Naomi Nimazuri Zani, Okwako Emmanuel Alum & Onesmus Mutuku Muvengei v Lettas Development Ltd & Central Bank of Kenya [2021] KEELC 1924 (KLR)

REPUBLIC OF KENYA

IN THE ENVIRONMENT AND LAND COURT AT THIKA

ELC CASE NO.  O/S  8 OF 2021

IN THE MATTER OF  THE DELIVERY AND  COMPLETION OF  29, 3 BEDROOMED

BUNGALOWS IN JUJA/JUJA EAST /BLOCK 1/444

AND

IN THE MATTER  OF TOTAL REFUND  OF MONIES RECEIVED BY

THE1ST DEFENDANT  TO THE PLAINTIFFS

AND

IN THE MATTER OF

A DECLARATION ON THE MANDATE  OF

THE CENTRAL BANK OF KENYA

BETWEEN

NAOMI NIMAZURI ZANI ............................................1ST PLAINTIFF/APPLICANT

OKWAKO  EMMANUEL ALUM .............................. 2ND PLAINTIFF/ APPLICANT

ONESMUS MUTUKU MUVENGEI ........................... 3RD PLAINTIFF/APPLICANT

(All  being the registered officials  and the  representatives of 25 other Lettas Riverview

Two Investors  in JUJA/JUJA EAST  BLOCK 1/1444)

VERSUS

LETTAS DEVELOPMENT  LTD......................... 1ST DEFENDANT/RESPONDENT

CENTRAL BANK OF KENYA.............................2ND DEFENDANT/RESPONDENT

RULING

There are two matters for determination. One is the Notice of Motion Application dated 12th February 2021, by the Plaintiffs/ Applicants. The 2nd one is the Notice of Preliminary Objection, dated 15th June 2021, by the 1st Defendant/ Respondent.

By the Notice of Motion Application dated 12th February 2021, the Plaintiffs/ Applicants sought for the following orders against the Defendants/ Respondents;

1. That this Honourable Court be pleased  to issue Summons to the  Director(s)  of the 1st Defendant/Respondent to appear before Court to show cause  why they should not furnish security  for their appearance and  the paid up investors monies  amounting to Kshs.71. 612,732/= of the project’s  value estimated at  Ksjhs.87,081,700/=

2. That upon appearance and hearing of the said Directors of the 1st Defendant/Respondent, this Honourable  Court be pleased to order them to deposit  all 29 Freehold Titles in Court  and thereafter provide sufficient  property to answer the Claim as against them.

3. That pending the hearing and determination of this application, an order be and is hereby issued by this Honourable Court for the immediate closure and/or freezing or the following Bank Account(s) belonging to the 1st Defendant/Respondent to the extent of the amount owed of Kshs.71,612,732/= to protect the suit amounts.

(i)      NAME:          Lettas Developers Limited

BANK:                    Equity Bank Limited

A/C NO:                 xxxxxxx

BRANCH:             Supreme Westlands Branch

(ii)     NAME:        Lettas Developers Limited

BANK:                  Equity Bank Limited

A/C NO:                xxxxxx and

A/C NO:                xxxxxx

BRANCH:             Supreme Westlands Branch

(iii)    NAME:        Lettas Developers Limited

BANK:                  Cooperative Bank of Kenya

A/C NO:                xxxxxxxx

BRANCH:            Westlands Branch

The said company has both Dollar and Kenya shillings accounts in the various other banks all within the Jurisdiction and supervision of the 2nd Defendant/ Respondents, which accounts as soon as disclosed should satisfy the suit amount.

4. That pending the hearing and determination of this Application an order be and is hereby issued by this Honourable Court for the immediate closure/freezing of any other accounts of the 1st Defendant/Respondent in Banks within the Jurisdiction of the Central Bank of Kenya, the 2nd Defendant/Respondent, to the extent that will satisfy the suit amount of Kshs.71,612,732/=.

