There is a story that repeats itself, with small variations, across the mining districts of Kenya. An investor applies for a mineral right, spends years and considerable capital on prospecting, receives a document it believes to be a mining licence, imports plant under tax exemptions that the regulator itself recommended, and begins to pay royalties on monthly assessments issued by a regional mining office. Then the ground shifts. The investor discovers that its area has been removed from the online mining cadastre and marked as belonging to the Government. A demand for hundreds of millions of shillings in royalties and ground rent arrives, computed on assumed production rather than on any record of minerals actually won. Officers of the Mining Police Unit take up position at the processing plant. The State says that the licence never existed, that what the investor held was merely an application, and that nothing has been revoked because there was nothing to revoke.

That story is emblematic of the regulatory dispute in the extractive sector. It is not a contract dispute between equals, and it is rarely a simple question of compliance. It is a contest over who holds the right to a resource that the Constitution of Kenya vests in the people of Kenya, and over the procedures by which the State may grant, condition and withdraw that right. This edition of the BOLD builds the subject from the ground up. It begins with the legal architecture of mineral title, examines the recurring causes of dispute, considers how such disputes may be avoided, and then turns to the questions that decide most of these cases before the merits are ever reached, namely jurisdiction, the doctrine of exhaustion, the choice between constitutional and administrative remedies, and the standards that courts apply when they review the conduct of the regulator.

The architecture of mineral title

Minerals belong to the people and are held in trust

All land in Kenya belongs to the people collectively as a nation, and minerals and mineral oils are classified as public land.¹ Public land is held by the national government in trust for the people and is administered on their behalf.² The State is further obliged to ensure the sustainable exploitation, utilisation, management and conservation of natural resources and the equitable sharing of the benefits that accrue from them.³ Parliament is required to legislate for the ratification of any transaction involving the grant of a right or concession for the exploitation of a natural resource.⁴

Two consequences follow, and they shape every regulatory dispute in the sector. The first is that a mineral right is a derivative right. It exists only because, and only to the extent that, the State has lawfully granted it in accordance with the statute. The second is that once a right has been lawfully granted it becomes property in the constitutional sense, because the Constitution defines property to include any vested or contingent right to or interest in or arising from land or other assets, and it protects property of any description against arbitrary deprivation.⁵ The tension between these two propositions, that the right is the creature of the statute and that it is nonetheless protected property, runs through almost every case discussed below.

The statutory scheme

The Mining Act 2016 is the principal statute governing mining activities in Kenya.⁶ It establishes the Mineral Rights Board, which advises the Cabinet Secretary on the grant, rejection, renewal, suspension and revocation of mineral rights, and it vests the power to grant mineral rights in the Cabinet Secretary acting on the recommendation of the Board.⁷ Applications must be notified so that the public may comment before a right is granted, and the Act contemplates a written offer by the Cabinet Secretary and acceptance by the applicant before grant.⁸

The Mining Act creates a hierarchy of rights, including:

1. reconnaissance and prospecting licences,
2. retention licences,
3. mining licences for large scale operations and mining permits for small scale operations, and
4. mineral dealing licences for those who trade in or process minerals.⁹

A mining licence confers the exclusive right to carry on mining operations in the licensed area, to erect plant and to dispose of minerals recovered, subject to payment of the prescribed fees and royalties.¹⁰

Applications are lodged, processed and recorded through an online mining cadastre, and the Act also requires a register of mineral rights to be maintained.¹¹ The holder of a mineral right pays royalties on minerals won, and the detailed rules on the royalty base and its computation are now contained in subsidiary legislation.¹² Large scale operators must also enter into community development agreements with the communities affected by their operations.¹³

The Act then makes elaborate provision for the end of a right. A licence may be suspended or revoked only on specified grounds, which include:

1. failure to make prescribed payments,
2. breach of licence conditions or statutory obligations,
3. the provision of false information and the commission of an offence under the Act, and only after written notice requiring the holder to remedy the default within a reasonable time or, where remedy is not possible, to show cause why the licence should not be suspended or revoked.¹⁴ The Act also provides its own mechanisms for the resolution of disputes, including reference to the Cabinet Secretary, arbitration and the courts.¹⁵

Why these disputes arise

Regulatory disputes in the mining sector tend to cluster around a small number of recurring fault lines. Understanding them is the first step towards avoiding them.

