Application of the rule according to Ryland vs Fletcher in Kenya

by: Agak R. R. Scott 

Introduction

The Rylands v Fletcher rule, established by the English courts in 1868, is a cornerstone of tort law, particularly in matters concerning strict liability. This rule posits that a person who brings something onto their property that is likely to cause harm if it escapes is responsible for any resultant damage, irrespective of negligence. This doctrine has found its way into Kenyan jurisprudence, shaping the landscape of liability in various contexts.

Notable Applications in Kenya

One of the most significant cases demonstrating the application of the Rylands v Fletcher rule in Kenya is Kenya Power and Lighting Company Limited v Patel [2009] eKLR. In this case, the plaintiff’s property was destroyed by a fire emanating from an electric transformer owned and maintained by the defendant, Kenya Power and Lighting Company Limited. The plaintiff sought compensation under the principle of strict liability as enshrined in Rylands v Fletcher.

Judicial Reasoning and Decision

The court in this case reaffirmed the applicability of the Rylands v Fletcher rule, holding the defendant strictly liable for the damage caused by the transformer. The court’s reasoning was grounded in the principle that the transformer, being a potentially hazardous entity, posed a significant risk if it were to escape or malfunction. The fact that the transformer did indeed cause harm by initiating a fire was sufficient to invoke strict liability under the Rylands v Fletcher doctrine.

The court emphasized that the plaintiff was not required to demonstrate negligence on the part of the defendant. This aligns with the essence of the Rylands v Fletcher rule, which circumvents the need to prove fault, focusing instead on the inherent dangers of the substance or thing brought onto the property and the resultant escape and damage.

Broader Implications

The application of the Rylands v Fletcher rule in Kenya underscores a broader commitment to strict liability in cases involving inherently dangerous activities or substances. The principle serves to protect individuals from the risks posed by hazardous operations conducted by others, ensuring that those who introduce potential dangers bear the responsibility for any adverse outcomes.

Other Relevant Cases

Beyond the Patel case, Kenyan courts have consistently applied the Rylands v Fletcher rule in various contexts. For instance, in Transami (Kenya) Limited v Kenya Railways Corporation [2002] eKLR, the court held the defendant liable for damage caused by escaped railway cargo, reaffirming the strict liability principle.

Legislative Context

The Kenyan legal framework supports the judicial application of the Rylands v Fletcher rule through statutes that emphasize environmental protection and public safety. For example, the Environmental Management and Co-ordination Act (EMCA) of 1999 imposes strict liability on entities whose activities result in environmental degradation, reflecting the broader principles of Rylands v Fletcher.

Conclusion

The Rylands v Fletcher rule remains a pivotal doctrine in Kenyan tort law, ensuring that individuals and entities are held strictly liable for harm caused by hazardous activities or substances they introduce onto their properties. This legal principle not only promotes accountability but also incentivizes the careful management of potentially dangerous operations, ultimately safeguarding public and private interests. The precedent set by cases such as Kenya Power and Lighting Company Limited v Patel highlights the enduring relevance and application of this rule within the Kenyan judicial system.

IN-DUPLUM RULE EXCLUSION

The in-duplum rule, derived from Roman-Dutch law and embedded in Kenyan law, limits the amount of interest that can accrue on a debt to no more than the principal sum. This rule is codified in Section 44A of the Banking Act of Kenya. The rule has significant implications for financial institutions, especially deposit-taking entities. However, its application to non-deposit taking microfinance businesses (NDT-MFIs) remains a nuanced area.

Key Aspects of the In-Duplum Rule in Kenya

1. Banking Act, Section 44A:

   Section 44A of the Banking Act specifically states that the in-duplum rule applies to institutions licensed under the Banking Act and the Microfinance Act, which includes deposit-taking microfinance institutions (DT-MFIs). The rule aims to protect borrowers from excessively high interest rates by capping the total recoverable interest at the level of the principal amount.

2. Non-Deposit Taking Microfinance Institutions (NDT-MFIs):

   NDT-MFIs are generally regulated under different legislative frameworks, primarily the Microfinance Act, but their exact regulatory environment can vary. They do not accept deposits from the public and thus are subject to a distinct set of financial regulations compared to deposit-taking entities.

