Contract Enforceability in Kenya

Thinking of investing in Kenya? Here’s what you need to understand about contract enforceability, risk factors, and how to protect your deal before signing.

There is so much due diligence that goes on before you commit your capital to a foreign investment. Contract enforceability is one of them, and a critical one at that.

Before you fully establish your business, company, or any other investment, you need to sign contracts with stakeholders. These include local partners, suppliers, distributors, employees, and lenders.

What happens when any of these contracting parties fails to honor the agreement?

How enforceable are contracts in Kenya?

Can you rely on the rights created by your foreign agreement?

What practical options do you have to remedy a dispute?

Understanding contract enforceability in Kenya matters before you sign that deal. It helps you identify legal and commercial risks early to structure your transactions with more confidence.

We prepared this post to help you, an international investor, understand contract enforceability, risk factors, and how to protect your deal before signing.

What is Contract Enforceability?

Contract enforceability determines whether a contract contains the necessary elements to be legally enforced. If a contract is enforceable in Kenya, it means that one party can take the other to court for breaching the agreement and ask the court to enforce the terms agreed upon in the contract.

Not All Contracts Are Enforceable in Kenya

Unbeknownst to many, not all contracts are enforceable in Kenya. Just because your contract is well-drafted and signed doesn’t mean it will stand in a court of law.

The courts in Kenya will only enforce a contract that meets certain legal and practical conditions.

This is why it’s important for foreign investors in Kenya to consult an expert investment lawyer before drafting a contract.

What Makes a Contract Valid in Kenya?

According to Kenyan investment law, here’s what makes a contract legally valid in the country:

An offer and acceptance: The contract must contain a clear proposal which the other party clearly accepts.
Consideration: Something of legal value exchanged between the contracting parties. It is the price of that binding agreement.
Free consent: Neither of the contractual parties should be coerced into signing the agreement.
Legal capacity: Both parties must have the capacity to agree (mental, age, corporate authority, etc.).
Intention to create legal relations: Both parties must know and acknowledge the intention to enter a legally binding contract.
Legality of purpose: The contract should not contain elements of illegality, e.g., drugs, violation of statutory laws, and going against public policy.

What Determines Contract Enforceability in Kenya?

Validity and enforceability of a contract in Kenya are two different aspects. So your contract ticks all the validity boxes? What determines whether it’s enforceable in Kenya?

Governing Law and Jurisdiction Clauses

The applicable Kenyan laws and legal requirements determine whether your contract is enforceable or not. Consider specific regulated sectors, relevant approvals, licences, and other regulatory requirements when drafting your contract.

What country’s laws are applicable if a dispute arises? If you want your contract to be governed by Kenyan law, tweak it to match local regulations.

Clear Contractual Agreements

Does your contract explain clearly what every party is expected to do? What about what should happen if they fail to fulfill their end of the bargain?

You risk losing enforceability if your contract is ambiguous. Clearly lay out the conditions, performance standards, timelines, payment terms, and any other relevant terms.

Dispute Resolution Mechanism

Do you know that litigation is not the only dispute resolution method in contractual disagreements? As a foreign investor, choose a dispute resolution that favors your investments and transactions. For instance, arbitration is private, faster, and more predictable than domestic litigation. Whatever clause you choose, make sure it’s specific and built into the contract. A generic strategy can create problems.

Illegality

Kenyan courts are strict about irregularities and red flags when it comes to contract enforcement. You must demonstrate that there was no corruption, cutting corners, or any form of illegality when drafting and signing the contract.

Supporting Documents/Record Trail

If a contractual dispute arises and ends up in court, the trail of evidence will determine whether it’s enforceable or not. The party with the cleanest paper trail and supporting documents will have an advantage.

Can Foreign Investors Enforce Contracts in Kenya?

Yes, as a foreign investor in Kenya, you can enter into an enforceable agreement provided it meets all the relevant legal requirements. However, this depends on the agreement and circumstances, especially if a cross-border transaction is involved.

When an investor, counterparty, and relevant assets are located in different jurisdictions, enforcing a contract becomes complex. This is why you should consider contractual enforcement when structuring the transaction rather than treating it as an issue to resolve after a breach.

How To Reduce Enforcement Risks as an International Investor

You can take particular steps before signing a contract to reduce enforcement risks. These include:

Conduct due diligence on your counterparty: How do they do business, who are they, and how do they relate to other business partners?
Draft a clear contract: Clearly define the terms of your agreement, including roles, obligations, performance requirements, remedies, etc.
Pick a dispute resolution mechanism early: Choose a mechanism that aligns with the governing law, jurisdiction, and your particular transactions.
Think about enforcement from the outset: Anticipate and plan for enforcement from the word go. Don’t wait until the dispute has arisen to think about how to pursue or enforce a judgment or award.
Handle formalities to the letter and keep records: Follow the local requirements religiously, including stamping, registration, and witnessing, and keep a record of all formal documents.
Seek Kenya-specific legal advice: Work with a professional lawyer who understands the ins and outs of contract enforceability in Kenya.

FAQs

Are oral agreements enforceable in Kenya?

Oral/spoken agreements can be enforced in Kenya, as they are legally binding. However, they must contain all the essential elements of a valid contract under Kenyan law.

What makes a contract legally binding in Kenya?

A legally binding contract must contain an offer and acceptance, consideration, and intention to enter a legal relationship for both parties. Moreover, both parties must have the legal capacity to enter into a contract.

What happens when my counterparty breaches the contract?

The first step would be to issue a demand letter through your lawyer. If the demands in the letter are not met, you can escalate the matter to the courts or consider alternative dispute resolution like arbitration.

What are the remedies for breach of contract in Kenya?

The remedies for breach of contract in Kenya include paying damages, rescission, restitution, or a court order asking the party that breached the contract to fulfill their promise.

Don’t Wait: Assess Contract Enforceability Before Signing

Are you thinking about structuring an investment in Kenya? Before you enter into any contract, consider its enforceability. What are your options if the counterparty breaches the terms of the agreement?

You need that commercial certainty before committing your capital. Get that legal structure right before signing the deal.

We provide commercial contracts and transaction services at Waren Law, including legal advice, drafting, negotiation, and reviewing complex commercial agreements.