Introduction

In the competitive world of business, partnerships and deals often involve sharing contacts, sensitive information and resources. However, the risk of exploitation or betrayal is always present in the competitive business world. This is where trust becomes key, as it forms the foundation of successful business relationships. When entering into partnerships, it's important to have safeguards in place to protect your interests and ensure everyone keeps their promises. One such safeguard is a Non-Circumvention Agreement.

This article will explain the what is a Non Circumvention Agreement and how this can help protect your business.

What is a Non Circumvention Agreement?

A Non Circumvention Agreement is a contract designed to stop parties from bypassing or circumventing each other in business transactions. A Non-Circumvention Agreement prevents one party from engaging in any business dealings with an individual or company that was introduced to them by another party. By signing an NCA, the parties agree not to go behind each other's back or directly engage with the contacts introduced by the other party.

Non-circumvention agreements are particularly useful in commercial transactions such as:

1. Joint ventures;

2. Business Partnerships;

3. Mergers and acquisitions; and

4. Collaborations with external professionals or consultants.

Example

Imagine you run a tailoring business in Nairobi specializing in designing unique clothing styles, while Peter owns a sewing workshop that excels in stitching and finishing garments. You notice that many of your clients are looking for custom-made clothes that require both creative designs and high-quality stitching. You and Peter agree to work together on a joint venture, where you provide the designs and he handles the sewing.

Once Peter has access to your client base and design ideas, you wouldn’t want him to bypass you and work directly with your clients, offering them sewing services without your involvement. In this case, a non-circumvention agreement would protect you, ensuring that Peter cannot cut you out of the business and continue working with your clients without your participation.

Judicial Precedents

Non-circumvention clauses which are intended to stop parties from avoiding middlemen in order to deal directly with specific entities, are examined for their reasonableness in terms of duration and geographic reach in Kenyan jurisprudence. Although there isn't much specific case law on non-circumvention clauses, courts frequently make comparisons between non-compete clause rulings because they share similar principles. Additionally, under the Restraint of Trade Act (Cap 24, Laws of Kenya), any contract restraining a party from engaging in a lawful profession, trade, or business is not automatically void, but must be reasonable in duration, geographical scope, and in line with public interest.

This means that the Courts play a role in evaluating whether the terms of a restrictive clause, including non-circumvention provisions, go beyond what is necessary to protect legitimate business interests. Therefore, when drafting a non-circumvention agreement, it is essential to ensure that the clause is tailored narrowly to protect specific interests, and does not excessively limit the other party’s ability to do business. If challenged, the court will assess whether the restraint is proportionate, fair, and justifiable in the circumstances.

Duration (Time Limitation):

Kenyan courts evaluate whether a restrictive clause's time frame is reasonable and required to safeguard lawful business interests. For example, in Mwaura v. Taxify Kenya Limited [2023] eKLR, Mwaura had signed a non-compete agreement barring him from engaging in activities that were deemed to be in competition with Taxify’s business for a period of at least twelve months after termination of employment. Taxify argued that in breach of this agreement, Mwaura entered into a new employment contract with Little Cab Ltd, a company that was running the same business as Taxify. The court ruled that a 12-month non-compete agreement was unenforceable because it unfairly limited the claimant's employment options without providing sufficient protection for certain interests, such as trade secrets.

Geographical Scope (Territorial Limitation):

A restrictive clause's enforceability is also influenced by its geographic restrictions. Clauses shouldn't be too general; they should precisely define the restricted area. In LG Electronics Africa Logistics FZE V Charles Kimari [2012] eKLR Charles had entered into an employment contract with LG which restrained him from engaging in any business activity in any competing business within Kenyan territory as an employee, shareholder or director upon termination of the contract. Charles left the company on March 2, 2012, and found work with Konica Minolta East Africa Limited, a company that sold computer printers. However, on or about 30th April 2012, LG learnt that Charles was employed by Samsung Electronics East Africa Limited, a direct competitor of LG within the Kenya territory. The court decided that a non-compete agreement that forbade a former employee from conducting similar business in the entire Kenyan territory for 12 months was too broad and therefore unenforceable.

How Non-Circumvention Agreements Protect Your Business

i. Preserving Business Relationships and Investments

NCAs act as a protective barrier, ensuring that the relationships and investments a business has built remain intact. In many transactions, one party may introduce potential clients, partners, or investors to another. Without an NCA, there is a risk of being sidelined once the introduction has been made. By legally binding all parties to honor their commitments, NCAs prevent unfair practices and ensure that those who facilitate business opportunities receive their rightful benefits.

ii. Safeguarding Confidential Information

During negotiations or collaborations, businesses often share sensitive information such as trade secrets, client lists, financial records and proprietary technology. NCAs provide a layer of protection by restricting how this information can be used or shared. Without such safeguards, another party could exploit confidential data for their own gain, potentially harming the business that disclosed it. By prohibiting circumvention, NCAs help maintain trust, secure valuable information, and uphold business integrity.

iii. Ensuring Fair Play and Accountability

Trust is the foundation of successful business relationships, and NCAs help reinforce it by establishing clear expectations and responsibilities. These agreements define the rules of engagement, including restrictions on bypassing the introducing party. By setting legal boundaries, NCAs discourage unethical behavior, promote transparency and create a business environment where all parties can operate with confidence and fairness.

iv. Reducing Risks and Preventing Legal Disputes

Without an NCA, parties may exploit loopholes or ambiguous agreements to bypass one another, leading to conflicts over commissions, profits or the unauthorized use of confidential information. Disputes like these can result in costly legal battles and damage a company’s reputation. An NCA serves as a preventive measure by clearly outlining each party’s rights and obligations. In the event of a breach, the agreement provides a legal basis for resolving conflicts and enforcing penalties, ultimately minimizing risks and protecting business interests.

Conclusion

Businesses must recognize the potential risks involved in partnerships and take preventive measures to mitigate them. Moving forward, businesses should prioritize drafting and enforcing NCAs in any dealings that involve shared contacts, business opportunities, or sensitive information. Additionally, educating teams on the significance of these agreements ensures that everyone is aligned in protecting your company’s interests.

While Non-Circumvention Agreements are powerful tools for protecting business relationships, their enforceability in Kenya hinges on how reasonably they are drafted, particularly regarding duration and geographic scope. Courts are unlikely to uphold overly broad or restrictive clauses that unfairly limit a party’s freedom to trade or work.

This underscores the importance of tailoring NCAs to fit the specific context of your business dealings. A well-drafted agreement should strike a balance between protecting legitimate commercial interests and respecting legal limitations to ensure enforceability.

How we can assist you

At CM SME Club, we provide you with strategic legal advice, tailored contracts, and risk mitigation strategies to protect your business relationships and innovations.

Contact us today (law@cmsmeclub.com) for all your legal matters.

Written by: Magdaline Njeru (mnjeru@cmadvocates.com)

Published on April 23, 2025, 2:59 p.m.