5. That in the alternative to prayers (4) and (5), the 1st Defendant be ordered to immediately and/or within 14 days from the date of this Honourable Court’s order to issue security for the suit amount in the sum of Kshs.71,612,732/=.

6. That   the Court  be pleased to grant any order that it may deem necessary in the interest of Justice.

The Application is premised on the grounds that the 1st Defendant Respondent entered into a formal agreement to build houses for the 28 Investors in  Juja/Juja East /BLK/1444. That the 1st Defendant/ Respondent has neglected, failed and or refused to put up the 29 housing units, despite receiving payment upfront for the same. Further, that the 1st Defendant/ Respondent has  extracted  Freehold  titles for 29  units, and has refused  to forwarded  the same to the Investors,  who are now apprehensive  that the said titles are being used for other  egregious  purpose. That the 1st Defendant/ Respondent was to deliver the units  upon  the payment of the  deposits and  the balance after 6 months, which the 1st Defendant/ Respondent  has failed to do.  Further that  despite most of the  investors having  made  the full payment, the 1st Defendant/ Respondent has failed to adhere to the terms of the sale agreements  and despite demand, the 1st Defendant/ Respondent  has neglected to make their obligations.

That  the Plaintiffs/ Applicants are  apprehensive that from  the conduct  of the 1st Defendant’s Chief Executive Officer  one Andrew Kamau  through telephone calls to individual members, that  the 1st Defendant/ Respondent is likely not to honour its obligations. That the 1st Defendant/ Respondent’s actions are marred with  mischief as the developer  keeps shuffling investors  between their myriad of projects . That the 1st Defendant/Respondent’s  failure to deliver  on their agreement  is a serious breach and the Plaintiffs/ Applicants are  apprehensive that their funds may be lost  or laid to waste by the 1st Defendant/Respondent  who has a poor history of handling  public funds and failure to deliver. Further, that the 1st Defendant’s/ Respondent’s operations are opaque  and efforts to seek audience have been rebuffed  and they may find themselves  unable to deliver  due to the Countrywide  uproar of their operations.

Further that the 2nd Defendant/ Respondent has failed in its legislative mandate of providing regulation and oversight in the  financial management  in the offplan  housing sector. Further that the  2nd Defendant/ Respondent  has since demand,  refused to take responsibility  of their institutional mandate   and gullible citizens will continue to suffer  at the hands of rogue and dishonest  developers, if it does not proclaim itself in the matter.

In their Supporting Affidavit   the Plaintiffs/ Applicants averred that  on various dates between 2017 and 2018, the 1st Defendant/ Respondent entered into  various sale agreements with 28 investors  for the construction of 29 units of 3 bedrooms on  L.R Juja /Juja East Block  1/1444, and they were to be issued with individual freehold titles.  That the prices for the various units varied from  Kshs. 2,750,000/=  to kshs. 3,300,000/=  depending on the time of purchase. Further, that it was a general understanding that  the development was  anticipated to be completed  within  6 to 15 months,  from the date of signing the various agreements. That all the investors made substantial deposits representing  82% of the total  Project  value. That the development has hardly taken off  the ground since then,  and though the Investors have pleaded with the officials of the 1st Defendant/ Respondent, the  same has not borne any fruits. That due to the intransigence of the officials  of the 1st Defendant/ Respondent, the Plaintiffs/Applicants are apprehensive that the  1st Defendant/ Respondent  does not mean well, as they were informed that  titles that were to be collected  by members who had finished  paying  were instead forwarded to the  1st Defendant/ Respondent by their Advocates. That all assurances to the investors that the project would commence and brought to completion  were meant to hoodwink them. That in August 2020, the CEO  of the 1st Defendant/ Respondent promised  a definite handover  date for the project within90 days.

That one of the salient clauses  in the terms  of the agreement  were that time  was of essence, but the 1st Defendant/Respondent was in total breach of the agreement. That they have been advised by their Advocates, which advice they believe to be true,  that the 2nd Defendant/ Respondent  has been negligent and encouraging  rogue  developers . That the 2nd  Defendant/ Respondent has the legal mandate to supervise all commercial banks and are enjoined  in this suit to ensure that monies collected by the 1st Defendant/Respondent  are protected, pending the  determination of this suit .