Uncertain title

The most destabilising dispute is the one in which the very existence of the right is questioned. It arises where the paper held by the investor and the record held by the regulator diverge. The investor may hold a signed licence, a registration stamp and a receipt for the licence fee, while the cadastre shows only an application.

The regulator may allege that the licence was procured through fraud, that it was never recommended by the Board, or that the signature on it is not genuine.

The investor will point to years of conduct by the State that is consistent only with recognition, including royalty assessments, tax exemption recommendations citing the licence number, and visibility on the public cadastre.

Such disputes are uniquely dangerous because they collapse the distinction between compliance and existence. A holder who is found to be in breach may be given notice and an opportunity to remedy. A holder who is told that it never held a right at all may be given nothing.

Revocation and its procedural safeguards

The second fault line concerns revocation of a license. The statutory requirement of notice and an opportunity to remedy or show cause is not a formality. It reflects the common law principle that a person who stands to lose a valuable right is entitled to be heard before it is taken.¹⁶

The Constitution of Kenya elevates that principle to a fundamental right, because every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair, and to written reasons where a right has been or is likely to be adversely affected.¹⁷ The Fair Administrative Action Act gives that right content by requiring prior and adequate notice of the nature and reasons for proposed action, an opportunity to be heard and to make representations, and a statement of reasons.¹⁸

The leading Kenyan mining revocation case is instructive precisely because the investor lost. In Cortec Mining Kenya Limited v Cabinet Secretary, Ministry of Mining and others, the Cabinet Secretary revoked a special mining licence over the niobium and rare earth deposit at Mrima Hill in Kwale. The High Court and the Court of Appeal declined to quash the revocation, essentially because the licence had been issued without compliance with mandatory statutory preconditions, including the consents and environmental approvals required for operations in a protected forest area.¹⁹ The investor then commenced arbitration under the bilateral investment treaty between the United Kingdom and Kenya. The tribunal dismissed the claim, holding that a licence obtained in breach of fundamental requirements of the host State’s law did not give rise to a protected investment.²⁰

The lesson of Cortec cuts both ways. It confirms that a licence is only as good as the legality of the process that produced it, and that neither domestic courts nor international tribunals will protect a right that was never lawfully acquired. It does not, however, licence the State to dispense with process.

In Cortec the illegality was established on evidence in adversarial proceedings. The principle that emerges is that the validity of a right must be determined, not assumed, and that the burden of demonstrating a defect that defeats an apparently valid grant rests on the party asserting it.

Fiscal disputes

The third fault line is money. Royalties are payable on minerals won, and the royalty regulations tie the royalty base to the quantity of mineral actually extracted in each royalty period.²¹ Disputes arise where the regulator issues an assessment based on assumed production, for example by multiplying an assumed number of lorries a day by an assumed grade and an assumed number of working days over several years. Such an assessment is vulnerable on two levels. At the level of computation, it measures what might have been won rather than what was won. At the level of principle, it may contradict the regulator’s own case. If the State maintains that an operator never held a mineral right, it is difficult to see how a royalty, being a charge on minerals won under a mineral right, can arise at all. The State may have other remedies against unlawful extraction, including prosecution and forfeiture, but it cannot comfortably treat the same operator at once as a trespasser on the national mineral estate and as a licensee liable to pay rent upon it.

