Principle of Unreasonableness - Kenyan Case Study: Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others

Judicial Review in Kenya: The Keroche Industries Case and the Limits of Retrospective Taxation

Keywords: Judicial Review in Kenya, Keroche Industries, Kenya Revenue Authority, Legitimate Expectation, Wednesbury Unreasonableness, Administrative Law, Tax Law, Rule of Law, Retrospective Taxation, Constitutional Law.

Introduction

The relationship between taxpayers and revenue authorities is founded not only on statutory obligations but also on the constitutional principles of fairness, legality, transparency, and accountability. While the Kenya Revenue Authority (KRA) is empowered to assess and collect taxes, that mandate must always be exercised within the confines of the law.

The landmark decision in Keroche Industries Limited v Kenya Revenue Authority & 5 Others remains one of Kenya's most authoritative decisions on judicial review and administrative law. The High Court held that public authorities cannot exercise statutory powers arbitrarily or retrospectively where doing so undermines legitimate expectations and violates the rule of law.

The judgment has become a leading authority on the doctrines of legitimate expectation, administrative fairness, proportionality, abuse of power, and the celebrated Wednesbury principle of reasonableness established in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.

For businesses, investors, tax practitioners, and public institutions alike, the case continues to define the constitutional limits of governmental decision-making.

The Background of the Dispute

Keroche Industries Limited was licensed by the Customs Department in the late 1990s to manufacture fortified wines. Following approval by the relevant tax authorities, its products were classified under Tariff Heading 22.04, attracting excise duty at the applicable rate of 45%.

For approximately nine years, the company operated its business, priced its products, and paid taxes in accordance with this tariff classification. During this period, KRA consistently accepted the classification without objection.

In November 2006, however, KRA informed the company that its products had allegedly been incorrectly classified and ought instead to have fallen under Tariff Heading 22.06, attracting a significantly higher tax rate of 60%.

Rather than applying the revised classification prospectively, KRA reassessed Keroche's tax liability retrospectively for the years 2002 to 2005 and demanded payment of approximately Kshs. 1.1 billion within fourteen days.

The company challenged the decision through judicial review proceedings before the High Court.

The Legal Issues Before the Court

The Court was invited to determine several significant questions of administrative law, including:

• Whether judicial review was available despite the existence of alternative statutory tax dispute mechanisms.
• Whether KRA could lawfully apply a revised tariff classification retrospectively.
• Whether the taxpayer had acquired a legitimate expectation arising from KRA's longstanding conduct.
• Whether the retrospective tax demand constituted an abuse of statutory discretion.
• Whether the decision satisfied the standards of reasonableness established under the Wednesbury doctrine.

Each of these issues has had a lasting influence on Kenyan public law.

Judicial Review and the Right to Access the Courts

KRA argued that the High Court lacked jurisdiction because Keroche had failed to exhaust the available tax dispute resolution mechanisms before approaching the Court.

The High Court rejected this argument.

The Court recognised that while statutory tribunals ordinarily provide the primary avenue for resolving specialised disputes, judicial review remains available where public authorities exercise power unlawfully or in violation of constitutional principles.

The Court emphasised that access to justice is a constitutional safeguard that cannot be curtailed merely because an alternative statutory procedure exists. Where the legality, fairness, or rationality of administrative action is under challenge, the High Court retains supervisory jurisdiction.

This principle has since become central to Kenyan administrative law and continues to guide courts when determining whether exceptional circumstances justify bypassing statutory remedies.

Legitimate Expectation: Protecting Public Confidence

One of the most enduring contributions of the Keroche decision is its comprehensive treatment of the doctrine of legitimate expectation.

For nearly a decade, KRA had consistently accepted the applicant's tariff classification. The company had invested significant capital, structured its operations, developed pricing models, and prepared long-term business projections based on the understanding that the classification had been approved by the tax authority.

The Court held that this conduct gave rise to a legitimate expectation deserving of legal protection.

Although public authorities may correct genuine administrative mistakes, they must do so fairly and prospectively unless legislation expressly authorises retrospective action.

Businesses should not bear the financial consequences of governmental inconsistency where they have acted in good faith upon official representations.

The doctrine therefore serves not merely to protect private interests but also to preserve public confidence in governmental decision-making.

Retrospective Taxation and the Rule of Law

The Court was particularly critical of KRA's attempt to impose tax liabilities retrospectively.

Retrospective taxation creates uncertainty because it alters legal consequences after taxpayers have already arranged their affairs in reliance upon the existing legal position.

The Court observed that certainty is an indispensable component of the rule of law.