The Application is opposed and the 2nd Defendant/ Respondent filed grounds of opposition dated  24th May 2021, and urged the Court to dismiss the  Application with costs against it  on the grounds that; the 2nd Defendant/Respondent has been wrongly enjoined  in the  proceedings as it neither has a regulatory mandate over the offplan  housing  sector that forms  the subject matter of  the suit herein  nor does it regulate the 1st Defendant/Respondent.

That the Plaintiffs / Applicants cause of action arises from its contractual relationship with the  1st Defendant/Respondent  and the 2nd Defendant/ Respondent is not  a party to the same. That the Plaintiff’s / Applicant’s  cause of action is contractual in nature and it is therefore  enforceable by or against  the parties to the said Contract and the 2nd Defendant/ Respondent is not a necessary party to the proceedings as it is not privy to the agreements forming the subject matter of the suit herein. That the Plaintiffs/ Applicants have not established the threshold of the far and  reaching mandatory Orders being sought and that  the 2nd Defendant’s/ Respondent’s joinder in the suit is thus frivolous and vexatious.

The Application is further opposed by the 1st  Defendant/ Respondent who filed  a Replying Affidavit  sworn by Andrew Kamau, on 18th June 2021, and averred that the Application is unmerited and it  should be treated with the contempt it deserves. That the suit has been instituted by people without authority to do so. That the Plaintiffs/ Applicants have automatically lifted the veil of Corporation in the prayers sought, where they seek that the Directors provide  sufficient property  to answer the claim as against them in their individual capacity. That if the Plaintiffs/ Applicants are desirous of suing the Directors of the Company, the law provides for clear guidelines as to when  and  how the  incorporations veil is to be lifted, as the agreement was between the Plaintiffs/Applicants and the 1st Defendant/ Respondent. That the  Applicants have sued the  Directors  directly, and therefore failed to follow the procedures. That based on terms of the Contract, the Application  is premature in the sense  that the Plaintiffs have not exhausted the  available remedies  before instituting the instant suit, as the terms of the Sale agreements  specify that in case of  claim or dispute  arising under the agreement, the same ought to be referred for Arbitration.

He further averred that   he has been advised by his Advocates, which advice he believes to be true that  once a matter is instituted  in Court, it lapses  upon the Defendant  entering  Defence  and it is their position that the matter can still be referred to Arbitration. He further averred that they are still on  schedule with the construction of the houses  and the construction is still ongoing,  a fact admitted by the Plaintiffs in their minutes.  That the  Plaintiffs’/ Applicants’ claim to the title deeds before completion is baseless as they are not entitled to the same. That there is no proof that the  1st Defendant/ Respondent will  use the title deeds  in a manner that is pre judicial to the Plaintiffs/Applicants. That the title deeds are not encumbered,  despite being in possession of the 1st Defendant/ Respondent. Further, that the prayers  sought to freeze the account are  prejudicial and in bad faith  as it would result in great losses and potential  multiple suits as against the 1st Defendant/Respondent by other investors. That the agreement was for an offplan agreement and  which means  that the 1st Defendant/ Respondent  would use the monies  deposited  by the  Plaintiffs  and the Plaintiffs consented to the same.

The Plaintiffs/ Applicants through  Naomi Nimazuri, swore a  further Affidavit  on 22nd June 2021, and averred that  the 1st Defendant/ Respondent has been sued in its legal capacities and any  reliefs sought shall be against the 1st Defendant / Respondent, and should there be lifting of the veil, they shall do so at the appropriate time. Further, that  Civil process and  procedure provides for the Application of Arbitration  and in this case, there is nothing to arbitrate . That they have been advised by their Advocates, which advise they believe to be true that  the 1st Defendant/ Respondent has chosen not to put their substantive Defence. That the deponent forgets that all his promise to start and complete the units  have never come to fruition, That the Application to freeze the account is made in good faith  as it is supported by grounds  and the deponent has shown that the 1st Defendant/ Respondent is not concerned about the investors . That they may seek from Court an order of full refund  of the deposits made due to the bad blood and shoddy works done by the  1st Defendant/ Respondent and that the 1st Defendant/ Respondent is not keen on  expedient conclusion of this mater.