Enforcement on the ground

The fourth fault line is enforcement. The Act empowers authorised officers to enter and inspect mining sites and to issue directions, and the State is plainly entitled to stop mining that is genuinely unlawful.²²

Difficulties arise when inspection becomes occupation. A stop order issued by a regional office is an administrative act, subject to the same requirements of legality and fairness as any other. Where police officers remain on private premises for months, and particularly where the prosecutor has declined to charge, the enforcement may cease to be a lawful inspection and become a deprivation of property without a court order. The Constitution of Kenya requires the National Police Service to observe high standards of professionalism and respect for human rights, and it insists that police command be exercised in accordance with law.²³

Community and environmental disputes

Finally, mining disputes frequently involve third parties. Communities assert rights to compensation and to benefit sharing, landowners withhold or withdraw consents, and environmental regulators impose or enforce licence conditions. These disputes may be commercially as serious as any dispute with the Ministry, because without community consent and environmental approval a mining operation cannot lawfully proceed, and because the Constitution entrenches the right to a clean and healthy environment and public participation in the management of natural resources.²⁴

III. Dispute avoidance

In this sector, the most valuable legal work is often done before any dispute arises. Several strategies deserve the attention of investors, lenders and their counsel.

The first is rigorous verification of title. A signed licence should never be accepted at face value. Counsel should verify it against the online cadastre and the register of mineral rights, confirm that the application was notified to the public, obtain the Board minutes or brief recommending grant, and place on file the written offer and acceptance that the Act contemplates. Where the grant falls within a period of moratorium or policy suspension, the investor should obtain written confirmation that the grant was exempted or that the moratorium had been lifted. Cortec demonstrates that defects in the process of grant can defeat both domestic and treaty protection, so verification is not a formality.

The second is disciplined compliance and record keeping. Every submission to the cadastre, every response to a request for documents, every production return and every royalty receipt should be preserved and indexed. Many revocation and rejection disputes turn on whether the applicant submitted documents within a short window following a notice. Where the window is missed, the right may be lost before any court is approached.

The third is early and structured engagement. Where the regulator raises a concern, the holder should respond in writing, request the documents relied upon, and invite a meeting. A written request for reasons under the Fair Administrative Action Act serves a double purpose. It may resolve the matter, and if it does not, it builds the record on which any later challenge will depend.²⁵

The fourth is attention to communities and the environment. Community development agreements, landowner consents of sufficient duration and current environmental licences are not peripheral compliance items. They are conditions on which the right itself may depend, and they are frequently the first matters examined when a regulator decides to reconsider a grant.

The fifth is transactional protection for lenders and purchasers. Security over a mineral right should be supported by covenants requiring the holder to maintain cadastre status and to notify the lender immediately of any notice from the regulator, and the status of the right should be a condition precedent to drawdown. For foreign investors, the structure of the investment and the availability of treaty protection should be considered at the outset, with the caution that treaty protection will not cure an unlawful grant.

When dispute becomes inevitable

Once a dispute has crystallised, the questions that decide it are frequently procedural. A party that chooses the wrong forum, bypasses a statutory mechanism or frames its case in the wrong terms may lose without the merits ever being heard.

Jurisdiction comes first

Jurisdiction is the threshold question. In the classic formulation, jurisdiction is everything, and without it a court has no power to make one more step.²⁶ The Supreme Court has made clear that a court’s jurisdiction flows from the Constitution or from legislation, or both, and that a court cannot arrogate to itself jurisdiction through craft in interpretation.²⁷

In mining disputes, the question is usually whether the matter belongs in the Environment and Land Court or the High Court. The Constitution establishes courts of equal status to hear disputes relating to the environment and the use and occupation of, and title to, land.²⁸ The Environment and Land Court Act confers on that court jurisdiction over disputes relating to, among other things, mining, minerals and other natural resources, and it confers power to hear applications for redress of the denial, violation or infringement of fundamental rights relating to a clean and healthy environment and to land.²⁹ The High Court, for its part, may not exercise jurisdiction over matters reserved for the courts of equal status.³⁰ A dispute over the grant, revocation or cadastral status of a mineral right will ordinarily belong in the Environment and Land Court, even where it is framed as a constitutional petition, because the courts look to the dominant issue in the dispute rather than to the label the pleader attaches to it. A purely fiscal dispute, or a complaint about police conduct divorced from the mineral right, may raise different considerations, and counsel should analyse the predominant purpose of the claim before filing.

