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ELCPartially Allowed· [2024] KEELC 7014 (KLR)

Ndungu & 2 others v Patrick & 5 others (Environment and Land Case Civil Suit E009 of 2024) [2024] KEELC 7014 (KLR)

Environment and Land Court
24 October 2024
4,194 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
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The bottom line

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Kenya's Environment and Land Court confirmed you cannot sue company directors personally just because they witnessed a land sale agreement on the company's behalf.

What this practically means

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Executive summary

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The 3rd to 6th Defendants applied by Notice of Motion dated 2nd February 2024, supported by a preliminary objection dated 5th February 2024, seeking to be struck out as parties to the Plaintiffs' suit concerning a sale agreement dated 25th June 2020 over various plots. The Applicants, who were directors of the 2nd Defendant, Embakasi Ranching Company Limited, contended that they executed the sale agreement only as witnesses in their official capacities as company officials, that they were misjoined, and that no claim lay against them personally. The 5th Defendant was also said to be deceased. The Plaintiffs opposed, arguing the Applicants signed the sale agreement of 25th June 2020 and a further agreement of 16th December 2021, and received part of the purchase price personally, thus could not hide behind the corporate seal. The court framed three issues: privity and propriety of joinder; whether any direct personal claims existed; and what orders should issue. Applying the doctrine of privity of contract (Agricultural Finance Corporation v Lengetia Farm; Savings and Loans Kenya Ltd v Karangaita Kanyenje Gakombe) and the principle of separate corporate personality (Omondi v National Bank of Kenya Ltd), the court found the Applicants were neither parties nor privies to the agreement, having signed only as witnesses for the company, and could not be sued personally. The suit against them disclosed no reasonable cause of action per D.T. Dobie. The application was allowed, the 3rd to 6th Defendants were struck off the record, and each party was directed to bear its own costs, the substantive suit remaining pending against the 2nd Defendant.

Key legal issues

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01

Privity of contract and joinder of non-parties

Holding

The 3rd to 6th Defendants, having signed the sale agreement only as witnesses on behalf of the 2nd Defendant company, were neither parties nor privy to the contract and were improperly joined

Reasoning

The sale agreement dated 25th June 2020 was executed between the 1st Plaintiff and the 1st Defendant. The Applicants signed only as witnesses, being officials of the 2nd Defendant. Applying the doctrine of privity of contract, a contract binds only the primary parties and a witness derives no benefit or liability under it. Accordingly, the Applicants could not be impleaded in a suit for breach of that agreement.

p. 6
02

Separate corporate personality of directors

Holding

Directors who act for and on behalf of a company in their official capacity cannot be sued personally for the company's actions

Reasoning

Relying on the Salomon principle as restated in Omondi v National Bank of Kenya Ltd, the court held that a company has a distinct legal personality from its directors and officers. Actions performed by directors in their official capacity are deemed the actions of the company, and any suit must be directed at the company alone. Receipt of part of the purchase price did not displace the terms of the sale agreement binding the primary parties.

p. 7
03

Reasonable cause of action and striking out

Holding

The suit as against the Applicants disclosed no reasonable cause of action and warranted being struck out against them

Reasoning

Applying the D.T. Dobie test, the court found the claim against the Applicants clearly misconceived and legally untenable. The court balanced the right to be heard against the obligation not to burden parties and the court with hopeless claims, holding that where a claim is plainly misconceived the court must terminate it to save the adverse party unnecessary anxiety and expense.

Legal principles established

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  • A contract affects only the parties to it and cannot be enforced by or against a person who is not a party
  • A witness to a contract, whether acting on behalf of a company or otherwise, cannot be made a party in a suit for breach of that contract
  • A company is separate and distinct from its directors and officers; directors acting in their official capacity are not personally liable

Court orders

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  1. 1.The Application dated the 2nd February 2024 is allowed
  2. 2.The 3rd, 4th, 5th and 6th Defendants/Applicants be and are hereby struck off from the record
  3. 3.Each party shall bear own costs of the Application and the Preliminary Objection

Authorities

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Legislation

  • Civil Procedure ActSections 1A, 1B and 3A
  • Civil Procedure Rules, 2010Order 1 Rule 10[2]
  • Civil Procedure Rules, 2010Order 51 Rule 1
  • Civil Procedure Rules, 2010Order 1 Rule 9

Cases cited (7)

  • Salmon v Salmon
    [1887] AC 22
  • Agricultural Finance Corporation v Lengetia Farm Limited & Jack Mwangi
    [1985] eKLR
  • Savings and Loans Kenya Ltd vs Karangaita Kanyenje Gakombe Company Ltd
    [2015] eKLR
  • Dunlop Pneumatic Tyre Co Ltd V Selfridge & Co LTD
    [1915] AC 847
  • Omondi v National Bank of Kenya Ltd
    [2001] eKLR
  • D.T. Dobie & Company (Kenya) Limited v Joseph Mbaria Muchina & another
    (Civil Appeal 37 of 1978) [1980] KECA 3 (KLR) (Civ)
  • Industrial and Commercial Development Corporation versus Daber Limited
    [2001] eKLR
Jurisdiction invoked
Sections 1A, 1B and 3A of the Civil Procedure Act; Order 1 Rule 10[2] and Order 51 Rule 1 of the Civil Procedure Rules, 2010

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, "Ndungu & 2 others v Patrick & 5 others (Environment and Land Case Civil Suit E009 of 2024) [2024] KEELC 7014 (KLR)", Case Analysis (2024). . Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2024/7014/eng@2024-10-24

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