The 1st Defendant/ Respondent filed aNotice of Preliminary Objectiondated 15th June 2021,  and objected to the hearing of the Application  on the grounds that the Court lacks jurisdiction to hear and entertain the issues articulated in the  Application as;

1. That the prayers  made by the Application invite the Court  to delve into  issues of piercing the corporate veil  which issues would be invoked  by different procedures of law  that are beyond the jurisdiction of this Court. The effect of the prayers  sought is to  saddle the Directors  of the 1st Defendant  with alleged debt  and improprieties  of a Company which amount to  piercing of the Corporate veil.

2. That the  Jurisdiction as is determined within the 4 corners of  Section 13 of the Environment  & Land Court Act  read with Article 162  of  the Constitution of Kenya 2010 and the provision of  subordinate legislature  as quoted and relied  upon by the Applicant  cannot vest and or endow this Court  with jurisdiction to pierce the Corporate veil.

The Notice of Preliminary Objection is  opposed and the Plaintiffs/ Applicants filed a response to  the Notice of Preliminary Objection and opposed it  on the ground that it does not meet the threshold as  espoused in Mukisa Biscuit  Versus  Westend Distributors. That the Preliminary Objection is not anchored on any ground nor is it supported by   way of Affidavit, precedence or reference to  any statute. That it is meant to necessarily  increase costs and waste  of Court’s and parties time.

The Applications were canvassed by way of written submissions which the Court has carefully read and considered and  the Court renders itself as follows;

Various issues have been raised by the  1st Defendant/ Respondent  including whether or not the Plaintiffs/ Applicants  have the legal capacity to sue  and therefore the requisitelocus standi and further whether the Court has jurisdiction to hear and determine the issue. That there is an Arbitration clause that  is contained in the parties agreement. All these go to  the Jurisdiction of this Court to hear and determine the matter and even before the Court can   make a determination as to whether the Preliminary Objection is merited and whether the  Plaintiffs/ Applicants  are entitled to the orders sought, the Court must first make a  determination of the  said issues, which goes to its Jurisdiction, since without jurisdiction the Court must then  down its tools.  See the case of Owners of the Motor Vessel ‘Lillian’ (S) ….Vs… Caltex Oil (Kenya) Ltd [1989] KLR1, where the Court held that;-

“Jurisdiction is everything. Without it, a Court has no power to make one more step. Where a Court had no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A Court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction…’

The 1st Defendant/Respondent has contended that the  Plaintiffs  do not have  locus standi as the suit has been instituted by the Plaintiffs/Applicants without the authority  of other alleged Plaintiffs.  In the case of Kipsiwo Community Self Help Group …Vs… Attorney General and 6 Others [2013] eKLR the Court (Munyao J) stated as follows:

“38. I think the issue is not really whether unincorporated entities may commence action but the manner in which unincorporated entities may commence proceedings. A number of individuals may come together and form an identifiable group. They can bring action as the group, but it does not mean, that the group is now vested with legal capacity to sue and to be sued. In such instance, the members of the group have to bring action in their own names, as members of the Group, or a few can bring action on behalf of the other members of the group, in the nature of a representative action. Unincorporated entities have no legal capacity and cannot therefore sue in their own names. They can however sue through an entity with legal capacity. Just because the Constitution allows unincorporated bodies to sue, does not vest such bodies with legal capacity, and such bodies do not become persons in law, and cannot be the litigants or sue in their own standing.They still have to use the agency of a person recognized in law as having capacity to sue and to be sued.”