The doctrine of exhaustion

The second threshold question is exhaustion. Where the Constitution or a statute prescribes a procedure for the resolution of a particular grievance, that procedure must ordinarily be followed before the courts are approached.³¹ The Court of Appeal has explained that the doctrine serves to ensure that disputes are resolved by the bodies that Parliament has specialised for that purpose, and that the courts act as fora of last resort.³²

The doctrine is applied with particular force in specialised regulatory regimes.³³ The Fair Administrative Action Act codifies the rule by requiring the court to be satisfied that internal mechanisms for appeal or review and remedies available under any written law have been exhausted, while permitting exemption in exceptional circumstances on application.³⁴

Exhaustion is not absolute. The courts have recognised exceptions where the alternative mechanism is incapable of providing an adequate remedy, where the dispute raises questions of constitutional interpretation that the statutory body cannot determine, and where the body concerned is itself the subject of the complaint or has failed or refused to act.³⁵

In the mining context, the dispute mechanisms in the Mining Act frequently route the grievance back to the Cabinet Secretary, who is the very decision maker whose action is impugned. Where the regulator has already acted, has refused to respond to requests for reasons and has deployed officers to enforce its decision, counsel may legitimately argue that the internal mechanism has become illusory. That argument is far stronger, however, where the record shows that the mechanism was invoked, or at least offered to the regulator, before the court was approached. The prudent course is therefore to write to the Cabinet Secretary invoking the statutory dispute mechanism and requesting reasons, and to file only when that request has gone unanswered or the threatened harm makes waiting impossible.

Constitutional petition or judicial review

The third question is whether to proceed by constitutional petition or by judicial review. The Constitution permits any person to bring proceedings claiming that a right in the Bill of Rights has been denied, violated or infringed, and the courts may grant appropriate relief, including orders of judicial review.³⁶ It is therefore tempting to frame every regulatory grievance as a constitutional violation. The courts have cautioned against that temptation in two ways.

The first is the requirement of precision. A party alleging a constitutional violation must set out with reasonable precision the provision said to be infringed and the manner of the infringement.³⁷

The second is the principle of constitutional avoidance, under which a court will not determine a constitutional question where the dispute may properly be resolved on another basis, such as the statute or ordinary administrative law.³⁸ A petition that merely restates a complaint about a statutory process in constitutional language risks being dismissed as an abuse, or redirected to the statutory route.

In practice, the choice is often less stark than it appears. The Fair Administrative Action Act is itself the legislation enacted to give effect to Article 47, so a challenge to a revocation or removal decision under that Act is simultaneously an administrative law claim and a vindication of a constitutional right.

The constitutional petition retains distinct advantages where the claim is genuinely one of deprivation of property under Article 40, where damages are sought for violation of rights, or where the conduct complained of, such as a prolonged police occupation, is not easily characterised as a reviewable administrative decision. A well drafted pleading identifies the statutory and administrative law grounds first, and invokes constitutional provisions with precision and only where they add something that the statute cannot supply.

The administrative law grounds

Whatever the vehicle, the substantive grounds are those of administrative law, now codified. Administrative action may be reviewed where the decision maker lacked authority, acted in excess of jurisdiction, failed to comply with a mandatory procedure, was biased, acted for an ulterior purpose, took irrelevant considerations into account or ignored relevant ones, or acted unreasonably, irrationally or in abuse of power.³⁹

Three grounds are especially important in mining disputes. The first is procedural impropriety, which captures the failure to give notice and an opportunity to be heard before a right is withdrawn. Here the decisive question is often whether the decision should be characterised as the revocation of a licence, which attracts the safeguards in the Mining Act, or as the rejection of an application, which the regulator will say does not. I would suggest that the characterisation should follow the substance rather than the label. Where a person holds a document of title and has been treated by the State as a licence holder, the removal of that person from the cadastre is likely to affect a right or legitimate interest within the meaning of Article 47, whatever the regulator chooses to call it, and fair procedure is therefore required.