Case Law and Judicial Interpretation

There have been notable cases in Kenya where the application of the in-duplum rule to NDT-MFIs was discussed. Below are key cases and their interpretations:

1. Margaret Njeri Muiruri v. Bank of Baroda (Kenya) Limited [2014] eKLR:

   Although this case involved a banking institution, the court underscored the broad principles of the in-duplum rule, emphasizing consumer protection against exorbitant interest rates. The judgment reaffirmed that Section 44A applies strictly to entities licensed under the Banking Act.

2. Richard Ndubai v. Cooperative Bank of Kenya Limited & Another [2018] eKLR:

   This case extended the interpretation of the in-duplum rule, discussing its applicability to financial institutions broadly defined. However, it reaffirmed that the rule’s statutory grounding applies explicitly to deposit-taking institutions under the Banking Act.

3. Microhouse Africa Limited v. Mabati Rolling Mills Limited & 2 Others [2016] eKLR:

   In this case, Microhouse Africa Limited, a non-deposit taking microfinance institution, sought to enforce a debt that included substantial interest. The court evaluated the applicability of the in-duplum rule and concluded that since the entity was not a deposit-taking institution, the specific provisions of Section 44A did not apply.

Legislative and Regulatory Framework

- Microfinance Act:

  The Microfinance Act, 2006, regulates microfinance institutions in Kenya. However, it distinguishes between DT-MFIs and NDT-MFIs, with specific provisions for each type. The Act does not extend the in-duplum rule to NDT-MFIs explicitly.

- Central Bank of Kenya (CBK) Regulations:

  The CBK, which oversees the financial sector, including microfinance institutions, has regulations that apply to DT-MFIs. For NDT-MFIs, the regulatory scope is less stringent, primarily focusing on licensing and operational guidelines without the direct imposition of the in-duplum rule.

Conclusion

The in-duplum rule as enshrined in Section 44A of the Banking Act does not explicitly apply to non-deposit taking microfinance institutions in Kenya. Judicial interpretations and existing case law reinforce this position, distinguishing between deposit-taking and non-deposit taking entities. Consequently, NDT-MFIs are not legally bound by the in-duplum rule, although they remain subject to other consumer protection regulations and oversight mechanisms.

For specific legal advice or case handling, it is advisable to consult with a legal expert who can provide detailed guidance tailored to the unique circumstances of the case.

by: Agak R. R. Scott

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TRUMP CARD IN THE US-CHINA TRADE WAR

Ethiopia could be the first African country to show China it has bargaining power

The light railway system in Addis Ababa provides a direct view into the successful and tangible economic diplomacy of China across the African continent. This example of mass public transport is unique in sub-Saharan Africa, with the train and extensive track providing a manifestation of development and growth in this populous East African country.

Construction on the railway commenced in December 2011 with China’s Export-Import Bank providing 85% of the funding for the project. The China Railway Group Limited took three years to complete the 34.4km, two-line system. The lines have been fully operational since November 2015. The system, however, carries fewer than 200,000 passengers daily in a city of nearly seven million people, suggesting that the railway has not had the dramatic impact expected by some supporters.

China’s conspicuous role

For all of its investment in the development of some of Africa’s youngest economies, China is increasingly becoming associated with some debt burdens. At the start of 2019, analysts estimated Ethiopia had borrowed more than $12bn from China. The Asian powerhouse faced some international outcry for the outstanding amount sitting on the Ethiopian balance sheet. On the one hand, China’s decision earlier this year to cancel all interest-free loans advanced to Ethiopia demonstrates the power of protest and international oversight (in conjunction with Ethiopia’s growing international might), while on the other hand it gives direct insight into the burgeoning presence of China in Africa and on sovereign balance sheets.