Further in the case ofShadrack Mwamuu Nzioka & 2 others (suing on their behalf as officials of Crescent Self Help Group) ….Vs… Tropical Blooms Limited [2020] eKLR,the Court held that;-

21. In the case of Kahindi Katana Mwango & Another vs. Cannon Assurance K. Ltd (2013) eKLR, this Court stated as follows:

“Indeed, Order 4 Rule 4 of the Civil Procedure Rules requires that where the Plaintiff sues in a representative capacity, the Plaint shall state the capacity in which he sues. The Plaintiff's Originating Summons does not state whether the Jeuri Community Based Organization, through the two Plaintiffs, suing on behalf of 41 others is a representative suit or not. That, in my view, renders the suit incurably defective.  As at the time of filing the suit, the Plaintiffs were under an obligation to show the written authority entitling them to sue on behalf of “JEURI COMMUNITY BASED ORGANISATION” or on behalf of 41 others in accordance with the provisions of Order 1 Rule 13 of the Civil Procedure Rules, 2010. The Applicant cannot just annex a list of the inhabitants on whose behalf he purports to be acting which is not signed by any of the persons listed therein.”

22. The Plaintiffs in this suit have filed the suit in their own capacity and on behalf of an organization calling itself Crescent Self Help. Although the members of the Crescent Self Help Group have not given the three Plaintiffs written authority to swear Affidavits and plead on their behalf, the 2nd and 3rd Plaintiffs have done so.

23.  To the extent that the three Plaintiffs have pleaded that the suit is brought on their own behalf, and the other two Plaintiffs having given the 1st Plaintiff authority to sign the Affidavit on their behalf, this suit is sustainable, but only in respect to the three Plaintiffs, and not any other member of Crescent Self Help Group.

The Plaintiffs have brought the instant suit   as official of Lettas  Riverview  Two Investors. They are also investors and have the right to institute the suit too.  Given that they have brought the suit in a Representative capacity, the Plaintiffs are required to produce a written authority. However, the suit may also be sustained in their own names.  Therefore, this Court finds and holds that the Plaintiffs have the requisite capacity.

As to whether the Court has jurisdiction, it is the 1st Defendant’s contention that it cannot file its Defence as filing the same would be  admitting the Court’s jurisdiction and therefore bound  by the same. The 1st Defendant has contended that this Court has no jurisdiction, over the issue as the Plaintiffs/Applicants have not exhausted all  the available remedies as provided in their  Agreements.

The Court has gone through the Sale agreements produced in evidence by the  Plaintiffs and under Clause  H of the said  sale agreements titled  Arbitration, the same states;

“All claims and disputes whatsoever  arising under this agreement  shall be referred to Arbitration in accordance with  the provisions of Arbitration  Act of Kenya …………”

In determining this issues, Section 6(1) of the Arbitration Act No. 4 of 1995 is key. It provides:-

“(1) A Court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or files any pleadings or takes any other step in the proceedings, stay the proceedings and refer the parties to arbitration unless it finds—

(a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b)that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

From the sale agreements, the Arbitration clause provides that all claims and  disputes whatsoever ought to be referred to Arbitration. The basis of this suit is the alleged breach by the 1st Defendants/Respondent  to  complete and deliver the 29 units  as per the sale agreements. Therefore, the instant dispute falls under the realm of Clause Hon Arbitration of the said Agreement.

It is not in doubt that Parties are bound by theirterms of Contractand the Court cannot rewrite the said Contract. The said agreements between the parties provided for the Arbitration of disputes and the same ought to be guided by the provisions of Arbitration Act.  See the case of Wringles Company (East Africa) –v- Attorney General & 3 Others (2013) eKLRwhere the Court held:-

“that Courts cannot re-write what has already been agreed upon by the parties as set out in the agreement. The parties had agreed that in the case of a dispute arising as to the validity of the agreement, then the same would be subject to arbitration and the Court cannot re-write the same.”