The second is legitimate expectation. The Supreme Court of Kenya has held that a legitimate expectation arises where a public body has, by an express promise or an established practice, induced a reasonable expectation that it will act in a particular way, and that such an expectation is protected provided that it is lawful.⁴⁰ The High Court has applied the doctrine against a public authority that induced a party to act to its detriment on the faith of its representations.⁴¹ The English authorities recognise that frustration of a substantive expectation may be so unfair as to amount to an abuse of power.⁴² The doctrine cannot, however, validate what the law forbids. An expectation founded on a grant made in breach of a statutory prohibition will not be protected, which is why Cortec and the doctrine of legitimate expectation must be read together.

The third is the right to information and reasons. Every citizen has the right of access to information held by the State, and every person adversely affected by administrative action may request written reasons, which must be supplied within thirty days.⁴³ Where reasons are requested and not supplied, the Act permits the court to presume that the action was taken without good reason.⁴⁴ In a dispute about an unexplained cadastral entry or an assessment of unexplained methodology, that presumption may be decisive.

Which is which

It may help to draw the threads together. Where the complaint is that the regulator decided without hearing the holder, the primary claim is one of procedural fairness under the Mining Act and the Fair Administrative Action Act, with Article 47 as its constitutional foundation. Where the complaint is that the State has taken or destroyed the value of a lawfully held right, the claim engages Article 40, and a constitutional petition may be appropriate. Where the complaint concerns an assessment of royalties or rent, the first question is whether the Mining Act or the royalty regulations prescribe an objection or appeal, and the doctrine of exhaustion will require that route to be followed unless an exception applies. Where the complaint concerns the physical conduct of officers on the ground, the claim may engage Articles 40, 47 and 245, and the remedies of prohibition and mandamus. In every case, the forum must be chosen by reference to the dominant issue, which in a dispute about the grant or status of a mineral right will ordinarily point to the Environment and Land Court.

The international dimension

Where the investor is foreign, domestic proceedings may run alongside, or be followed by, international arbitration under an investment treaty. Counsel should be alert to the interaction between the two. Findings of fact made by a domestic court on the legality of a grant may carry great weight before a treaty tribunal, as Cortec illustrates, and positions taken in domestic litigation may later be relied upon by the State. Equally, treaty protection may provide leverage in negotiation where domestic remedies are slow. The decision whether, when and how to commence domestic proceedings should therefore be made with the international dimension in view from the outset.

Conclusion

Regulatory disputes in the mining sector is at bottom a dispute about trust. The Constitution makes the State a trustee of the nation’s minerals, and a trustee may refuse a grant that the law does not permit and recover what has been taken without right. But a trustee must also act lawfully, fairly and transparently, and it must honour the rights that it has lawfully conferred. The cases show that the courts will not protect an investor whose right was never lawfully acquired. They show equally that the courts will insist on notice, a hearing and reasons before a right is withdrawn, and that the validity of a contested right must be proved rather than assumed.

For investors and their advisers, the practical message is that most of these disputes are won or lost long before trial. They are won by verifying title before capital is committed, by keeping a complete record of every engagement with the regulator, by requesting reasons the moment a cadastral entry changes, by invoking the statutory mechanisms before approaching the court, and by choosing the forum and framing the claim with precision. Kenya cannot attract the patient capital that its mineral sector requires if title can be erased by an administrative entry, and it cannot protect its mineral wealth if irregular grants are allowed to masquerade as licences. The law reconciles those interests in only one way, through due process, and those who understand that process best are the ones most likely to prevail.

Benson Odiwuor is an Advocate of the High Court of Kenya based in Nairobi, whose practice focuses on dispute resolution in the regulated industries, including mining, oil and gas, banking and project finance. He is also the editor of The BOLD, a legal newsletter focusing on dispute strategies and legal developments in the regulated industries of Kenya. Subscribe to The BOLD here.

For inquiries, contact the author at info@bensonodiwuor.com.