Investors require predictable legal and regulatory environments to make commercial decisions. If public authorities could revisit settled tax positions years later, businesses would operate under perpetual uncertainty.

The Court therefore concluded that retrospective application of the revised tariff was:

• irrational;
• unreasonable;
• arbitrary;
• oppressive;
• discriminatory;
• procedurally unfair;
• an abuse of power; and
• inconsistent with constitutional principles.

Although Parliament may expressly legislate with retrospective effect in limited circumstances, administrative agencies cannot ordinarily achieve the same result through discretionary decision-making.

The Wednesbury Principle and Administrative Reasonableness

The Court's reasoning drew extensively from the English decision in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223, one of the foundational authorities on judicial review.

Lord Greene MR explained that a public authority acts unreasonably where it:

• fails to consider relevant matters;
• considers irrelevant matters;
• misdirects itself in law;
• acts arbitrarily; or
• reaches a decision so unreasonable that no reasonable decision-maker could have made it.

This standard has become universally known as Wednesbury unreasonableness.

Applying those principles, the High Court concluded that KRA had exercised its discretion irrationally.

Among other considerations, the authority failed to appreciate:

• the taxpayer's long-standing reliance on the approved tariff;
• the devastating financial consequences of retrospective reassessment;
• the absence of procedural fairness; and
• the broader constitutional obligation to exercise statutory powers reasonably.

The demand for more than Kshs. 1 billion payable within fourteen days was found to exemplify administrative arbitrariness.

Abuse of Power and Proportionality

The Court also examined whether KRA's conduct amounted to an abuse of public power.

In answering that question, the Court considered:

• the abrupt reversal of the tariff classification;
• the retrospective nature of the assessment;
• the enormous financial burden imposed;
• the potential destruction of the applicant's business; and
• the absence of adequate procedural safeguards.

While acknowledging the importance of tax collection in funding public services, the Court held that revenue generation cannot justify unlawful administrative conduct.

Public authorities must pursue legitimate governmental objectives using lawful, proportionate, and procedurally fair means.

The Rule of Law and Constitutional Governance

One of the most frequently cited passages in the judgment concerns the constitutional significance of the rule of law.

The Court observed that Kenya operates under a system of limited government in which every public authority is constrained by law.

Administrative convenience cannot replace legality.

Likewise, certainty of law is indispensable to attracting investment and promoting economic development.

The Court affirmed that judicial review exists to ensure that governmental power remains accountable to constitutional standards rather than administrative preference.

Why the Decision Still Matters Today

Nearly twenty years later, the Keroche decision continues to shape Kenyan jurisprudence.

Its principles extend far beyond tax disputes.

The case is routinely cited in matters involving:

• judicial review;
• legitimate expectation;
• abuse of discretion;
• administrative fairness;
• procedural propriety;
• constitutional governance;
• proportionality;
• irrational administrative action; and
• the rule of law.

The judgment has also influenced courts interpreting Article 47 of the Constitution and the Fair Administrative Action Act, both of which reinforce the constitutional obligation that administrative action be lawful, reasonable, and procedurally fair.

Practical Lessons for Businesses

The decision offers several important lessons for businesses operating in Kenya.

Maintain complete regulatory records. Official approvals, licences, correspondence, and tax assessments may become critical evidence should disputes arise.

Act promptly. Businesses should challenge unlawful administrative decisions without delay to preserve available legal remedies.

Understand your rights. Regulatory agencies possess extensive powers, but those powers are subject to constitutional limitations and judicial oversight.

Seek specialist legal advice. Early legal intervention can often prevent disputes from escalating into significant financial liabilities.

Conclusion

The decision in Keroche Industries Limited v Kenya Revenue Authority & 5 Others remains a cornerstone of Kenyan administrative law and judicial review.

The judgment reaffirmed that governmental authority is not absolute. Public bodies must exercise statutory powers consistently with legality, fairness, rationality, proportionality, and the rule of law.

By applying the enduring principles of Wednesbury reasonableness, the High Court confirmed that retrospective administrative action—particularly where it imposes significant financial liabilities after years of official acquiescence—will rarely withstand judicial scrutiny.

For taxpayers, businesses, investors, and public authorities alike, the decision stands as a powerful reminder that constitutional governance demands more than the lawful collection of revenue. It requires that every exercise of public power be transparent, predictable, fair, and accountable.

How We Can Help

Our Public Law and Tax Disputes practice regularly advises clients on judicial review proceedings, tax assessments, administrative appeals, constitutional petitions, regulatory compliance, and disputes involving the Kenya Revenue Authority and other public bodies.