The Court having found that the  dispute can be referred to  Arbitration,  it must then  make a determination as to whether the  1st Defendant  has complied with the provisions of the Sections of theArbitration Act,that would then enable the Court refer the matter for Arbitration. Section 6 (1) of the Arbitration Act provides that;

“A Court before which proceedings are brought in  a  matter  which  is  the  subject  of  an arbitration  agreement  shall,  if  a  party  so applies not later  than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds-

(a)That the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b)That there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

It is not in doubt that the 1st Defendant/Respondent  appeared on 16th April 2021.  It later filed a Notice of Preliminary Objection dated 15th June 2021, and filed a Replying Affidavit dated 18th June 2021,  in response to the Plaintiffs/ Applicants  Application.  The 1st Defendant has not in any way filed  an Application  to stay the proceedings of this Court and refer the matter  to Arbitration.

The provisions of Section 6(1) of the Arbitration Actrequires a party  to file for stay of  proceedings not later than the  time of entering Appearance. Further   when a party files pleadings  in  Court, not only a  defense as alluded by the 1st Defendant, but any pleading, then that party has admitted the Plaintiffs claim and  the jurisdiction of the Court . See the case ofMt. Kenya University …Vs…Step Up Holdfing (K ) Ltd [2018] eKLR where the  Court  of Appeal held that;-

“We reiterate that in order to succeed, the law obligated the appellant to file the application seeking reference to arbitration simultaneously with the entry of appearance and thereafter take no further procedural steps in the matter.  The appellant herein entered appearance, and then responded to the Respondent’s application for injunction before filing the application seeking an order for reference to arbitration. Critically the appellant’s response to the Respondent’s application for injunction amounted to the taking of a procedural step in the matter before the initiation of the reference process.  We therefore find no error in the Judge’s findings. They are accordingly affirmed.”

Further in the case of  Diocese of Marsabit Registered Trustees v Technotrade Pavillion Ltd[2014] eKLRit was held: -

“By these provisions of the Constitution and the fact that the process of arbitration is largely consensual, a party who fails to adhere to the law such a section 6(1) of the Arbitration Act forfeits his right to apply for and have proceedings stayed or matter referred to arbitration. And for all purposes, such is an indolent party who should not be allowed to circumvent the desire and right to the other party from availing itself of the judicial process of the Court. With that understanding, a delay of fourteen (14) days becomes unreasonable in the eyes of the law and the circumstances of the case.  On that ground alone, the application herein having been made fourteen days after the filing of appearance, should fail.”

Consequently, the Court finds and holds that though the dispute is one which could be referred for Arbitration, the Court  declines to do so for failure by the 1st Defendant/ Respondent to comply with the provisions of Section 6(1) of the Arbitration Act and thereby vesting the Court with jurisdiction.

Having held that this Court is well vested with the requisite jurisdiction, the Court must further determine the following  issues.

1. Whether the 2nd Defendant/ Respondent has been wrongly enjoined

2. Whether the Notice of Preliminary Objection dated 15th June 2021 is merited

3. Whether the Notice fog Motion Application  dated  12th February 2021 is merited

1. Whether the  2nd Defendant/ Respondent has been wrongly enjoined

The 2nd Defendant/ Respondent has  sought to be struck off from the Suit  by the Plaintiffs/ Applicants on the grounds that   it has wrongly  been joined in  the suit  as it neither has a regulatory mandate over offplan  housing sector, nor is  it a party to the  contract between the Plaintiffs/ Applicants, and the 1st Defendant/ Respondent and therefore not a necessary party in the proceedings. That its joinder in the suit is  frivolous.  The Court notes that the instant grounds of opposition were raised in opposition to the Plaintiffs/ Applicants  Notice of Motion Application seeking interim  injunctive orders.

