Prudenzio Nicholas Gaitara v Patrick Kariuki Muiruri & 2 others [2019] KEELC 4969 (KLR)
The bottom line
#A Kenyan court struck out a shareholder's lawsuit because the disputed land transfer had already been cancelled, leaving nothing to fight over.
What this practically means
#Executive summary
#Key legal issues
#Whether leave to continue a derivative suit should be granted
On the merits, a prima facie case existed because the sale proceeds of the company's property were diverted to the 1st defendant's personal account, constituting a fraud on the minority; but the claim became spent when the Land Registrar cancelled the transfer
The court found that although the plaintiff could earlier have obtained leave, the Land Registrar's administrative cancellation of the transfer on 4th October 2016 rendered the property claim spent. The surviving claim - the alleged fraudulent alteration of shareholding - concerned the plaintiff's personal rights as a shareholder, which he could pursue as of right without leave, and not derivatively. Moreover, disputes over the internal management of companies fall outside the ELC's jurisdiction and must be pursued in the High Court.
Whether the court could grant leave to continue a claim that is spent
No - leave cannot be granted to pursue a claim which no longer exists
It was common ground that the transfer to the 3rd defendant was cancelled administratively on 4th October 2016. Since the cancellation removed the subject matter of the property claim, the court held it could not permit a derivative continuation of a spent claim. The only surviving claim (shareholding alteration) was personal to the plaintiff and did not require leave, and lay outside the court's jurisdiction in any event.
Whether the plaint could be amended to add a second plaintiff
The limb failed because the main application failed; further, joinder of a plaintiff requires that party's consent
The amendment was predicated on leave to sue derivatively being granted. Having refused that leave, the court dismissed the amendment limb. It added that even had leave been granted, a party cannot be added as plaintiff without its consent under Order 1 Rule 10(3) of the Civil Procedure Rules, and no evidence of such consent existed.
Legal principles established
#- Leave to continue a derivative suit may be sought either before filing or after the suit has been instituted
- The applicant for leave to bring a derivative action must establish a prima facie case of locus standi, that the company is entitled to the relief, and that the claim falls within the exceptions to the rule in Foss v. Harbottle
- For suits instituted before the Companies Act 2015, the applicable law on derivative suits is English common law
- A plaintiff cannot add a party as plaintiff to a suit without that party's consent
Court orders
#- 1.The plaintiff's Notice of Motion dated 14th January 2016 seeking leave to continue the suit as a derivative action is dismissed
- 2.The plaintiff's suit is struck out
- 3.Each party shall bear its own costs
- Jurisdiction invoked
- Original civil jurisdiction of the Environment and Land Court over the suit property L.R No. 4953/2414; the court expressly disclaims jurisdiction over the company's internal management disputes
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Prudenzio Nicholas Gaitara v Patrick Kariuki Muiruri & 2 others [2019] KEELC 4969 (KLR)", Case Analysis (2019). Not stated in the judgment excerpt. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2019/4969/eng@2019-01-17
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.