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High CourtDismissed

Appellants v 1st and 2nd Respondents (ruling on preliminary objection)

High Court of Kenya
30 October 2019
1,716 words in judgment
View original judgmentRead on Kenya Law Watch case
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·~7 min to read original · ~4 min brief

The bottom line

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Courts can hold corporate officers accountable for debt without legally dissolving the company or piercing the corporate veil.

What this practically means

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Executive summary

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This High Court at Embu ruling by F. Muchemi J, dated 30 October 2019, determines a preliminary objection dated 1 March 2019 filed by the 1st respondent in response to the appellants' Notice to Show Cause why execution should not issue, dated 25 February 2019. The appellants had obtained judgment against the respondents for Kshs 2,649,009 on 22 February 2017 and issued the Notice to Show Cause against Sylvester Njeru Muruatetu, chairman of the 1st respondent, a co-operative society. The 1st respondent argued that the society and its chairman are distinct legal entities, that committal to civil jail for a civil debt is unconstitutional, that the decree holders had not exhausted other modes of execution, and that no formal application to lift the corporate veil had been made, invoking Salomon v Salomon. The appellants countered that the Notice merely initiated the process of affording the judgment debtor a hearing under Section 38 of the Civil Procedure Act, that civil jail has been upheld as constitutional in several authorities, that the objection raised factual issues unfit for a preliminary objection, and that under Section 28(3) and (6) of the Co-operative Societies Act a management committee may be held personally liable without lifting any veil. Applying the Mukisa Biscuits threshold as endorsed in Hassan Ali Joho, the court held the Notice was not an attempt to pierce the corporate veil but an opportunity for the judgment debtor, through its elected official, to be examined as an agent under Order 22 Rule 35, and that the constitutional ground was a factual issue. The preliminary objection was dismissed with costs in the cause.

Key legal issues

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01

Whether the Notice to Show Cause issued to the chairman of the 1st respondent constitutes an impermissible attempt to pierce the corporate veil contrary to Salomon v Salomon

Holding

It does not; the chairman is examined as an agent of the co-operative society so that the judgment debtor can show cause why it should not be committed to prison

Reasoning

The court distinguished examination of an officer under Order 22 Rule 35 from lifting the corporate veil, relying on its own earlier decision in Peter O. Ngoge v Ammu Investment. A co-operative society cannot be summoned to court and must be proceeded against through its elected officials, who are responsible for its liabilities.

p. 3
02

Whether the preliminary objection raises a pure point of law under the Mukisa Biscuits threshold

Holding

The objection is incompetent; the constitutionality of committal to civil jail is a factual issue requiring evidence from both parties

Reasoning

Applying the Mukisa Biscuits principle as endorsed in Hassan Ali Joho v Suleiman Said Shahbal, the court found that while the Salomon point was prima facie one of law, the ground on the constitutionality of civil jail depended on facts to be established by evidence, so the objection could not be upheld.

p. 2

Legal principles established

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  • A preliminary objection must be founded on a settled and crisp point of law whose application to undisputed facts leads to but one conclusion
  • A Notice to Show Cause to the chairman of a co-operative society's Management Committee is not an attempt to lift the corporate veil but an opportunity for the judgment debtor, through its elected official, to be examined as an agent of the company

Court orders

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  1. 1.The preliminary objection is dismissed
  2. 2.Costs in the cause
Jurisdiction invoked
Appellate/execution jurisdiction of the High Court; Civil Procedure Act and Civil Procedure Rules (not expressly stated in the judgment)

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, "Appellants v 1st and 2nd Respondents (ruling on preliminary objection)", Case Analysis (2019). . Source: 

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