The Court further notes that in their  Originating Summons dated  12th February 2021, the Plaintiffs/ Applicants have  sought for orders  against the 2nd Defendant/ Respondent. It is the Court’s considered view that if it were at this point to decide whether or not there is no cause of action as against the   2nd Defendant / Respondent whose  orders against has been sought at the main  trial, the Court would be determining  the issues that are to be addressed at the substantive stage at this interlocutory stage.  Consequently, the Court finds and holds that the same cannot be determined at this stage and therefore not merited.

4. Whether the Notice of Preliminary Objection dated 15th June 2021 is merited

The 1st Defendant/ Respondent/Objector has  filed a Notice of Preliminary Objection  on the grounds that the  Applicants have invited the Court  to  devolve into issues of piercing the  corporate veil which issues should be invoked  by different procedures  and are beyond the jurisdiction of this Court  as this Court’s jurisdiction is determined  within the four corners  ofsection 13of theEnvironment & Land Court.

What constitutes a Preliminary Objection is set out in the case of Mukisa Biscuit Manufacturing Co. Ltd –vs- West End Distributors Ltd(1969) EA 696,where it was held that:

“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. Examples are an objection to the jurisdiction of the Court or a plea of limitation or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration… a Preliminary Objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact had to be ascertained or if what is sought is the exercise of judicial discretion.”

The Preliminary Objection calls onto question the jurisdiction of this Court and the same  raises a pure point of law  which must not be ascertained by way of probing of evidence  as it  challenges the jurisdiction of the Court to hear and determine the dispute.

Is the Preliminary Objection then merited? It is the 1st Defendant’s /objector’s contention that this Court does not have jurisdiction to  hear and determine matter based on the  lifting of the Corporate veil.  The concept of lifting the veil is a judicial process,  whereby the Court  will usually disregard the immunity of corporate officers or entities  from liability from wrongful corporate  activities . In this doctrine, the law therefore goes behind the mask or veil of incorporation to determine the real person or group of people behind the Company.

The law on lifting the veil of incorporation is now settled.  The Court is  guided by Halsbury’s Laws of England, 14th Edition Volume 7, Paragraph 90 which  states;

“Piercing the corporate veil notwithstanding the effect of a company’s incorporation; in some cases the Court will pierce the corporate veil in order to enable it to do justice by treating a particular company for purposes of litigation before it as identical with a person or persons who control that company. This will be done not only where there is fraud or improper conduct but in all cases where the character of the company or the nature of the person who controls it is a relevant feature. In such a case, the Court will go behind the mere status of the company as a separate legal entity distinct from its shareholders and will consider who are the persons as shareholders or even agents, directors and controlling the activities of the company”.

It is not in doubt from the above, that the Court will  pierce the  corporate veil  in order to do justice  for a purpose of litigation before it. It cannot be said that an Environment and Land Court does not have jurisdiction to  pierce the veil of incorporation, when the   dispute before it is within the confines of the  jurisdiction of the Environment and Land Court. The Court finds and holds that  if necessary, it has jurisdiction to determine whether or not to pierce the veil of incorporation.

The Notice of Preliminary Objection further seeks to dismiss the Application based  on the fact that the prayers delve into  issues of  piercing the corporate  veil which ought to be invoked by a different procedure.  The Court finds   that this is not a pure point of law as  the same is not capable of  disposing the suit summarily.  See the case of Oraro …Vs… Mbaja (2005) 1KLR 141, where it was held that:-

“Anything that purports to be a Preliminary Objection must not deal with disputed facts and it must not derive its foundation from factual information which stands to be tested by rules of evidence.”

From the above analysis, this Court finds and holds  that the Notice of Preliminary Objection is not merited.

3. Whether the Notice of Motion dated 12th February 2021 is merited.

The Court having carefully   perused the Notice of Motion Application herein notes that while the  Application has sought for various orders, some of the said orders were sought pending the hearing and determination of the Application and hence the same are spent. . The only prayers that still remain for determination and the ones  listed  above  seeking to issue summons  to the Directors of the 1st  Defendant/ Respondent  and ordering them to deposit  the title deeds in Court.