If your business is facing an unlawful administrative decision, retrospective tax assessment, or regulatory action, our team can provide strategic legal advice and robust representation to protect your rights and commercial interests.

 Disclaimer: This publication is intended for general informational purposes only and should not be construed as legal advice. Readers should seek specific legal advice before acting on any information contained in this article. No lawyer-client relationship is created by virtue of reading this publication. 

Legal Framework of Emergency Care in Kenya

1.0 Background

The legislative framework on emergency medical treatment in Kenya is anchored on the provisions of the Constitution which guarantees every person the right to the highest attainable standard of health. [1] In particular, Article 43(2) provides that no person shall be denied emergency medical treatment. Naturally, in law, given that the Constitution is only meant to provide broad guiding principles, it does not expound further on the circumstances under which this right can be enforced.

Between 2010 and 2017, there was no enabling law to give life to these constitutional provisions, and as such, health care practitioners were largely guided by the Kenya Health Policy 2014 – 2030. The Policy defines emergency treatment to include first aid treatment of ambulatory patients and those with minor injuries; public health information on emergency treatment, prevention, and control; and administrative support, including maintenance of vital records and providing for a conduit of emergency health funds across government. The policy further provides that “Emergency health services shall be a part of the referral services and shall be provided by the nearest health facility, regardless of ownership (both public and private).”

Relatedly, the 2013 Ministry of Health National Patients’ Rights Charter provides that every patient has a right to receive emergency treatment in any health facility. The Charter goes further to state that, in emergency situations, irrespective of the patient’s ability to pay, treatment to stabilize the patient’s condition shall be provided.

2.0 Discussion/Analysis

Notably, in May 2017, Parliament enacted the Health Act, which has subsequently given more clarity and legal direction on the rights and duties encompassed in emergency care. Section 7 of the Act is instructive on what constitutes emergency medical treatment including:

(a) pre-hospital care;

(b) stabilizing of the individual; or

(c) arranging for referral in cases where the health provider of the first call does not have the facilities or capability to stabilize the victim.

The Act further states that any medical institution that fails to provide emergency medical treatment, while having the ability to do so, commits an offense and is liable upon conviction to a fine not exceeding three million shillings. Besides medical institutions, healthcare providers, whether in the public or private sector, also have a personal duty to provide emergency medical treatment. [2]

Moreover, the Act instills a critical duty upon the government under section 15 to achieve the following as part of the realization of emergency medical treatment: First, a duty to develop policies, laws, and procedures, in consultation with the county governments and other stakeholders for the realization of emergency care. Second, a duty to ensure that financial resources are mobilized for uninterrupted access to all health services. Third, a responsibility to establish an emergency medical treatment fund for unforeseen situations, and lastly, to provide policy and training, maintenance of standards, and coordination mechanisms for the provision of emergency healthcare. It is worth noting, however, that while section 112 of the Act enshrines an obligation on the Ministry of Health to enact regulations for the better carrying out of the obligations under the Act, the National Policy on Emergency Medical Care in Kenya remains a draft that is yet to be endorsed into law. [3]

From the Kenyan judiciary, there is little jurisprudence that has interrogated emergency medical care. In the 2013 case of LN & 21 others vs Ministry of Health, the court, in its analysis held that renal dialysis did not constitute an emergency as the petitioner’s condition did not create a need for immediate remedial treatment but rather, was an ongoing state of affairs.

In the absence of national precedents, several cases can be used to give guidance on emergency care from the international sphere. First, the Supreme Court of India has long established a duty to provide emergency treatment for accident victims, regardless of the ability to pay. This was declared in the case of Parmanand Katara v. Union of India. [4] Generally, the jurisprudence from India on emergency care is indicative of the duty of a hospital to respond positively and admit a patient if they have facilities for dealing with the condition. [5] Lack of bed space has been held as not being a justifiable reason for turning away a critically ill patient whose condition needed to be stabilized urgently. The medical facility should be able to make internal arrangements to accommodate the patient if challenges relating to bed space arose.

3.0 Comparison

Closer home, the 2015 South African case of Charles Oppelt v Head: Health, Department of Health Provincial Administration: Western Cape also provides useful guidance on the legal duties that arise in emergency care. These duties include: First, the duty to ensure that a patient is transferred in time to be treated; second, the duty to ensure that the patient is given appropriate treatment with the greatest possible urgency and lastly, the duty to ensure that hospital personnel working in trauma units are properly instructed. Those who fail to do thus incur liability.

