A case for legal certainty in a time of Covid-19

There is an urgent need for comprehensive legal proposals of transition and continuity despite Covid-19. PHOTO | FILE

What you need to know:

  • Whilst there is much that can be learnt from what others have done globally, most laws and regulations are local in nature and therefore Kenya needs to find Kenya-centric mechanisms.
  • There is an urgent need for comprehensive legal proposals of transition and continuity despite Covid-19.

The Covid-19 outbreak in Kenya has caused widespread disruption to daily lives and the manner in which businesses operate. It is evident that urgent legislative responses are required to cushion against the far reaching effects that Covid-19 has and continues to have on individuals and businesses in Kenya.

While there is much that can be learnt from what others have done globally, most laws and regulations are local in nature and therefore the country needs to find Kenya-centric mechanisms to help ease the effects of the Covid-19 pandemic.

As a country our goal is not only to mitigate the health challenges but also to provide businesses and consumers with a mechanism of transition to a time when the economy returns to a semblance of stability. As front-line workers manage the health crisis, citizens are increasingly placing their hopes on governments to address other socio-economic considerations.

There is an urgent need for comprehensive legal proposals of transition and continuity despite Covid-19. Parliament needs to act now to enact an omnibus miscellaneous amendment statute to address all the required legislative interventions until the end of Covid-19.

They must do so in a measured way, balancing between the need to cushion businesses and citizens to the extent possible on the one hand but preserving the fundamentally open and market-based economic structure that is the basis of the Kenyan economy, and thinking through the long-range consequences of the actions they take together.

In all cases, Parliament must avoid populist measures which in general will have a short term placebo effect but cause long term economic carnage.

The interest rate caps are a good example of such a measure, achieving precisely the opposite effect of what was intended, by reducing the amount of credit available to SMEs and instead directing lending to the Government.
ECONOMIC UNCERTAINTY

The economic shocks resulting from the Covid-19 pandemic are extensive and many public and private operations have been indefinitely affected by measures such as work-from-home arrangements; social distancing and quarantine; prohibiting mass gatherings for business, education or social purposes; and closure of boarders and ports of entry.

A Kenya Private Sector Alliance survey on “Business Perspectives on the Impact of coronavirus (Covid-19) on Kenya’s Economy” revealed that even before cases of the pandemic had been reported in East Africa, Kenyan businesses were already being impacted financially.

The result of downsized economic activity has led to some shocking predictions in terms of growth prospects globally and in Africa. Below are two graphs that contain similar predictions of a fall in GDP growth in 2020 as a result of Covid-19’s effects.

In view of the containment measures and other effects of the pandemic, businesses are concerned that their ability to comply in a timely manner with various statutory, contractual and other obligations may be impaired. Landlords and tenants are concerned about rent obligations.

Companies, individuals and their respective creditors are worried about insolvency and bankruptcy. Banks and borrowers are concerned about loan repayments. Employers are concerned about sustaining their work-force while employees are concerned about their job security. Courts and litigants are worried about access to justice. The list of concerns seems almost endless.

LEARNING FROM EXPERIENCE

There is a sense of urgency surrounding an end to the pandemic; the longing to return to normalcy. However, forecasting the end of the outbreak is an enormous challenge.

In the meantime, different regulatory bodies have unilaterally announced various administrative measures to address Covid-19 concerns. For instance, the lands and companies registry have announced partial or full closure or a scale down of their operations with different end-dates.

The Capital Markets Authority has suspended the holding of annual general meetings (AGMS) for about two months.
As such, it is essential that the end of the pandemic (which will of course ultimately be a public health decision) be signalled by the publication of an official notice referred to as an End of Covid Gazette Notice. This notice would be published by the President on advice from the Cabinet Secretary for Health. The expiry of the proposed legislative measures will be triggered by the publication of the End of Covid Gazette Notice.

The Pandemic Response and Management Bill proposed by Nairobi Senator Hon. Sakaja, contains a fairly similar proposition and recommends that the end of the pandemic be declared once it is “no longer a threat to the social, economic or political stability of the country.”

Whilst we may be tempted now to legislate for how future pandemics are dealt with, now is not the time. We must only deal with the Covid-19 crisis, learn from this and once the dust has settled and lessons have been learnt re-visit our laws more fully and then try to deal with future pandemics.