Before the Court  can determine whether the  said prayers are merited , the Court must first determine whether the orders as sought are  capable of  being granted. It is not in doubt that the 1st Defendant/ Respondent is a Limited Liability Company  and hence it is  a separate personality  from  its members  and the Directors of the said Company cannot be liable  for the acts and or Contracts  entered into by the 1st Defendants . See the case of  Kolaba Enterprises Ltd vs. Shamsudin Hussein Varvani & Ano (2014) eKLR  whichthe Court held that;

“It should be appreciated that the separate corporate personality is the best legal innovation ever in company law.  See the famous case of SALOMON & CO LTD v SALOMON [1897] A.C. 22 H.L that a company is different person altogtheer from its subscribers and directors.  Although it is a fiction of the law, it still is as important for all purposes and intents in any proceedings where a company is involved.  Needless to say, that separate legal personality of a company can never be departed from except in instances where the statute or the law provides for the lifting or piercing of the corporate veil, say when the directors or members of the company are using the company as a vehicle to commit fraud or other criminal activities.”

In the case of Multichoice Kenya Ltd …Vs… Mainkam Ltd & Anor. (2013) eKLR the Judge held that;

“I agree that directors are generally not personally liable on contracts purporting to bind their company. If the directors have authority to make a contract, then only the company is liable on it. To my mind, there is no doubt that ever since famous case of Salomon v Salomon (1897) A.C. 22 Courts have applied the principle of corporate personality strictly. But exceptions to the principle have also been made where it is too flagrantly oppose to justice or convenience. Other instances include when a fraudulent and improper design by scheming directors or shareholders is imputed. In such exceptional cases, the law either goes behind the corporate personality to the individual members or regards the subsidiary and its holding company as one entity.”

Further in the case of Peter O. Ngoge T/A O P Ngoge & Associates ….Vs…Ammu Investment Company Limited [2012] eKLR.  the Court held that

“It follows that the mere fact that one is a director or shareholder of a corporation does not,ipso facto, make the director or shareholder liable for the actions or omissions of the Company unless the circumstances are such that the corporate veil of the Company can be lifted. The case of Mugenyi & Company Advocates vs. The Attorney General [1999] 2 EA 199following Palmers Company Law Vol. 1 (22 ed) lists 10 instances under which the veil of corporate personality may be lifted or as is sometimes put, look behind the company as alegal personaand these are:-

1.  Where companies are in the relationship of holding and subsidiary companies;

2.  Where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors on the ground that business continued after the membership had dropped below the legal minimum, to the knowledge of the shareholder;

3.   In certain matters relating to taxation;

4.   In the law relating to exchange control;

5.   In the law relating to trading with the enemy;

6.  In the law of merger control in the United Kingdom;

7.   In competition of the European Economic Community;

8.   In abuse of law in certain circumstances;

9.   Where the device of incorporation is used for some illegal or improper purpose; and

10.   Where the private comp

This Application was brought at the institution of the suit, and the Court has not had a  chance to make a determination on whtheer or not the Corporate veil can be lifted. As the  Orders sought are against the Directors as opposed to the  1st Defendant . Therefore, this Court finds and holds that the said prayers are not tenable.  Consequently, the Court finds that the Notice of Motion Application dated1st February 2021isnot merited.

Having now carefully read and considered the pleadings by the parties,  the   Notice of Motion  Application herein, the Notice of Preliminary Objection, the Affidavits sworn by the parties, the written submissions and the relevant provisions of law, the Court finds and holds that the Notice of Motion Application dated12th February 2021,isnot meritedand the same is dismissed entirely.

Further the Court finds and holds that theNotice of Preliminary Objectiondated15th June 2021,is   equallynot meritedand the same is dismissed entirely. Further each party should bear its own costs.

Let the matter be set down for hearing and be determined on merit.

It is so ordered

DATED, SIGNED AND DELIVERED AT THIKA THIS 24TH DAY OF SEPTEMBER, 2021

L. GACHERU

JUDGE

Court Assistant – Lucy