Gift Kikwetu Dishes Limited v Samchi Telecommunications Limited & 2 others (Environment & Land Case 27 of 2016) [2022] KEELC 2506 (KLR)
The bottom line
#Kenya's Environment and Land Court ruled that personal guarantors of a company's lease can be sued directly, without first piercing the corporate veil.
What this practically means
#Executive summary
#Key legal issues
#Joinder of guarantors as necessary co-defendants in a counter-claim
The guarantors are necessary parties because the 1st Defendant intends to enforce the guarantee against them, and their presence enables the court to effectually and completely settle all questions in the suit.
Relying on Order 1 Rules 3 and 10(2) of the Civil Procedure Rules and the Deported Asians Custodian Board and Civicon tests, the court found that the claims against the plaintiff and the guarantors arise from the same set of facts - the lease and its guarantee covenant. Clause 7 and the ninth schedule of the Lease established the guarantors' covenants to pay rent and indemnify the landlord on default. Joinder avoids multiplicity of suits and no prejudice was demonstrated.
Whether the corporate veil must be lifted before directors can be joined as guarantors
No; where the guarantee is not expressed to be given in their capacity as directors, the guarantors are sued in their personal capacity and the corporate veil argument is unmerited.
The plaintiff argued that company debts cannot be directors' debts absent fraud and lifting of the veil. The court held this objection failed because the Lease Agreement did not indicate the guarantees were given in the directors' representative capacity; the guarantors' personal covenants under the ninth schedule were independent obligations enforceable against them without piercing the veil.
Whether leave to amend the Defence and Counter-claim should be granted
Yes; amendments should be freely allowed at any stage provided no prejudice or injustice is caused that cannot be compensated in costs, and the amendment is consequential on the joinder.
Citing Section 100 of the Civil Procedure Act and Order 8 Rules 3 and 5(1), and the principles in Central Kenya Limited v Trust Bank and Elijah Kipngeno Arap Bii, the court held that amendments are freely allowed to determine the real question in controversy and avoid multiplicity of suits. The amendment sought merely gave effect to the joinder already found merited, and no prejudice was alleged.
Legal principles established
#- A guarantor whose guarantee is not given in the capacity of director of the principal debtor company may be sued directly without lifting the corporate veil; the guarantor is immediately liable on default of the principal debtor without notice or prior recourse against the principal.
Court orders
#- 1.Leave granted to the 1st Defendant/Applicant to join David Ndungu Kamau and Rahab Kiarie Ndungi as co-defendants/necessary parties in the Counter-claim
- 2.Leave granted to the 1st Defendant to amend its Amended Defence and Counter-Claim Amended on 24th April, 2019 in terms of the draft Further Amended Defence and Counter-claim
- 3.Leave granted to the 1st Defendant Applicant to file its Further Amended Defence and Counter-claim within 15 days from the date of the order
- 4.Costs shall be in the cause
- Jurisdiction invoked
- Sections 1A, 1B, 63(e) and 3A of the Civil Procedure Act and Order 1 Rule 10(2) & 4 and Order 8 Rules 3 & 5(1) of the Civil Procedure Rules, 2010
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Gift Kikwetu Dishes Limited v Samchi Telecommunications Limited & 2 others (Environment & Land Case 27 of 2016) [2022] KEELC 2506 (KLR)", Case Analysis (2022). Not stated in the extract. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2022/2506/eng@2022-07-07
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.