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ELCAllowedNot stated in the judgment (Mombasa ELC matter; application dated 10th October 2016)· [2017] KEELC 234 (KLR)

Lucy Wanjiku Muku (suing as a Director of Karl Salzmann Limited) v Karl Salzmann Limited [2017] KEELC 234 (KLR)

Environment and Land Court
1 November 2017
LKL. Komingoi
989 words in judgment
View original judgmentRead on Kenya Law Watch case
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·~4 min to read original · ~4 min brief

The bottom line

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Kenya's Environment and Land Court struck out a majority shareholder's lawsuit against her own company, ruling that the company—not individual shareholders—must sue for wrongs done to it.

What this practically means

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Executive summary

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The Defendant applied by Notice of Motion dated 10th October 2016, under Section 3A of the Civil Procedure Act and Order 2 Rule 15(1)(a) of the Civil Procedure Rules, 2010, to strike out the Plaintiff's suit for disclosing no reasonable cause of action and for want of jurisdiction, with costs payable personally by the Plaintiff. The Defendant argued that the Plaintiff, being a director and 51% majority shareholder of the Defendant company, could not sue the company in her own name, as that amounted to suing herself; the proper plaintiff for wrongs done to a company is the company itself. Counsel relied on the rule in Foss v Harbottle as reflected in Richard Otieno Muga, Stein v Blake and Sultan Hasham Lalji (High Court and Court of Appeal). The Plaintiff opposed, citing Article 50 of the Constitution and D.T. Dobie v Muchina on the reluctance to strike out pleadings, and urged that the two-shareholder husband-and-wife structure constituted a special circumstance. The court held that the Plaintiff owned the majority shares, produced no authority permitting her to sue the company, and failed to demonstrate special circumstances. Applying the authorities, the court found the suit disclosed no reasonable cause of action and that it had no jurisdiction to entertain it. The suit was struck out on both grounds, with costs of the application and suit awarded to the Defendant, payable personally by the Plaintiff. Judgment delivered at Mombasa on 1st November 2017.

Key legal issues

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01

Whether a majority shareholder may maintain a suit against the company of which she is a director and shareholder

Holding

She may not; the suit disclosed no reasonable cause of action and the court lacked jurisdiction, absent special circumstances.

Reasoning

The court applied the rule in Foss v Harbottle as adopted in Sultan Hasham Lalji (Court of Appeal) and Stein v Blake: wrongs done to a company must be redressed by the company itself, given its separate legal personality. The plaintiff, holding 51% of shares, sued the company in which her own interest lay, effectively suing herself. She produced no authority validating her position and failed to show special circumstances - such as the husband-and-wife two-shareholder structure she urged - warranting the exception.

p. 2

Legal principles established

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  • A shareholder cannot bring an action in her own name to redress a wrong done to the company; the proper plaintiff is the company itself (the rule in Foss v Harbottle).
  • A plaintiff must demonstrate special circumstances to justify suing the company in her own name as a shareholder.

Court orders

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  1. 1.The Plaintiff's suit struck out for disclosing no reasonable cause of action
  2. 2.The Plaintiff's suit struck out for want of jurisdiction
  3. 3.Costs of the application and of the suit awarded to the Defendant to be paid personally by the Plaintiff

Authorities

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Legislation

  • Civil Procedure ActSection 3A
  • Civil Procedure Rules, 2010Order 2 Rule 15(1)(a)
  • Constitution of Kenya, 2010Article 50

Cases cited (7)

  • Richard Otieno Muga versus Grace Wangari Muthirania And 5 Others
    Kisumu ELC No. 122 of 2013
  • Stein versus Blake And Others
    (1988) All ER 724
  • Sultan Hasham Lalji And 3 Others versus Ahmed Hasham Lalji And 4 Others
    Nairobi (Milimani) HCCC No 189 of 1998
  • Burland versus Earle
    (1902) 71 LJPC
  • Sultan Hasham Lalji And 3 Others versus Ahmed Hasham Lalji And 4 Others
    Civil Appeal No 3 of 2003
  • Foss versus Harbottle
    (1843) 2 Hane 461
  • D.T. Dobie (Kenya) Limited versus Muchina
    (1982) KLR
Jurisdiction invoked
Section 3A of the Civil Procedure Act and Order 2 Rule 15(1)(a) of the Civil Procedure Rules, 2010

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, "Lucy Wanjiku Muku (suing as a Director of Karl Salzmann Limited) v Karl Salzmann Limited [2017] KEELC 234 (KLR)", Case Analysis (2017). Not stated in the judgment (Mombasa ELC matter; application dated 10th October 2016). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2017/234/eng@2017-11-01

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