National Assembly passes the Law of Contract (Amendment) Bill 2019

National Assembly passes the Law of Contract (Amendment) Bill, 2019

On 18 September 2019, the Kenya National Assembly passed the Law of Contract (Amendment) Bill, 2019 (the Bill) during the third reading of the Bill.

Earlier this year, we analyzed the significance of the proposed Bill in the article available here having reviewed the Bill published by the Government Printer on 28 January 2019 (the January version). The Bill which now awaits presidential assent was passed with a few amendments to the January version.

Amendments to the Bill

Two amendments to the January version of the Bill were introduced during the second reading of the Bill. A creditor was required in the January version to first enforce its rights over the security of the principal debtor before seeking to enforce its rights against a guarantor. The National Assembly has amended this proposed section to require the lender to first enforce its rights over the assets of the principal debtor before enforcing its rights against a guarantor. The second amendment in the Bill is to state that the Bill shall not have retrospective application.

Impact analysis

Our impact analysis of the Bill appearing in our 20 May 2019 article remains unchanged. Once the President assents to the Bill, guarantors and third-party security providers will have an added layer of insulation against a lender who seeks to proceed directly against them after default by a principal debtor. On the other hand, in our view, the proposed Bill is drafted in a very wide manner and could have unintended impact on the enforceability of some financial instruments customarily used in trade such as demand guarantees and standby letters of credit which are technically guarantees.

What’s next?

The Bill now proceeds to the next stage of the legislative process; namely, assent by the President. We will monitor the developments and keep you apprised.

This alert has been prepared by Peter Mwaura and Dennis Muhindi. If you have any queries regarding the financial services practice area generally, please do not hesitate to contact Peter Mwaura at pmwaura@mwc.legal. Please note that this e-alert is meant for general information only and should not be relied upon without seeking specific subject matter legal advice.

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