KENYA: THE QUESTION OF LEGALITY ON THE REVOCATION OF CARBON CREDIT AGREEMENTS
The County Government of Kajiado placed a public notice in the media on 24th May 2023 stating that the County Government had allegedly revoked all carbon credit agreements purported to have been signed between land group ranches and such entities, and further advising members of the public not to engage with any such entities until further notice. The County Government further warned that those who continue to engage in the business without the County Government’s approval do so at their own risk and the County Government shall not honour such agreements, contracts, or arrangements. The public notice cited that the Governor’s key concerns are that the agreements with community group ranches and conservancies were “opaque”, and disadvantageous to local communities, and that there is no regulation of trade in carbon credit in Kenya.
The legal question is whether a county government can unilaterally revoke contracts, especially if it is not a party to said contracts. The doctrine of privity of contract applies under Kenyan law; this principle provides that a contract cannot confer rights or impose obligations upon anyone who is not a party to that contract. This means that the right to terminate a contract is therefore conferred to the parties to the contract and if the county government is not a party to a contract, then the County Governor has no legal basis to revoke any such a contract. For contracts where the county government is a party, any termination or revocation would still have to be in accordance with the termination provisions of the contract, and to terminate the contract in a contrary manner could result in a breach of contract by the county government.
Revocation of county government licenses would also have to be done in accordance with the law and failure to do so could entitle relevant persons to seek judicial review under the Constitution of Kenya, 2010 or the Fair Administrative Action Act.
Even though Kenya’s legal framework does not yet expressly address trade in carbon credits, it is an area that is garnering a lot of interest and in the recent past received the support of the President of Kenya. The recent draft Climate Change Amendment Bill, which has just undergone public comments, seeks to regulate the carbon markets in Kenya and follows the stipulated legal process before it is implemented. The development in Kajiado could hurt the bankability of carbon projects in the country and may necessitate investors and/or project developers adopting a cautious approach with changes in law and force majeure provisions within emission reduction purchase agreements, project development and implementation agreements, and collaboration agreements.
Carbon credit projects have great potential to attract investment to Kenya and the government should encourage this through clear policy and consulting stakeholders when making decisions. Restraints in carbon credit trading that do not follow due process would hinder the growth of the sector. Therefore, any unilateral announcements by an elected County Governor without any stakeholder involvement are taking us away from ways in which to implement climate change-oriented solutions.
In our previous updates available here, here and here, we have noted that the ongoing developments in the carbon credit market in Kenya would transform the livelihood of many communities and restore degraded areas.
Bowmans will continue to keep an eye on and update you on the developments made in this regard.