SUNRISE ORTHOPAEDIC AND TRAUMA HOSPITAL LTD & DAVID LANGAT v LECTARY KIBOR KEIYO LELEI [2011] KEHC 1151 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT ELDORET

CIVIL CASE NO. 130 OF 2011

1.  SUNRISE ORTHOPAEDIC AND

TRAUMA HOSPITAL LTD......................................................................................1ST PLAINTIFF

AND

2. DAVID LANGAT..................................................................................................2ND PLAINTIFF

=VERSUS=

DR. LECTARY KIBOR KEIYO LELEI........................................................................DEFENDANT

R U L I N G

In their plaint dated 25th July, 2011, the plaintiffs seek the following reliefs:-

(a)An injunction restraining the defendant fromtransferring, leasing charging or in any wayparting with possession of LR. No. EldoretMunicipality Block 8/90 (hereinafter “the suitproperty”).

(b)An injunction restraining the defendant from continuing with any construction and buildingworks upon the suit property.

(c)An injunction restraining the defendant fromopening the hospital erected and constructedupon the suit property.

(d)An order that full accounts be taken of themonies and building materials contributedby the plaintiffs  and the defendant in theconstruction and building works undertakenupon the property.

(e)A declaration that the defendant holdsthe suit property in trust for Sunrise Orthopaedic Trauma Hospital Limited, the 1st Plaintiffs.

(f)An order that the defendant executes a transferof the suit property in favour of  the 1st plaintiff.

The plaintiffs simultaneously filed a Notice of Motion seeking orders of temporary injunction in terms of prayers (a), (b) (c) and (d) of their plaint, pending determination of the suit. The application is based on three (3) grounds on the face of the application and is supported by an affidavit of the 2nd plaintiff. The substance of the grounds is that the 2nd plaintiff and the defendant are equal shareholders in the 1st plaintiff, Sunrise Orthopaedic & Trauma Hospital, but the defendant now claims exclusive ownership of the suit property together with the buildings and construction works thereon which, claim constitutes breach of trust, breach of fiduciary obligations and breach of contractual obligations.

The application is opposed and there is a replying affidavit sworn by the defendant. The defendant’s advocates also filed a preliminary objection to the plaintiff’s suit and application on the following grounds that:-

(1)The suit and application offend the provisionsof section 3 (3) of the Law of Succession.

(2)No cause of action relating to a purportedinterest in land can be instituted on the basisof an alleged oral agreement for the dispositionof an interest in land.

(3)A limited liability company is a separatelegal entity which can sue to enforce itsperceived rights.

(4)There is no resolution that authorized the1st plaintiff to file suit and or appoint anadvocate to act for it in this suit.

(5)The verifying affidavit and the affidavit insupport of the application for injunction are incurably defective.

(6)The Court cannot issue orders in respect of aproperty which is admittedly the subject matterof a charge to a bank.

(7)The suit and the orders sought would be in contravention of the provisions of the Registered land Act (Chapter 300 Laws of Kenya).

It is the preliminary objection which was canvassed before me on 24th August,2011 by Mr. Gicheru, learned Counsel for the defendant and Mr. Amolo, learned counsel for the plaintiffs. Counsel had, by consent, filed written submissions which formed the bedrock of their arguments.

I have considered the pleadings, the application, the affidavits, the annextures thereto, the submissions of counsel and the authorities cited. Having done so, I take the following view of the matter.

The basis of objections 1 and 2 issection 3 (3) of the Law, of Contract Act. The defendants argument is that the agreement relied upon by the plaintiffs was not in writing and therefore offends the said provisions. I think there is ample authority to support that proposition and the position is succinctly stated in numerous decisions of the Court of Appeal and this Court. (See Machakos District Co-operative Union Limited –vrs- Philip Nzuki Kiilu [Machakos CA No. 112 of 1997] (UR) and Metra Investments Limited –vrs- Gakwel Mohamed Warrakah [Milimani HCCC No. 54 of 2006] (UR) among others.

The plaintiffs’ claim, as expressed in the plaint however, goes beyond the provisions of section 3(3) of the Law of Contract Act. The reliefs sought as already stated above include an account, a declaration of a trust and alternatively the money equivalent of the value of building materials, labour costs, transport and interest. These reliefs distinguish this case from the cases referred to me by counsel for the defendant.

Objections 3, 4, and 5 are rooted in the corporate identity of the 1st plaintiff. In that capacity, it can sue and be sued in its own name. But how does it commence proceedings? Because of its artificial identity, it does so through its organs managed by men: its shareholders and or its directors. The recognized means by which a corporate personality expresses its decisions is by way of resolutions. The 1st plaintiff in its Articles of Association adopted part 1 of table “A”of the First Schedule to the Companies Act. That part has detailed provisions regarding making decisions which would be binding on it. Those decisions are made in validly convened meetings of the directors who in the case of the 1st plaintiff are also the only shareholders.

