Prudenzio Nicholas Gaitara v Patrick Kariuki Muiruri & 2 others [2014] KEELC 168 (KLR)
The bottom line
#A Kenyan shareholder suing to protect company property lost because he never sought the court's permission required for a derivative claim.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the Plaintiff has locus to bring the application herein
- 2.If the Plaintiff has locus, whether the Plaintiff has met the threshold for the grant of the temporary and mandatory injunctions sought
Key legal issues
#Whether the Plaintiff, a minority shareholder, had locus standi to bring the application in his own name
He did not: the rule in Foss v Harbottle makes the company the proper plaintiff, and the derivative-action exception required leave which the Plaintiff never sought or obtained
The court applied the rule in Foss v Harbottle as explained in Prudential Assurance v Newman Industries and Rai & 3 Others v Rai, and in Dadani v Manji, which the court adopted: a company, not an individual shareholder, enforces rights vested in the company. The exception permits a derivative suit, but Kenyan courts follow the English procedure requiring the plaint plus an application for permission to continue the derivative action to be heard before other steps. The Plaintiff produced no evidence of such an application or grant of leave, so the application was incompetently before the court and was struck out.
Whether the Plaintiff met the threshold for temporary and mandatory injunctions
Not reached on the merits, because the application failed at the threshold locus stage
The court framed locus as the preliminary issue conditioning whether the injunction thresholds (prima facie case, irreparable harm, balance of convenience under Giella v Cassman Brown) would be reached. Having found the Plaintiff lacked competence to prosecute a derivative claim without leave, the court did not proceed to consider the merits of the competing allegations of fraud, the transfer to the 3rd Defendant, or the defence of bona fide purchaser, and instead struck out the Notice of Motion.
Legal principles established
#- The proper plaintiff in respect of a wrong done to a company is prima facie the company itself, and a shareholder may bring a derivative action only under limited exceptions, requiring leave at the earliest opportunity after instituting the suit
- A plaintiff pursuing a derivative claim must seek leave to continue the proceedings at the earliest opportunity, and only thereafter move to the other stages or steps in the cause
Court orders
#- 1.The Notice of Motion dated 14th November 2013 is struck out
- 2.The Plaintiff shall meet the costs of the Notice of Motion dated 14th November 2013
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
- Jurisdiction invoked
- Not expressly invoked in the excerpt; the application was brought under sections 1A, 1B, 3A and 63(c) and (e) of the Civil Procedure Act and Order 40 Rules 1, 2 and 4(1) of the Civil Procedure Rules
Relief refused
#Temporary injunction restraining the Defendants from transferring, surveying, erecting beacons, leasing, mortgaging, charging or otherwise dealing with LR No. 4953/2414 pending hearing and determination of the suit
The Plaintiff commenced the action as a derivative claim without leave, so the application was incompetently before the court
Order restraining the 1st and 3rd Defendants from dealing or transacting in any way in the name of or on behalf of the 2nd Defendant
Same defect: no leave to proceed derivatively had been sought or granted
Revocation of the purported transfer of the suit property to the 3rd Defendant
The application was struck out in its entirety for want of leave to proceed as a derivative action
Costs
The Plaintiff shall meet the costs of the Notice of Motion dated 14th November 2013.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
I find that the Plaintiff’s application by the Notice of Motion dated 14th November 2013 for various temporary and mandatory injunctions with respect to property owned by the 2nd Defendant is incompetently before this court, as he has not been granted any permission to commence a derivative action. The said Notice of Motion is accordingly hereby struck out.
The Plaintiff shall meet the costs of the Notice of Motion dated 14th November 2013.
It is a cardinal principle in company law that it is for the company and not an individual shareholder to enforce rights of action vested in the company and to sue for wrongs done to it.
Issues in the judgment
#The judgment states the application was heard on a date in 2013 although the parties' submissions were filed in February and March 2014, suggesting the hearing date was mistyped
The case number of the suit is not stated anywhere in the judgment excerpt
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Prudenzio Nicholas Gaitara v Patrick Kariuki Muiruri & 2 others [2014] KEELC 168 (KLR)", Case Analysis (2014). Not stated in the excerpt provided. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2014/168/eng@2014-08-01
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.