Warui & 12 others v Nduhiu & 3 others
The bottom line
#Kenya's Environment and Land Court refused minority shareholders permission to sue directors over a company land sale, ruling the majority had effectively approved it.
What this practically means
#Executive summary
#Key legal issues
#Leave to prosecute a derivative action under Section 238 of the Companies Act, 2015
Leave refused; the Plaintiffs failed the threshold for a derivative suit
The court applied the guidelines in Isaiah Waweru Njumi and Mohammedin Mohamed: particularized cause of action, demand/futility, adequate representation, good faith and ratifiability. The overwhelming majority of shareholders accepted sale proceeds without protest, only about 12 of hundreds of members objected, the suit was brought belatedly without explanation, and the sale was ratifiable by the majority. No prima facie evidence of gross undervalue was shown.
Interim injunction under Giella v Cassman Brown principles
Refused; no prima facie case and no irreparable harm
The company, not the shareholders, owned the suit properties; the Plaintiffs' expectation of land had not crystallized into a legal right, and their shares were not threatened. Any loss was compensable in damages. The court noted it would have declined the injunction even had leave been granted.
Order of inhibition
Refused
Having found the Plaintiffs had no legal interest in the suit properties and no prima facie case, there was no basis for an inhibition restraining dealings with the properties.
Costs
Costs of the application to the 1st – 4th Defendants; no order on costs of the suit
Costs follow the event under the proviso to Section 27 of the Civil Procedure Act; no reason was shown to depart from the general rule. Since leave was declined, no costs order was made on the suit itself.
Legal principles established
#- A derivative claim may be brought only in respect of a cause of action arising from negligence, default, breach of duty or breach of trust by a director, and judicial approval screens out frivolous claims.
- An act of a company that is not illegal or unlawful can be ratified by a majority of shareholders and is not a proper subject of a derivative suit.
- Shareholders' claims lie upon their shares, not upon the property of the company, which has separate legal personality.
Court orders
#- 1.The Plaintiffs' notice of motion dated April 6, 2021 is refused and dismissed in its entirety.
- 2.Costs of the application awarded to the 1st – 4th Defendants.
- 3.No order made regarding costs of the suit.
- Jurisdiction invoked
- Sections 238 and 239 of the Companies Act, 2015; Section 3(1) of the Environment and Land Court Act, 2011; Sections 1A, 1B, 3A and 63(c) of the Civil Procedure Act
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Warui & 12 others v Nduhiu & 3 others", Case Analysis (2023). Environment & Land Case E011 of 2021. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2023/18968/eng@2023-07-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.