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ELRCAllowedNot stated in judgment (Notice of Motion dated 05/11/2018)· [2019] KEELRC 1241 (KLR)

Peter Mucha Gachoka v Protocol Solutions Limited [2019] KEELRC 1241 (KLR)

Employment and Labour Relations Court
19 June 2019
1,147 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court held two company directors personally liable for their company's debt because one tried to dodge responsibility after judgment.

What this practically means

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Executive summary

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This is a ruling of the Employment and Labour Relations Court (Hellen Wasilwa, J) delivered on 19 June 2019 in post-judgment proceedings. The Claimant/Decree-Holder, Peter Mucha Gachoka, had obtained judgment against the Respondent/Judgment Debtor, Protocol Solutions, on 30 January 2017. By a Notice of Motion dated 5 November 2018 under Order 5 Rule 17 of the Civil Procedure Rules, he sought substituted service of summons for examination of the Respondent's directors, one of whom, Job Maxwell Ochieng Ndege, could not be traced. Leave was granted and the examination proceeded. In his oral examination, Ndege acknowledged the judgment but claimed he had resigned as director effective 30 October 2016, although registry records showed he was a director as at 2 July 2017 and he attempted to change the directorship in 2018, after judgment. He also testified as RW1 describing himself as an employee without disclosing his directorship. The court reviewed the Salomon principle of separate corporate personality and its exceptions, citing China Wu Yi Ltd v Edermann Property Ltd, Corporate Insurance Co Ltd v Savemax Insurance Brokers Ltd, and Multichoice Kenya Ltd v Mainkam Ltd. Finding that improper motive could be imputed to Ndege for attempting to change directorship to evade liability, the court pierced the corporate veil and ordered Ndege and the current director, Tonny Ketter, to pay the decretal sum jointly. No costs order was recorded.

Key legal issues

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01

Whether a director against whom judgment was entered while in office can evade liability for the company's decree

Holding

A director in office at the time judgment was entered cannot escape liability; the veil was pierced on the basis of improper motive in attempting to change directorship after judgment

Reasoning

The court found from the Registrar of Societies records that Job Ndege was a director as at 2/7/2017 and as late as 2018 attempted to change the directorship of the Respondent after judgment was entered on 30/1/2017. He also gave evidence as RW1 describing himself as an employee while omitting his directorship. The court held these facts imputed improper motive to evade liability, justifying lifting the veil and holding him and Tonny Ketter liable jointly for the decretal sum.

p. 2
02

Whether mere insolvency of a company justifies lifting the veil of incorporation

Holding

No - the veil is not to be lifted merely because the company is insolvent or has no assets

Reasoning

Relying on Ringera J in Corporate Insurance Co. Ltd v Savemax Insurance Brokers Ltd, the court acknowledged that insolvency alone does not warrant saddling directors with the company's debts. However, the court distinguished the present case by finding fraud/improper design imputed from the director's conduct, bringing it within the recognized exceptions to the Salomon principle.

p. 2

Legal principles established

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  • Directors are generally not personally liable on contracts of their company, but the corporate veil may be pierced where fraud or improper design by directors or shareholders is imputed

Court orders

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  1. 1.The corporate veil of the Respondent was pierced and Job Maxwell Ochieng Ndege and the current Director Tonny Ketter were treated as identical to the Respondent
  2. 2.Job Maxwell Ochieng Ndege and Tonny Ketter were ordered to pay the Claimant the decretal sum jointly

Authorities

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Legislation

  • Civil Procedure RulesOrder 5 Rule 17

Cases cited (5)

  • China Wu Yi Company Limited vs Edermann Property Limited and 2 Others
    (2013) eKLR
  • Corporate Insurance Company Limited vs Savemax Insurance Brokers Limited
    (2002) I EA 41
  • Saloman v Saloman & Co Ltd
    (1897) A C 22 HL
  • Multichoice Kenya Limited vs Mainkam Limited and Another
    (2013) eKLR
  • Salomon v Salomon
    (1897) A.C. 22
Jurisdiction invoked
Order 5 Rule 17 of the Civil Procedure Rules (execution/post-judgment examination proceedings)

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, "Peter Mucha Gachoka v Protocol Solutions Limited [2019] KEELRC 1241 (KLR)", Case Analysis (2019). Not stated in judgment (Notice of Motion dated 05/11/2018). Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2019/1241/eng@2019-06-19

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