This would require time, research and wider consultation in order to make it fully comprehensive and inclusive.

The legislative interventions implemented at this stage should therefore be temporary and limited to matters necessary to ameliorate Covid-19 effects and at a later stage a pandemic response law can be considered.

PROVISION ON LEASES AND LICENCES

It is reasonable that our most vulnerable citizens in the low-income brackets who already live a hand to mouth existence and have limited or no bargaining power are given a rent abatement for the duration of the Pandemic and for a limited time thereafter.

Whilst thresholds can be determined by Parliament, possible thresholds could be temporary rent abatement and protection from forfeiture for individuals paying rent for residential premises of below Sh10,000 per month and a temporary rent reduction for tenants paying rent of between Sh10,000 to 25,000/-.

This would allow landlords and tenants a period to negotiate fresh terms. The unpaid rent can be recovered at the end of Covid-19. To ameliorate the position for landlords, the Government could consider some sort of tax relief or other stimulus package to partially or fully compensate landlords who suffer loss as a result of these measures.

Beyond these thresholds, we do not consider that it would be appropriate for the Government to interfere in contractual relationships.

To do so could amount to an undue interference with private contracts and could also have undesired effects, for instance, discouraging investment in the real-estate sector in Kenya or severely impacting landlords who may themselves be reliant on income from the rental premises or have financial commitments such as loans.

LABOUR RELATIONS

Many employers have been or are likely to be significantly impacted by the economic down-turn resulting from Covid-19. The effect of this is that they may be unable to sustain their current work-force at the same salary rates. In order to incentive employers to take a longer term view in relation to whether to retain employees, employers should be allowed more flexibility on employment matters, as this is the most likely route to limiting job losses. Such flexibility includes: flexi-work, pay-cuts, allowing employees to go on sabbaticals, or furlough schemes. The proposed suspension of pension payments for a temporary period is also a welcome development

This would ensure that businesses in Kenya are able to keep afloat and would also assist in saving some jobs now and increasing the probability that more employees will be able to return to work when COVID ends.

LOAN MORTGAGE REPAYMENTS, OTHER CONTRACTS

Whilst Covid-19 is likely to result in diminished ability to repay loans and mortgages and it will be necessary for existing loan and financing arrangements to be reviewed, it would not be ideal to impose blanket provisions such as indiscriminate prohibition on enforcement of securities by lenders or a blanket moratorium on interest, charges and penalties.

The directive by the Central Bank of Kenya requiring commercial banks to renegotiate terms with their borrowers is a good start, as it on one hand recognises that existing arrangements require review, but on the other hand respects freedom of contract and leaves it to the parties to renegotiate and agree fresh terms.

If further legislative intervention is to be put in place, it should seek to achieve the right balance taking into account its potential impact on the financing market in Kenya, avoiding excessive interference with private contracts and taking into account different categories of borrowers or the relative financial positions of different lending institutions bearing in mind that imposing drastic measures on all lenders and borrowers including small financial institutions could work counterintuitively and jeopardise their financial position which could result in a collapse of some lenders.
PROCEDURE AND PROPORTIONALITY

Although the proposed legislative intervention is necessitated by extraordinary circumstances, respect for procedural rules touching on debate, public participation and approval by Parliament must be respected.

That noted, there is the expectation that the proposals will be quickly decided upon – the agility of state mechanisms will speak to their commitment to consider recommendations that aim to ameliorate the impacts of the pandemic.
EASE OF DOING BUSINESS AND COVID-19

The World Bank’s yearly Ease of Doing Business Report has indicated significant improvements in Kenya’s Ease of Doing Business Ranking from 129th in 2013 and 2014 to 56th in 2019.

The regulatory steps taken or not taken in Kenya during the Covid-19 situation will inevitably affect this year’s ranking and act as an indicator of the way the country regulates business activity during uncertain times.
Now more than ever, the role of law in society is indispensable. In times such as these, the law is a tool that fosters certainty, protects the vulnerable, cushions local businesses and citizens from the impact of the pandemic and legitimises government action. Parliament therefore ought to act swiftly to implement legislative intervention to tackle the effects of Covid-19.