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Court of AppealDismissedCivil Appli 101 of 2009· [2009] KECA 307 (KLR)

Nicholas Mahihu v Ndima Tea Factory Ltd & another [2009] KECA 307 (KLR)

Court of Appeal of Kenya
29 May 2009
2,160 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal dismissed a director's bid to stop his replacement, ruling that winning an arguable appeal alone is not enough—you must also show the appeal would be worthless without a stay.

What this practically means

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Executive summary

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This was a single-judge-panel-free application by Nicholas Mahihu under rule 5(2)(b) of the Court of Appeal Rules seeking a stay of the High Court's ruling (Sitati, J.) of 3rd April 2009 dismissing his application for temporary injunctions, and injunctions restraining the 2nd Respondent from acting as a director of Ndima Tea Factory Ltd pending an intended appeal. The dispute arose after a receiving order was made against the applicant in bankruptcy in 2004; the company treated his directorship as vacant and elected the 2nd Respondent in September 2008, allegedly in breach of magistrates' court orders. The Court of Appeal found one arguable ground: whether a receiving order, as opposed to a bankruptcy or adjudication order, disqualifies a person from being a director, engaging Sections 5, 9 and 20 of the Bankruptcy Act. However, the Court held the intended appeal would not be rendered nugatory because the applicant's loss (lost directors' allowances) was compensable in damages. It also took the view that the balance of convenience favoured the status quo, since the 2nd Respondent had already been nominated and was participating in the company's affairs, and that company elections were due the following year. The Court deliberately refrained from making findings on the applicant's age, which could disqualify him under the Companies Act, so as not to bind the appellate court. The application was dismissed with costs to the Respondents.

Key legal issues

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01

Arguability of the intended appeal

Holding

The distinction between a receiving order and a bankruptcy order, and its effect on the applicant's directorship, is an arguable ground

Reasoning

The court held that Sections 5, 9 and 20 of the Bankruptcy Act have different implications since the final outcome of bankruptcy is an adjudication order whereas a receiving order comes early to protect the debtor's estate. Whether a receiving order disqualifies a director was therefore arguable, and one arguable point suffices under rule 5(2)(b).

p. 3
02

Nugatory value of the intended appeal

Holding

The intended appeal would not be rendered nugatory because the applicant's loss could be compensated in damages

Reasoning

The respondents argued, and the court accepted, that any lost directors' allowances could be quantified and awarded as damages if the appeal succeeded. The applicant therefore failed to satisfy the second principle triggering the court's jurisdiction under rule 5(2)(b).

p. 4
03

Effect of the age-disqualification issue on arguability

Holding

The court declined to make a finding on the applicant's age, noting it was capable of rendering the application unarguable

Reasoning

The respondents pointed to the applicant's own sworn statement that he was 75 years old, above the Companies Act threshold of 70 years for directors. The court refrained from deciding the point to avoid binding the appellate court or the High Court, but flagged that it could render the entire application unarguable.

p. 3

Legal principles established

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  • Under rule 5(2)(b), an applicant need demonstrate only one arguable ground; there need not be a chain of arguable points
  • An applicant under rule 5(2)(b) must satisfy both principles: an arguable appeal and that the appeal will be rendered nugatory without the orders
  • The Court of Appeal on a rule 5(2)(b) application must ensure its orders remain effective and may consider the balance of convenience and the de facto state of affairs

Court orders

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  1. 1.Application dismissed with costs to the Respondents

Authorities

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Legislation

  • Court of Appeal Rulesrule 5(2)(b)
  • Bankruptcy Act (Chapter 53, Laws of Kenya)Sections 5, 9 and 20
  • Companies Actage qualification for directors (over 70 years)

Cases cited (4)

  • JUDICIAL COMMISSION OF INQUIRY INTO THE GOLDENBERG AFFAIRS & 3 OTHERS versus KILACH
    (2003) KQA 249
  • GITHUNGURI vs JIMBA CREDIT CORPORATION LTD (NO. 2)
    1985 KLR
  • J. K. INDUSTRIES LTD vs KCB
    (1982 – 88) 1 KAR 1688
  • RELIANCE BANK LTD (IN LIQUIDATION) vs NORLAKE INVESTMENTS LTD
    C.A. NO. NAI. 98 OF 2002 (unreported)
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 446 of 2009
Jurisdiction invoked
Rule 5(2)(b) of the Court of Appeal Rules

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (3)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Nicholas Mahihu v Ndima Tea Factory Ltd & another [2009] KECA 307 (KLR)", Case Analysis (2009). Civil Appli 101 of 2009. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2009/307/eng@2009-05-29

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.