In addressing the regulatory weaknesses of emergency care in Kenya, guidance may be placed on the recommendations made in the Ruling of the Medical Practitioners and Dentist Board in the Alex Madaga Complaint of 2016. The Board noted with concern that to date, there exist several lacunae in emergency medical treatment that would benefit from the enactment of an overall emergency care policy at the national level. The Board recommended that the Ministry of Health, in collaboration with the Council of Governors enact guidelines that would regulate: Payment of emergency medical care, particularly in private hospitals, inter-hospital transfers, and referrals where a hospital does not have the capacity to offer emergency care; and lastly, regulation, licensing and operation of ambulances. [6]

4.0 Conclusion

In conclusion, therefore, the legal duty in emergency medical treatment can be summarized as follows: First, medical institutions that fail to provide health care services necessary to prevent and manage the damaging health effects due to an emergency situation are culpable. Further, facilities that have systems that are inappropriately designed and invariably cause a patient deserving of emergency medical treatment not to receive such treatment, are also culpable. Hospitals that prioritize monetary security before admission can also be held in violation of the Constitution as well as the Kenya National Patients’ Rights Charter. The liability of the government, on the other hand, arises from its duties as stipulated in the Constitution as well as sections 15 and 112 of the Health Act. Where the government thus fails to enact policies; mobilize financial resources, regulate, train and accredit emergency care providers or ensure compliance with already existing guidelines by medical institutions, then it is liable in law. This, must, of course, be done in consultation with county governments and other stakeholders in the health sector acknowledging that health is now a devolved function.

Review of a Joint Ventures (JVs) and an anaylsis of its Nature

1. What is a Joint Venture?

A JV is a legal organization that takes the form of a partnership between two or more persons by which they jointly undertake a transaction for mutual profit.

Generally each person contributes assets and share risks.

Like a partnership, JVs can involve any type of business transaction and the ‘persons' involved can be individuals, groups of individuals, companies, or corporations.

2. Nature of a Joint Venture

In order to form a JV, the parties to it must agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise.

The venture can be for one specific project only, or a continuing business relationship. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.

JVs are formed in the following ways:

a. Two parties, (individuals or companies), incorporate a company. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash.

b. Two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business.

c. Promoter shareholder of an existing company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.

Joint Ventures can take place between locals amongst themselves or they may involve locals and foreigners. However, they are commonly used by foreign companies to gain entrance into local markets. Foreign companies form joint ventures with domestic companies already present in markets the foreign companies would like to enter. The foreign companies generally bring new technologies and business practices into the joint venture, while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry.

3. Rationale for forming Joint Ventures

Internal reasons

a. Build on company's strengths

b. Spreading costs and risks

c. Improving access to financial resources

d. Economies of scale and advantages of size

e. Access to new technologies and customers

f. Access to innovative managerial practices

Competitive goals

a. Influencing structural evolution of the industry

b. Pre-empting competition

c. Defensive response to blurring industry boundaries

d. Creation of stronger competitive units

e. Speed to market

f. Improved agility

Strategic goals

a. Synergies

b. Transfer of technology/skills

c. Diversification

4. Form of a Joint Venture Agreement (JVA)

Joint Ventures are achieved through Joint Venture Agreements (JVAs). The Encyclopedia of Forms and Precedents (4th Edn, Vol 22) defines a ‘joint venture agreement' as being in the nature of a partnership between enterprises by which they seek to achieve, by mutual cooperation, a greater coordination of their separate activities.

5. How to enter into a Joint Venture Agreement

a. Selection of a good local partner is the key to the success of any joint venture.

b. Once a partner is selected generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement.

c. Negotiation of the terms of the joint venture agreement. The terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties. The negotiations will focus on issues such as:

· Dispute resolution agreements (Negotiation, arbitration, conciliation etc).

· Applicable law.

· Force Majeure: (What does it mean in the context of the subject agreement?). ‘Force majeure, as used herein, shall mean acts of God, laws or regulations, industrial disturbances, acts of the public enemy, civil disturbances, explosions and any other similar cause of equivalent force not caused by, nor within the control of either party, and which neither party is able to overcome. As soon as possible after the occurrence of the force majeure and within not more than 15 days, the Supplier shall give notice and full particulars in writing to the Federation of such force majeure if the Supplier is thereby rendered unable, wholly or in part, to perform its obligations and meet its responsibilities under this Purchase Order. The Federation shall then have the right to terminate the Purchase Order by giving in writing seven days notice of termination to the Supplier, and the Supplier shall return any deposit paid by the Federation'.

· Holding shares (Percentages.

