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ELCDismissedChamber Summons Application dated 20th March 2017 (suit at Malindi)· [2018] KEELC 3946 (KLR)

Solian Investments Limited v KSC International Limited in Receivership (formerly known as Kundan Singh Construction Limited) & 7 others [2018] KEELC 3946 (KLR)

Environment and Land Court of Kenya
15 March 2018
JOJ.O. Olola
1,613 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Environment and Land Court ruled that company shareholders cannot join a lawsuit against their company just because they own shares.

What this practically means

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Executive summary

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By a Chamber Summons dated 20th March 2017, Opkar Singh Ubhi and Ripthuman Singh Ubhi sought to be enjoined as Defendants in a land suit brought by Solian Investment Limited against KSC International Limited, the registered proprietor of freehold titles in Mtondia/Roka, Kilifi. The Applicants contended that, as members and shareholders of the 1st Defendant, they had a beneficial interest in its properties, which were charged to the Bank of Baroda and with the company in receivership, the Receiver had taken over the directors' functions, requiring them to be joined to protect their personal interests. The Plaintiff opposed, arguing the application was misconceived, the 1st Defendant was the proper party, and the Applicants sought improperly to duplicate its defence. Ruling on Order 1 Rule 10(2) of the Civil Procedure Rules, J.O. Olola J held that a person to be joined must be both a necessary and proper party, directly and legally interested, whose presence is required for the court to effectually and completely adjudicate and without whom a decree cannot be enforced. Applying Salomon v Salomon, the court held the company, though in receivership, is a separate legal entity with full capacity to be sued; the shareholders had no stake in the manner purported, the Amended Plaint disclosed no allegation against them, and no claim was made that the Receiver/Managers were not acting in the company's best interest. The application was found misconceived and dismissed with costs on 15th March 2018.

Key legal issues

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01

Test for joinder of a party under Order 1 Rule 10(2) of the Civil Procedure Rules

Holding

A person seeking to be joined must be a necessary and proper party whose presence enables the court to effectually and completely adjudicate and without whom any resultant decree cannot be enforced

Reasoning

The court construed Order 1 Rule 10(2) and adopted the reasoning in Jan Bolden Nielsen and Amon v Raphael Tuck & Sons. Commercial or indirect interest is insufficient; the applicant must be directly and legally interested such that an order in the suit may affect his legal rights. Mere beneficial interest as a shareholder does not meet this threshold.

p. 2
02

Separate legal personality of a company in receivership

Holding

The 1st Defendant, though in receivership, remains a separate legal person with full capacity to defend the suit; its shareholders cannot be joined merely to defend it

Reasoning

Applying Salomon v Salomon, the court held that the company is a different person from its subscribers. Shareholders only have an interest in their shares. A derivative claim would require proof that the directors/Receiver are not acting in the company's best interest, and no such allegation was made in the supporting affidavits. The Amended Plaint disclosed no allegation against the Applicants.

p. 3

Legal principles established

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  • To be enjoined under Order 1 Rule 10(2), a person must be both a necessary and proper party against or for whom a remedy must flow, and whose presence is necessary for the court to effectually and completely adjudicate and for enforcement of any resultant decree
  • A limited liability company is a legal entity separate from its shareholders and directors with full capacity to sue and be sued; where a wrong is committed by or against a company, the proper party is the company itself

Court orders

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  1. 1.The Chamber Summons application dated 20th March 2017 is dismissed
  2. 2.The Applicants shall pay the costs of the application

Authorities

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Legislation

  • Civil Procedure RulesOrder 1 Rule 10(2)

Cases cited (3)

  • Jan Bolden Nielsen –vs- Hersman Philipus Steyn & 2 others
    (2012) eKLR
  • Amon- vs- Raphael Tuck & Sons
    LN (1956) 1 All ER 273
  • Salomon –vs- Salomon & Company Ltd
    (1987) AC 22 at 51
Jurisdiction invoked
Order 1 Rule 10(2) of the Civil Procedure Rules (application for joinder in a pending first-instance land suit)

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, "Solian Investments Limited v KSC International Limited in Receivership (formerly known as Kundan Singh Construction Limited) & 7 others [2018] KEELC 3946 (KLR)", Case Analysis (2018). Chamber Summons Application dated 20th March 2017 (suit at Malindi). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2018/3946/eng@2018-03-15

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