On Tuesday, 3rd October, 2023, a despatch was issued by the Cabinet Office stating that there had been a Cabinet meeting which had resolved that the Cabinet had rescinded the decision that the Government of Kenya to purchase Sixty per cent (60%) of the ordinary shares of Telkom Kenya.
This development comes one year after the government of Kenya through the Treasury had purchased back shares in Telkom Kenya Limited for 6.09 billion shillings from UK-based private equity fund, Helios Investment Partners, making Telkom a fully State-owned again.
By this decision Helios will refund to the Government of Kenya the amount paid as consideration for the takeover. The Cabinet said Telkom Kenya would source and onboard another strategic investor.
The government of Kenya had purchased back the shares in the telecommunication company after Helios notified the government of its intention to exit Telkom and the government had decided to exercise its pre-emptive rights.
This is a right by which the government decides to buy the shares itself at an independently valued price. Had the government failed to exercise it, Helios would have been free to sell the shares to anyone else.
The shares were reputedly worth 10 billion shillings but had been independently valued and bought for for 6.09 billion.
The question that arises is whether it is legally possible to reverse a sale of shares once completed. Can the government recall a deal entered into one year ago and demand a refund ?
A sale is basically a contract in law. The question of whether it can be reversed is actually a question of whether a contract can be legally undone once entered into.
Void or voidable
In law, a contract can be reversed if it is void or if it is voidable.
A void contract is one that does not exist in the first place because it is illegal and therefore cannot be enforced. An example would be a contract to bribe. The person giving the bribe cannot sue for a refund when the officer fails to deliver because it’s a void contract.
Voidable contracts are contracts that have defects but may be legally enforceable if the parties decide to correct those defects or to overlook them. However, if any of the parties decide to reverse the contract, the court may allow them.
For a court to allow a party to walk away from a contract, there must exist what in law is known as a vitiating factor. These are matters that the law has come to accept as factors that can make a contract voidable. They are fraud, undue influence, duress, mutual mistake and misrepresentation.
Mutual mistake happens where both parties proceed on a false assumption of a critical matter in the contract. In a sale of land, both parties believe that the land is one acre then it turns out to be a half acre. That is a vitiating factor if any of the parties decides to walk away.
It would also be a vitiating factor if the owner of the land had misrepresented the truth about the size. Then that would be fraud or misrepresentation and both are vitiating factors.
Undue influence and duress would be where, like happened a few weeks ago, one is forced by the government to enter into a consent in court compromising commercial disputes. All those consents are voidable because they are entered into under duress or undue influence.
In short, the law does not allow one to wake up and regret a contract they entered into and seek to reverse it. Courts of law protect contracts very jealously.
The Cabinet Office did not disclose the reason why government wanted to reverse the sale purchase but the only issue one can contemplate would be regarding the price at which the shares had been bought.
As shares are not merchandise that would need to meet a certain quality, value for money would be the only reason to seek to reverse a purchase .
Assuming then that it is a question of price, is overpricing a vitiating factor ? It is not. Infact if it were made one, there would be no government in Kenya. Even the current regime would have fallen by now. Every public procurement in Kenya is overpriced and every sale of public property is undervalued.
It is therefore hypocritical for succeeding regimes in Kenya to accuse each other of overpricing or undervaluing. Even our beloved Kibaki sold Grand Regency Hotel for a third of its value. And we moved on.
But even with the existence of vitiating factors, courts of law will not nullify a contract if the following factors are also in play.
Firstly , if there is a discharge by performance. Where the parties have discharged their obligations in full or substantially, the law absolves them from further obligation. In that eventuality, there is nothing to reverse. The deal is done.
In this Telkom case, payment was made in full and share transfers executed. The deal is done and the contract has expired. There is nothing to reverse.
Secondly, the law will not reverse a contract where Restitutio ad integrum is impossible. Restitutio ad integrum means “restoration to original condition”. In this case, the parties cannot go back to the original position. Treasury has been running Telkom for an year now and Helios cannot reassume ownership as if it were still 2022.
Thirdly, Courts will not rescind a contract if one party has affirmed the contract by his action. Affirmation is an indication to continue with the contract. Treasury affirmed the deal by making payment in full. It also went to Parliament and again publicly affirmed the deal. No court of law can set it aside. Affirmation extinguishes the right to terminate even where is existed.
Lastly, the law will not reverse a deal if third party interests that have accrued. Over the last one year, Telkom has been running on the basis that Treasury has been in control. Helios was paid over an year ago and very unlikely the money was not just sitting in a bank in case of a recall.
Clearly, the Telkom deal does not have any vitiating factors and even if it did, it is now irreversible. So why would Helios agree to reverse the deal and return the money when it is legally under no obligation ?
A statement issued by Cabinet Secretary of Finance after the Cabinet meeting said that the government will after rescinding the sale “proceed and onboard the Infrastructure Corporation of Africa LLC (ICA) of the United Arab Emirates as the new majority shareholder of Telkom based on the offer they put forward”
How does the government onboard a private entity on the shares of another private in a private company where the government is a minority shareholder? It has no such power. And why does a private company agree to have the government tell it what to do with its shares ?
The Cabinet Secretary says that the Infrastructure Corporation of Africa made an offer to the government to purchase shares owned in Telkom ? Why is the government, which currently owns the shares, not selling directly but finding it necessary to first return those share to the private company that owned them previously and then forcing that company to sell to the new investor ?
Why would Helios take back its shares in circumstances where it will then take directions from the government on who to sell it to ?
Once Helios returns the money, they become shareholders in Telkom again and the government will have no right to ask them to sell, let alone choose for Helios who they should sell the shares to.
In fact, if the government gives back the money and rescinds the sale, it will be deemed to have lost its pre-emptive rights and legally, Helios will be free to sell to anyone else.
At the bottom of this quagmire is the fact that so long as the government owns these shares, they cannot be sold without following the procedures of privatization of public property which involves scrutiny by the National Assembly and Auditor General.
But if the shares are taken back to Helios first, then the sale becomes a private treaty over which the privatization laws don’t apply and there is no scrutiny by National Assembly or Auditor General.
One can see how that works well for tenderpreneurs. But why is Helios cooperating in this charade ?