Mwangi v Gitari alias Julius Mutugi Muchemi & 5 others
The bottom line
#A Kenyan court refused to make company directors personally pay a Kshs 78 million judgment debt because the company's insolvency alone was not enough.
What this practically means
#Executive summary
#Key legal issues
#Whether the application was res judicata given the earlier application of April 22, 2020 determined by the Deputy Registrar
The application was not res judicata; the earlier application did not seek lifting of the corporate veil, and the Deputy Registrar lacked jurisdiction to grant such an order in any event.
The court compared the two applications. The previous one sought examination of the directors and production of documents under order 22 rule 35, with a consequential prayer that directors pay personally. The present application sought lifting of the corporate veil, a relief never sought or determined before. The Deputy Registrar's jurisdiction was limited to oral examination and production of documents; a veil-lifting order could only be made by the court seized of the matter.
Whether the joinder of the respondents (directors) was proper
The objection failed; the respondents were joined to the application, not the suit, pursuant to leave granted on March 16, 2022.
The court found that the directors were not joined as parties to the suit but to the application which sought orders against them. Leave to amend the notice of motion for that purpose had been granted in the presence of both parties, so there was no misjoinder.
Whether the 2nd defendant's corporate veil should be lifted to hold the directors personally liable
The veil should not be lifted; the 3rd defendant failed to discharge the burden of establishing fraud, improper conduct or breach of fiduciary duty.
The application rested on two grounds only: the company's inability to pay its debts and alleged breach of fiduciary duties by directors. Following Aster Holdings, Corporate Insurance v Savemax and Kolaba Enterprise, insolvency alone cannot justify piercing the veil. No evidence of breach of fiduciary duties was placed before the court, and the 3rd defendant squandered the opportunity to examine the directors on what became of the Kshs 50,000,000/- sale proceeds.
Legal principles established
#- The mere fact that a company has no attachable assets or is unable to pay its debts is not sufficient ground to lift its corporate veil to make directors personally liable for its debt.
- A notice of claim by a defendant against a co-defendant under order 7 rule 8 is treated as a cross-suit to be determined with the main claim.
- Special damages must be pleaded, particularised and strictly proved.
- A Deputy Registrar has no jurisdiction to lift a corporate veil; such order can only be made by the court seized of the matter.
Court orders
#- 1.The amended notice of motion application dated May 30, 2022 is dismissed
- 2.Each party shall bear its own costs of the application and the preliminary objection
- Jurisdiction invoked
- Environment and Land Court jurisdiction over the suit and application; Civil Procedure Rules (order 22 rule 35, order 49) invoked for the application
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Mwangi v Gitari alias Julius Mutugi Muchemi & 5 others", Case Analysis (2022). Environment and Land Case Civil Suit 281 of 2015. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2022/15477/eng@2022-12-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.