Court of Appeal Rejects Petitions Challenging Safaricom Stake Sale

The Kenyan Court of Appeal has lifted conservatory orders that had temporarily suspended the government's planned sale of a 15% stake in Safaricom Plc to South Africa's Vodacom. The High Court had initially halted the multi-billion shilling transaction following petitions challenging its legality, transparency, and compliance with constitutional requirements on public participation and asset disposal. The appellate court, in its ruling, found that the government had met the legal threshold for a stay, emphasizing the "arguability" of the appeal, the "nugatory" effect of maintaining the injunction, and compelling public interest considerations. This decision allows the transaction, valued at over KES 200 billion, to proceed while the substantive constitutional petitions challenging its legality remain pending before the High Court.

A significant legal hurdle has been cleared in Kenya, paving the way for the government's planned sale of a 15% stake in Safaricom Plc to Vodacom. The Court of Appeal recently overturned conservatory orders issued by the High Court, which had temporarily halted the multi-billion-shilling transaction. This development is crucial for both the Kenyan government, which seeks to raise substantial funds for infrastructure development, and Vodacom, which aims to increase its controlling stake in East Africa's largest telecommunications operator.

The High Court's initial injunction stemmed from constitutional petitions that questioned the legality and transparency of the proposed sale, citing concerns over public participation, data sovereignty, and the alleged undervaluation of Safaricom shares. The Court of Appeal's decision, while not delving into the merits of the underlying constitutional questions, focused on the principles governing the grant of stay orders pending appeal. This article will explore the legal framework surrounding this dispute, the reasoning behind the Court of Appeal's decision, and its implications for future public asset disposal transactions in Kenya.

The disposal of public assets in Kenya is governed by a robust legal framework designed to ensure transparency, accountability, and public interest. Key among these is the Constitution of Kenya, 2010, particularly Article 227, which mandates that public procurement and asset disposal systems be fair, equitable, transparent, competitive, and cost-effective. The Public Procurement and Asset Disposal Act, 2015 (PPADA) further operationalizes these constitutional principles, providing detailed procedures for the efficient disposal of assets by public entities.

In this context, the Kenyan government's intention to sell a 15% stake in Safaricom Plc, a company in which it holds a significant shareholding, attracted legal scrutiny. Safaricom is a publicly listed company on the Nairobi Securities Exchange, and its operations are also subject to the Companies Act (Cap 486, now largely superseded by the Companies Act, 2015) and the Capital Markets Act (Cap 485A), which regulates securities transactions and market intermediaries. The proposed transaction, valued at approximately KES 204.3 billion (about $1.6 billion), would see the government's stake reduce from 35% to 20%, while Vodacom's holding would increase from 40% to 55%, giving it majority control. The proceeds from the sale are earmarked for the National Infrastructure Fund, intended to finance critical development projects.

The legal challenge to the Safaricom stake sale was initiated by petitioners, including Tony Gachoka and Fredrick Ogola, who later had their petition joined by former Vice President Kalonzo Musyoka. They argued that the proposed sale violated constitutional requirements, particularly those related to public participation, transparency, and the proper disposal of public assets. Concerns were also raised regarding the alleged undervaluation of Safaricom shares and issues of data sovereignty.

The High Court, comprising Justices Francis Gikonyo, Roselyne Aburili, and Tabitha Ouya, issued conservatory orders suspending the transaction. These orders, a public law remedy under Article 23(3)(c) of the Constitution, are intended to preserve the substratum of a petition and uphold the adjudicatory authority of the court, ensuring that constitutional questions can be heard without the challenged action becoming a fait accompli. The High Court cited unresolved constitutional and public interest questions as the basis for its decision.

The government, through the Attorney General, appealed the High Court's decision, arguing that the conservatory orders were unwarranted and that the petitioners had not demonstrated irreversible harm. The Court of Appeal, in its ruling delivered by a three-judge bench including Justices Patrick Kiage, Aggrey Muchelule, and Lady Justice Lydia Achode, lifted the conservatory orders. The appellate court applied the established principles for granting a stay of execution, which require an applicant to demonstrate that the appeal is arguable, that failure to grant a stay would render the appeal nugatory, and that public interest considerations favour the grant of the stay.

The Court of Appeal found that the government's appeal raised arguable issues and that maintaining the injunction would render the appeal nugatory, particularly given the commercial risks associated with prolonged delays, including the potential for Vodacom to reconsider or reprice the deal. Crucially, the court emphasized that public interest compellingly demanded the lifting of the suspension, acknowledging the government's need to raise funds for its infrastructure agenda and ease budgetary pressures. It is important to note that the Court of Appeal did not rule on the underlying legality or constitutionality of the transaction itself, leaving those substantive matters for determination by the High Court.

Beyond the judicial process, the transaction also requires regulatory approvals. Vodacom is reportedly seeking an exemption from the Capital Markets Authority (CMA) from the obligation to launch a mandatory offer for Safaricom's remaining outstanding shares, a requirement under the Capital Markets Act for significant acquisitions. This highlights the multi-faceted regulatory landscape governing such large-scale corporate transactions involving public entities in Kenya.

The Court of Appeal's decision to lift the conservatory orders marks a significant procedural victory for the Kenyan government, allowing the Safaricom stake sale to Vodacom to proceed. For legal practitioners, this case underscores the critical balance courts must strike between safeguarding constitutional principles and facilitating commercial transactions, particularly those with substantial public interest implications. The emphasis on the "arguability" of an appeal, the "nugatory" effect of an injunction, and the overarching "public interest" provides valuable guidance on the threshold for obtaining or challenging interim relief in constitutional litigation.

While the transaction can now move forward, the substantive constitutional petitions challenging its legality remain pending before the High Court. This means that the ultimate validity of the sale could still be subject to further judicial pronouncements. Practitioners should therefore continue to monitor the progress of the High Court cases, as their eventual determination will provide definitive clarity on the constitutional boundaries of public asset disposal in Kenya. Furthermore, the need for regulatory exemptions from bodies like the Capital Markets Authority highlights the complex interplay of judicial and administrative processes in major corporate deals involving state assets.