Sultan Hasham Lalji & 2 others v Ahmed Hasham Lalji & 4 others [2014] KECA 440 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that majority shareholders cannot sue over wrongs done to their company; only the company itself, or minority shareholders in exceptional cases, can.
What this practically means
#Executive summary
#Key legal issues
#Capacity of shareholders to sue for wrongs done to the company (rule in Foss v Harbottle)
The appellants, as majority shareholders alleging fraud against the company's assets, had no capacity to sue jointly with the company; the company alone is the proper plaintiff and none of the exceptions to the rule applied.
The court examined the plaint and found that the averments conceded that the assets belonged to the company and that the company was the defrauded party; the appellants pleaded no personal loss. The four recognised exceptions (ultra vires, special majority, invasion of personal rights, fraud on the minority) protect minorities, and the appellants were undisputedly majority shareholders, so none of the exceptions could assist them.
Exercise of discretion in striking out pleadings under order 6 rule 13(1)(a) of the repealed Civil Procedure Rules
The High Court properly exercised its discretion in striking out the appellants' claims; the appellants themselves ought to have amended the plaint to remove their claims.
Guided by D.T. Dobie & Company (Kenya) Limited v Muchina, the court held that although striking out is to be used sparingly, the summary procedure also protects defendants from hopeless claims. Since the appellants had no capacity, the Judge merely did what the appellants themselves should have done by amendment; retaining their non-existent claims would serve no purpose.
Legal principles established
#- A shareholder, whether minority or majority, may not ordinarily sue in respect of a wrong done to the company; the company is the proper plaintiff, subject to the recognised exceptions to the rule in Foss v Harbottle.
- The exceptions to the rule in Foss v Harbottle are available to minority, not majority, shareholders.
- A pleading discloses a reasonable cause of action if it exhibits some chance of success on the allegations in the pleading alone; striking out is a power to be exercised sparingly and cautiously.
Court orders
#- 1.The appeal is dismissed
- 2.Costs of the appeal awarded to the respondents
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C. No. 189 of 1998
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Constitution and the Appellate Jurisdiction Act against a ruling of the High Court
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Sultan Hasham Lalji & 2 others v Ahmed Hasham Lalji & 4 others [2014] KECA 440 (KLR)", Case Analysis (2014). Civil Appeal No. 3 of 2003. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2014/440/eng@2014-07-18
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.