If only Kenya and Tanzania could be so lucky as to receive similar debt forgiveness. Both countries need to see some Chinese debt come off their balance sheets. Kenya borrowed more than $9.5bn between 2006 and 2017, which makes it the third-largest recipient of Chinese loans in Africa. It is this reality of Chinese support that led Kenya’s President Uhuru Kenyatta to request additional support from China to fund the next phase of Kenya’s ambitious $10bn railway. China has already provided $4.7bn to finance the near-500km track between the port of Mombasa and Nairobi, and President Kenyatta not surprisingly assumed China would dole out the remaining $3.5bn necessary for the final section of the railway to Kisumu on Lake Victoria. But China sent the Kenyan president away with relatively empty hands.

Africa is not America (obviously)

To listen to some Africans, coming away partially empty-handed may not be so bad. It was only a partial failure because President Kenyatta received funds for a data centre and a road to connect Nairobi’s suburbs to the airport. The growing fear is that Chinese money is financing the next cycle of African debt problems, following some years of debt forgiveness to African countries by rich countries. Critics are quick to suggest that China will seize assets when sovereign entities default, often referencing the Chinese-financed port at Hambantota in Sri Lanka. The port failed commercially, then a Chinese state-owned firm took control. China’s defenders could argue that the world’s second-biggest economy is a major lender to the United States too and is not seizing assets there.

"China’s defenders will argue that the world’s second-biggest economy is a major lender to the United States too, and is not seizing assets there."

The comparison – or lack of comparison – between China’s significant creditor position with Africa and with the US provides insight into the different dynamics of negotiation for African countries and the US. Speculation late last year that China would take over the Zambian state power utility company for unpaid debt between $6bn and $10bn only died after consistent pushback on such a narrative by the Zambian government, particularly against the US, who Zambia blamed for the rumour. To put things into perspective, that $10bn debt is minuscule when compared to the more than $1.1trn owed to China by the US. Yet there is little speculation on China seizing assets or any rumour of China creating America’s debt trap.

There are several reasons for the difference in China’s approach to African nations and the US. First, US treasury bonds are not exactly loans or like the debt provided to many African nations. Any country or major hedge fund (for the sake of discussion) could become a major creditor to the US by buying up treasury bonds. However, attempting to seize control of the US assets because of a potential treasury default (if it happens) would require a monstrosity of legal costs and complexity that no one truly wants to endure.

Secondly, the US is a rich country with a long-standing and growing economy. The US could offer high interest rates and find an oversupply of happy buyers. Third, and most importantly, the US wields as much economic power as its creditors. The appetite for US debt, in many instances, finds a boost if Chinese bonds are not as stable, which only underlines the US global reputation as the safe landing for any scared or worried investors in other markets. Moreover, economic power for the US remains omnipresent, as its major urban centres buoy its reputation as a global financial and business hub. President Donald Trump accordingly can wage a (successful?) trade war when he thinks China is manipulating its currency and unfairly tilting trade balances in its favour.

"President Trump has, at the very least, shown that America can challenge any economic outcome it deems unfair. This is not the case for many African nations."

The reality of the African experience is not one of a global financial hub. These young economies have some truly bullish markets, albeit built on cash transactions – and subsequently a low tax base – and a very believable growth story. The upside in these countries is long term but not exactly visible today, and consequently not tradable in today’s economy. The counter may be that the US is trading and bargaining on its history and historical performance with its long-term growth numbers generally slower than previous decades. That said, the US economic story is a strong commodity, which its political apparatuses do a great job to reinforce and protect. President Trump has, at the very least, shown that the US can create havoc on any economic system or challenge any economic outcome it deems unfair. This is not the case for many African countries.

Consider that the US is a member of the African Development Bank because it pays its financial contribution, similar to African member countries. Until African states wield similar economic and political power, their point of leverage with China will remain weaker than the US’s in negotiations. China, sadly, knows this reality and will continue to rely on it until a few countries in Africa truly wield power in more global economic and political arenas beyond the African continent itself. Considering the debt forgiveness from China, Ethiopia could, with an increasing global power network (via its relationships with other countries), be the first country to find its way to a stronger bargaining position.

Or, as some critics suggest, Ethiopia may simply be playing China against America better than most countries and, accordingly, altering the African debt narrative. Pitting powers against each other, in particular the US and China, can easily boost your importance and potentially create greater financial reward… that is power 101… though this is easier said than done.