
In a dramatic departure from the above position, however, the Companies Act, 2015 redefined the role and renamed it “local representative”. The new law also imposed a raft of onerous responsibilities and penalties on the local representative. He or she is now answerable for all acts required of the company under the Act and personally liable for any penalty imposed on the company for its failure to comply with the provisions of the statute.
Despite these enhanced obligations and penalties, nowhere does the law suggest that the local representative, by virtue of that role only, is liable for the criminal activities of the foreign company or its directors in the absence of evidence directly linking him to such activities.
The law generally provides that where an offence is committed by a corporate body, its directors and officers are deemed to be guilty of that offence unless one is able to demonstrate that the offence was committed without his consent or that he exercised reasonable diligence to prevent the commission of the offence.
More specifically, the Companies Act, 2015 provides that an officer of a company is only liable if he authorised or permitted the offence, participated in it or failed to take all reasonable steps to prevent its commission.
While a local representative may be said to be an officer of the foreign company which he represents, there is a vast difference between that position and a director. The two positions do not bear equal responsibility in relation to the affairs of the company and the terms should, therefore, not be used interchangeably. As a matter of practice, local representatives are generally not directors of the foreign companies that they represent.
While a director participates in every decision and action of the company and takes responsibility for such decisions and actions, the local representative does not participate in the management of the foreign company and is not entitled to attend any meetings or participate in the affairs of the company. He is only appointed for purposes of complying with the requirements of the statute to ensure that there is someone in Kenya who can be contacted on matters relating to the foreign company.
This duty usually falls on the lawyer involved in the registration of the branch in Kenya since at that point in time the foreign company has not identified any other contacts locally. Normally, there is no intention that his or her mandate will go beyond receiving service of process on behalf of the foreign company and ensuring that the company remains compliant with its statutory obligations including the signing and filing of the relevant statutory forms.
Therefore, in the absence of credible evidence linking the local representative to the day-to-day affairs of the foreign company or the specific alleged offence, the local representative should not, merely by virtue of holing such a position, be an automatic suspect in every crime that the company is alleged to have committed.
Although the High Court rightly quashed the prosecution of the lawyer in the above case, the language employed in the judgment could have been more robust to clarify whether the mere fact of being the local representative (as opposed to a director) of a foreign company necessarily makes one a candidate for prosecution for offences allegedly committed by the company.
As it turned out in this case, the DPP had no other basis of prosecuting the lawyer apart from the fact that he was listed as the local representative of the accused company.
While stating correctly that like everyone else lawyers are not immune to prosecution, the court went ahead to state that they are liable to prosecution for offences committed by companies in which they serve as directors or local representatives or where the evidence shows that they were involved in the matters forming the subject matter of the prosecution.
To illustrate the point, the court stated that had the petitioner been disclosed in the statutory forms as a director and local representative or had there been other evidence such as account opening forms showing that he was indeed a director or local representative of the companies involved, the court would not have hesitated to validate his prosecution. This is the portion of the judgment that is going to prolong the nightmare of commercial lawyers.
Until the position is categorically clarified to provide greater comfort, commercial lawyers who are frequently asked by foreign companies to act as their local representatives will continue to walk on eggshells as investors find fewer willing takers for this mandatory role.