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ELCOther· [2018] KEELC 3927 (KLR)

Chemalal (Two) Farm Company Limited v Phyllis Chepkoech Keino [2018] KEELC 3927 (KLR)

Environment and Land Court
19 March 2018
AOA. Ombwayo
2,868 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court allowed a company's land fraud suit to continue despite lacking board approval, because the alleged wrongdoers controlled the company.

What this practically means

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Executive summary

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Chemalal (Two) Farm Company Limited sued its director and former company secretary, Phyllis Chepkoech Keino, alleging she fraudulently abused her office by processing a deed plan merging the company's Kamagat land parcels with Leseru Farm's land and obtaining Land Control Board consent to transfer the company's land to an entity called Chemalal Farmers. The plaintiff sought a declaration that these dealings were a nullity and a perpetual injunction. Before trial, the defendant raised a preliminary objection that the suit was instituted without a company resolution authorizing it or appointing the plaintiff's advocates, and that the company lacked locus standi. A rival preliminary objection was lodged on behalf of the company by J. N. Njuguna & Company Advocates, asserting the company did not own the suit land and never resolved to sue or instruct counsel. The court first found that Njuguna's firm had not demonstrated its instructions complied with the law, as the resolution produced lacked minutes, notice and particulars. Applying Salomon v Salomon, Foss v Harbottle and its fraud exception as articulated in Edwards v Halliwell, Moir v Wallerstainer and Prudential Assurance v Newman Industries, the court acknowledged the suit was filed without a company resolution, contrary to the Companies Act. However, since the defendant is the company secretary, the alleged wrongdoers are directors in control, and the directors were pulling in opposite directions with company property in danger, the rule in Foss v Harbottle could not defeat the suit. The court dismissed the preliminary objection with costs and granted the plaintiff 14 days to amend the plaint.

Key legal issues

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01

Whether the suit was properly instituted in the name of the company without a resolution authorizing the filing of the suit

Holding

The court found the suit was filed without a company resolution, contrary to the Companies Act, but declined to strike it out because the company's directors and secretary are the alleged wrongdoers and it would be impossible to obtain a resolution to sue them.

Reasoning

The court accepted Salomon v Salomon and the rule in Foss v Harbottle that the proper plaintiff for a wrong done to a company is the company itself. However, it applied the fraud-on-the-company exception recognized in Prudential Assurance v Newman Industries and Moir v Wallerstainer: where the wrongdoers control the company, no board or general meeting will authorize suit, and the law must find means for the company to sue. The defendant, the company secretary, is alleged to be diverting the company's property, and the three directors are pulling in opposite directions, leaving the property in danger of being wasted or misappropriated.

p. 3
02

Whether the preliminary objection raised by J. N. Njuguna & Company Advocates was competent

Holding

The preliminary objection by J. N. Njuguna & Company Advocates failed because the firm did not demonstrate that the person instructing it had authority from the company; the resolution relied on lacked supporting minutes and did not name the approving directors.

Reasoning

Although a document styled as resolutions of a meeting of 11.12.2009 at Lewa Children's Home was produced, no minutes, notice, requisition or particulars of the resolutions were availed, and the resolution did not disclose the names of the directors who approved the appointment. Whether the meeting took place was a factual matter unsuitable for a preliminary objection. The court suggested the firm ought to have filed an application to strike out the suit instead. This objection therefore collapsed alongside the main one.

p. 2

Legal principles established

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  • A company may sue without a board resolution where the wrongdoers themselves control the company, since the rule in Foss v Harbottle yields to the fraud exception
  • Whether a resolution authorizing a suit was validly passed is a factual issue that cannot be determined by a preliminary objection

Court orders

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  1. 1.The plaintiff is granted 14 days to amend the plaint
  2. 2.The preliminary objection is dismissed with costs

Authorities

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Legislation

  • Companies ActCap. 486

Cases cited (6)

  • Bugerere Coffee Growers Limited Vs Sebaduka & Another
    [1970] E.A. 147
  • Salomon vs. Salomon Company Limited
    [1895-99] All ER 33
  • Foss vs. Harbottle
    (1843) 67 ER 189
  • Edwards vs. Halliwell
    (1950) All ER 1064
  • Moir vs. Wallerstainer
    [1975] 1 All ER 849
  • Prudential Assurance Company Limited v Newman Industries Limited and Others
    [1982] 1 ALL ER 364
Jurisdiction invoked
Original jurisdiction of the Environment and Land Court over land disputes (suit instituted by plaint); no specific constitutional provision invoked

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, "Chemalal (Two) Farm Company Limited v Phyllis Chepkoech Keino [2018] KEELC 3927 (KLR)", Case Analysis (2018). . Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2018/3927/eng@2018-03-19

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