· Transfer of shares.

· Board of Directors.

· General meeting.

· CEO/MD.

· Management Committee.

· Important decisions with consent of partners.

· Dividend policy.

· Funding.

· Access.

· Change of control.

· Non-Compete.

· Confidentiality. ‘All materials prepared as well as all data collected and processed in the course of your work under the terms of this contract become the property of the International Federation to dispose of as the International Federation deems suitable. They cannot be used for any purpose without prior written permission from the Secretary General. You hereby assign to the International Federation all intellectual property rights to the material prepared in the course of your work under the terms of this contract. Any information you become aware of during this assignment must remain confidential and not be divulged outside the Federation Secretariat and its field delegations, except where such information is publicly available'.

· Indemnity. ‘The Supplier shall indemnify, hold and save harmless, and defend, at its own expense, the Federation, its officials, servants, and agents from and against all suits, claims, demands, and liability, of any nature or kind, including their costs and expenses, arising out of any acts or omissions by the Supplier, or the Supplier's employees, officers, agents, or sub-contractors, in their performance of this Purchase Order. The obligations under this provision do not lapse upon termination of this Purchase Order and do not prejudice any other remedies available to the Federation'.

· Assignment. ‘The Supplier shall not assign, transfer, pledge or make other disposition of this Purchase Order or any part thereof or of any of the Supplier's rights, claims or obligations under this Purchase Order except with the prior written consent of the Federation'.

· Break of deadlock.

· Termination. ‘Without prejudice to other remedies, either Party may cancel a Purchase Order immediately by providing written notice to the other in the event that (i) the other party commits a material breach of the Purchase Order and fails to remedy that breach after being required to do so by notice in writing from the party seeking to terminate the Purchase Order specifying the breach complained of and stating its intention to terminate the Purchase Order if such breach is not made good, (ii) the other Party becomes insolvent, (iii) termination is permitted in accordance with the specific terms hereto'.

· Legal compliance. The JV agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period. ‘The Purchase Order is conditional upon the obtaining of any export license or other governmental authorization that may be required. The Supplier shall inform the Federation beforehand of such restrictions and shall obtain such license or authorization. In the event of refusal thereof, through no fault of the Supplier, the Purchase Order will be annulled and all claims between the parties automatically waived. The Supplier shall be responsible for any expenses or losses due to incorrect, incomplete or late documentation'.

6. How to Draft a Joint Venture Agreement

A good Joint Venture agreement is one which provides a comprehensive road map of the duties and obligations of both the parties. It minimizes complications when disputes arise.

Before finalizing a Joint Venture Agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties.

Before signing a Joint Venture Agreement the following must be properly addressed:

· Applicable law.

· Force Majeure.

· Holding shares.

· Transfer of shares.

· Board of Directors.

· General meeting.

· CEO/MD.

· Management Committee.

· Important decisions with consent of partners.

· Dividend policy.

· Funding.

· Access.

· Change of control.

· Non-Compete.

· Confidentiality.

· Indemnity.

· Assignment.

· Break of deadlock.

· Termination.

· Security and confidentiality.

· Legal compliance.

· Fees and payment terms.

· Proprietary rights.

· Auditing rights.

· Events of Defaults and Addressing.

· Dispute Resolution Mechanism.

· Time limits.

· Location of Arbitration.

· Number of Arbitrators.

· Interim measures/Provisional Remedies.

· Privacy Agreement.

· Non-compete Agreement.

· Confidentiality Agreement.

· Rules Applicable.

· Appeal & Enforcement.

· Be aware of local peculiarities.

· Survival terms after the termination of the Joint Venture agreement. The expiry or termination of this agreement shall be without prejudice to any rights which have already accrued to either of the parties under the Agreement. Things which need to be done under it to continue as if the Contract was in force.

· The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.

· Every Joint Venture agreement should be modified as applicable under different circumstances. One brush should not paint all the painting.

7. International Joint Venture Agreements

Joint Venture Agreements structured with in-country partners will be different from those meant for international partnership.

The greatest risks for International Joint Venture come from some emerging countries that are early entrants into Joint Venture, or those that have limited governmental support, ineffective legal enforcement, immature infrastructure, limited or nonexistent intellectual property protection or lack an understanding of foreign laws.

The most important areas to protect through an international Joint Venture agreement are security and confidentiality, legal compliance, fees and payment terms, proprietary rights, auditing rights and dispute resolution process. The legal systems in some countries might claim jurisdiction over any agreement regardless of which system the agreement specifies, and that other legal systems might have little respect for intellectual property rights.