Kiprotich & 2 others v Board of Directors Momul Tea Factory Company Limited & another [2022] KEHC 10412 (KLR)

Kiprotich & 2 others v Board of Directors Momul Tea Factory Company Limited & another (Civil Case E002 of 2022) [2022] KEHC 10412 (KLR) (17 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10412 (KLR)

Republic of Kenya

In the High Court at Kericho

Civil Case E002 of 2022

AN Ongeri, J

June 17, 2022

Between

Charles Kiprotich

1st Plaintiff

John Kiprono Langat

2nd Plaintiff

Luther Kipkemoi Cheruiyot

3rd Plaintiff

and

Board of Directors Momul Tea Factory Company Limited

1st Respondent

Kenya Tea Development Agency (MS) Limited

2nd Respondent

Ruling

1. The Defendants and the Affected party in this case filed a Notice of Preliminary Objection (NOPO) dated 20/5/2022 in response to the Plaintiffs’ suit herein on the following grounds:-i.Thatthe suit offends Section 238(i) of the Companies Act 2015. ii.Thatthe suit offends Section 239 (i) of the Companies Act 2015. iii.Thatthe suit is subjudice and further that it offends Section 6 of the Civil Procedure Act.iv.Thatthe proceedings and the suit are defective and ought to be forthwith struck out with costs.

2. The parties filed submissions to the Preliminary Objection which are as follows: - the defendants/applicants submitted that the notice of preliminary objection as filed meets the basic threshold of such an application as it is purely premised on the law and there is no contest on the facts underlying the objection. It was also submitted that the complaint by the plaintiffs were premature, as it is one preserved for a general meeting and that even if the complaint was legitimate, it is the majority shareholders who would be entitled to bring the complaint presently in court, vide a resolution to do so.

3. It was also submitted by the defendants/applicants that the plaintiffs in a bid to commence a derivative suit as contemplated in part XI of the companies Act have failed to satisfy the key ingredients required by that provision of the law; and have violated the provisions of the Civil Procedure Act, as there is in existence a similar suit between the same parties pending before the Environment and Land court.

4. The plaintiffs/respondents on the other hand submitted that the preliminary objection raised by the respondent are largely not based on pure points of law and have therefore not met the threshold set for preliminary objections, as they will require production of evidence to prove the same.

5. The plaintiffs/respondents submitted that the authorities relied upon by the defendants/applicants to interpret the issue of derivative suits laid down in section 238 and 239 of the Companies Act, 2015 were misleading as they are based on the repealed Companies Act, Cap 486; and further, that section 239 (1) of the Companies Act, 2015 requires one to file a suit first and then seek permission from the court to continue with the suit as a derivative claim.

6. The issues for determination in this NOPO are as follows:-i.Whether this suit offends Section 238 (i) and 239 (i) of the companies Act, 2015. ii.Whether this suit is subjudice and offends Section 6 of the Civil Procedure Act.iii.Whether the Preliminary Objection should be allowed.

7. On the issue as to whether this suit offends Sections 238 (i) and 239(i) of the companies Act, 2015, the Defendant/Applicant relied on the case of Foss -vs- Harbottle and Stated that in the case of Shiawse Limited and another -vs- Pianesi Gino [2012] eKLR the Court observes as follows:-“the rationale behind the rule in Foss -vs- Harbottle is that Courts are reluctant to interfere with the internal Management of Companies acting within their power, and will interfere only where ultra vires or fraudulent acts not amenable to rectification are complained of”

8. Sections 238(i) and 239(i) of the Companies Act state as follows:-238 (i) in this part, “derivative claim” means proceedings by a member of a Company –a.In respect of a cause of action vested in the Company; andb.Seeking relief on behalf of the Company Section 239(i), Application for Permission to continue Derivative claim:i.In order to continue a derivative claim brought under this part by a member, the member has to apply to Court for permission to continue it.

9. The Defendants/Applicants submitted that the current suit offends both Section 238(i) and 239(i) of the Companies Act in that the Plaintiff/Respondents are usurping the powers of the majority and without involving their fellow shareholders they have made a unilateral decision to file this suit seeking to overturn the decision of the Board hence they are in violation of the Principle of derivative suits as espoused in Sections 238 (i) and 239(i) of the Companies Act.

10. The Plaintiff/Respondents on their part submitted that they are not in violation of the Principle of derivative suits and further what is required is judicial approval.

11. The Plaintiff/Respondent relied on the case of Ghelani Metals Limited & 3 Others -vs- Elesh Ghelani Natwarlal & Another[2017] eKLR where Justice Onguto observed as follows:-“With the advent of the Act the law fundamentally changed. The requirement to fall under the Exceptions to the rule in Foss –vs- Harbottle was replaced with Judicial Discretion to grant permission to continue a derivative action. Judicial Approval of the action is what now Courts and such approval is based on broad judicial discretion and sound Judgment without limit but with statutory guidance”

12. The Plaintiff/Respondent also submitted that the Preliminary Objection raised by the Defendant/Applicant does not meet the threshold of a Preliminary Objection as laid down in the locus classicus case of Mukisa Biscuit Manufacturing Co. Ltd -vs- West End Distribution[1969] EA 696 where the Court stated as follows:-“So far as I am aware, a Preliminary Objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a Preliminary Point may dispose of the suit.”

13. The Plaintiff/Respondent submitted that the Defendant/Applicants have detailed matters of fact rather than law in this Preliminary Objection and further that the case of Foss -vs- Harbottlerelied on is now outdated and further that Judicial discretion has to be exercised after hearing the entire Application.

14. The Plaintiff/Respondent also submitted that this suit is not subjudice as the ELC. Case No.E029 of 2021 was withdrawn and further, the issues which were raised in the ELC Case were different from those raised in the current suit.

15. I find that the issues raised in the Preliminary Objection require to be ventilated through evidence.

16. The Plaintiff/Respondent has sought leave in the Application dated 6/5/2022 to continue with this suit as a derivative suit and therefore this suit does not offend Section 238 (i) and 239 (i) of the Companies Act 2015.

17. The courts, as is often said, exist for the purpose of deciding the rights of the parties and I find that it is not in the interest of justice to dismiss the plaintiff/Respondent’s case without affording them a chance to be heard.

18. Article 48 of the constitution of Kenya guarantees all persons access to affordable justice and Article 159 admonishes all courts and tribunals to dispense justice without delay or undue regard to technicalities of procedure.

19. On the issue as to whether this suit is subjudice, I find that it is not in dispute that ELC Case No.E029 of 2021 was withdrawn.

20. I accordingly find that the Preliminary Objection raised by the Defendant/Applicant dated 20/5/2022 lacks in merit and the same is accordingly dismissed.

21. I direct that the application dated 6/5/2022 be canvassed by way of written submissions.

22. The Defendant to file their Replying Affidavit within 14 days of this case. In order to Expedite this case, the Plaintiff is also granted leave to file any further response to the Replying Affidavit (if need be).

23. Thereafter, the Plaintiff/Applicant to file and serve written submissions within 14 days.

24. The Defendant/Respondent also to file and serve their written submissions within 14 days upon being served with the Plaintiff/Applicant’s submissions.

25. This matter to be mentioned on 26/9/2022 for compliance and for a Ruling date.

26. The costs of the preliminary objection to abide the cause.

27. In the meantime, status quo to be maintained.

DELIVERED, SIGNED AND DATED AT KERICHO THIS 17TH DAY OF JUNE 2022. A. N. ONGERIJUDGE