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Court of AppealPartially AllowedCivil Appeal No. 146 of 2016

Shadrack Obuya Mukanda v Jason Mogaka Otiso

Court of Appeal
25 October 2019
PWP. N. WakiMohamed Abdulahi WarsameM. WarsameFSF. Sichale
714 words in judgment
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The bottom line

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Kenya's Court of Appeal confirmed that employees with claims against a company must sue the company, not its directors personally.

What this practically means

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Executive summary

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The Court of Appeal allowed the appellant's appeal against the judgment of the Employment and Labour Relations Court (Mbaru, J) of 7th April 2016, which had found that the appellant unprocedurally terminated the employment of the respondent, a security guard who claimed he was employed in February 2013 at a monthly salary of Kshs 6,000 and resigned in June 2014 without receiving terminal benefits. The appellant's sole ground on appeal was that the trial court failed to find that he and Security Coordinates Services Limited are separate and distinct legal persons, the company having been registered as a limited liability company on 16th April 2008. Relying on the classic principle in Salomon v Salomon & Co Ltd, the Court held that an incorporated company is a separate and distinct legal entity from its directors and subscribers, and that a director cannot be sued personally for the acts or omissions of the company, which has its own legal status. The Court found it improper for the respondent to pursue one of the company's directors and held that the trial court failed to appreciate the correct position of the law. The appeal was allowed, the judgment and decree of the ELRC were set aside, and the respondent's suit was dismissed with costs to the appellant in the appeal and in both lower courts. The judgment was delivered at Nairobi on 25th October 2019 by Waki, Warsame and Sichale, JJA, as a single judgment of the court.

Key legal issues

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01

Separate legal personality of an incorporated company

Holding

The appellant, being a director, was distinct and separate from Security Coordinates Services Ltd, which was incorporated on 16th April 2008; the respondent's claim should have been brought against the company, not one of its directors

Reasoning

Applying the Salomon principle, the court held that upon incorporation the company acquired its own legal status separate from its subscribers and directors. The respondent named the appellant as trading as Security Coordinates Services, but the company had transcended to a limited liability company before the employment relationship, so the director was not the proper defendant. The trial court erred in failing to appreciate this.

p. 2

Legal principles established

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  • A limited liability company is a separate and distinct legal entity from its directors, and a director cannot be sued personally for the acts or omissions of the company

Court orders

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  1. 1.Appeal allowed
  2. 2.Judgment and decree of the Employment and Labour Relations Court dated 7th April 2016 set aside
  3. 3.Respondent's suit in Employment and Labour Relations Cause No. 342 of 2015 dismissed
  4. 4.Costs of the appeal and of the two lower courts awarded to the appellant
On appeal from
Employment and Labour Relations Court
E&LRC Cause No. 342 of 2015
Jurisdiction invoked
First appeal to the Court of Appeal from the Employment and Labour Relations Court (statutory appeal)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Shadrack Obuya Mukanda v Jason Mogaka Otiso", Case Analysis (2019). Civil Appeal No. 146 of 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/272/eng@2019-10-25

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