The argument by counsel for the 1st plaintiff that the 1st plaintiff required no resolution to commence these proceedings and also appoint counsel belies the 1st plaintiff’s own Articles of Association. Counsel’s reliance upon section 241 of the Companies Act is in my view unfortunate as that section does not advance counsel’s proposition that no resolution was required to authorize the institution of this suit and the appointments of counsel. That section, with all due respect to counsel, does not govern the manner of conducting the business of the 1st plaintiff. That being my view of the matter, the defendant’s objection to the 1st plaintiff’s suit is not without merit. I say so, because the plaintiffs freely admit that this suit has been instituted without any authority to do so because the 1st plaintiff’s Board of Directors could not meet to transact any business. It follows therefore that the 1st plaintiff could not verify the correctness of the suit filed on its behalf. It could also not authorize the filing of the affidavit supporting the Notice of Motion seeking interim reliefs.

That position in law is not without authority. In Bugerere Coffee Growers Limited -Vs- Sebaduka & Another (1970) E.A 147, it was held, inter alia, as follows:-

“ C

(i)When companies authorize the commencementof legal proceedings a resolution or resolutionshave to be passed by either a company or Boardof Directors’ meeting and recorded in the minutes;

..........”

(ii)Where an advocate has brought legal proceedingswithout authority of the purported plaintiff the advocate becomes personally liable to the defendants for the costs of the action.......”

That decision has been followed by our courts from time to time. Njagi J. in Affordable Homes Africa Limited -Vs- Ian Henderson & 2 others (Nairobi HC (Milimani) CC No. 524 of 2004) rendered himself as follows:-

“Counsel for the plaintiff submitted that sincethe managing director holds 75% of thecompany’s share capital, the court need notmake further enquiry.  I agree with counsel forthe defendant that no authority was cited forsuch a proposition. Indeed with respect, so tohold would set a very dangerous precedent as it would amount to relegating the company to the status of an alias for the majority shareholder.

Such a view was rejected in Salomon& Company Limited -Vs- Salomon (1897) AC 22 HL which is the very foundation of modern company Law.”

Emukule J. was of the same view in East African Safari Air Limited -Vs - Anthony Ambaka Kegode & another (2006) e KLR.  After concluding that some directors were appointed contrary to the company’s Articles of Association, he held that they would not purport to pass resolutions appointing counsel and authorizing commencement of suit. In his own words: -

“The purported appointment of Ogden and twoothers was ultra vires the company’s articles of association and any subsequent decisions by suchboard, and in particular for the purposes of thiscase, the decision made at such Board meeting on18th June, 2004 purporting to authorise the filing ofaction against the defendants were a nullity vis – a - vis the said articles of association . there was similarly no delegation by the general meetingof any such powers to the Board.”

The upshot of my consideration of grounds 3, 4 and 5 of the defendant’s preliminary objection is that, in the absence of a board resolution sanctioning the commencement of the action by the 1st plaintiff, the same is a nullity and so is the interim relief sought on its behalf in the Notice of Motion dated 25th July, 2011.    The preliminary objection therefore partly succeeds and the action by the 1st plaintiff must be and is struck out.

The 2nd plaintiff’s action is not however affected by that result and so is the Notice of Motion lodged by him.   The two stand distinctly on their own.

Grounds 6 and 7 of the preliminary objection, in my view, do not merit a detailed consideration as registration of an encumbrance against a title perse does not vitiate claims upon the title. The defendant has further not sufficiently demonstrated the alleged contravention of the Registered Land Act  (Cap 300 Laws of Kenya).

With regard to costs, the same shall follow the event. There is no doubt that the 2nd defendant sanctioned these proceedings.   The costs of the struck out application and suit by the 1st plaintiff shall be borne by him.

If the 2nd plaintiff is convinced that the 1st plaintiff’s claim is worth pursuing, he is at liberty to do so in more appropriate ways. He may, for instance, join the 1st plaintiff as a defendant and seek reliefs for its benefit in that capacity.   I say so, because there is no love lost between the 2nd plaintiff and the defendant and a board decision to commence proceedings in the name of the 1st plaintiff is unlikely. In Spokes -Vs- the Grosvenor And West End Railway Terminus Hotel Company Limited and Others (1897) IIQB. 124, Lord A. L. Smith rendered himself as follows, at page 126 of the judgment:-

“The proper plaintiff in such an action wouldobviously be the company; but in the circumstances, existing, this is not possible for the impeached

directors who have the controlling power in thecompany do not assent to the company being made plaintiffs.To obviate this difficulty it has for manyyears been the practice of the Court of Chancery in circumstances such as present, to make the company parties to the action as defendants in which action the plaintiff shareholder  asks for an order, not thatdamages recovered should be paid to him but to the defendant company; ....”

The principle in the above case was applied in the case of Musa Misango -Vs- Eric Musigire and others (1966) E.A: 390 in which it was held, inter alia, that a member of a company can bring proceedings when the acts complained of injure him or are either fraudulent or ultra vires. The court also, on application of the plaintiff, granted leave to join the company as a defendant.

I have made the above observations to illustrate that, notwithstanding the strained relationship between the 2nd plaintiff and the defendant, proceedings can still be instituted for the benefit of the 1st plaintiff.

For now however, its suit is incompetent and stands struck out as already stated with costs to be borne as already ordered.

DATED AND DELIVERED AT ELDORETTHIS 12TH DAY OF OCTOBER 2011

F. AZANGALALA

JUDGE

Read in the presence of:-

Mr. Gicheru for the defendant

F. AZANGALALA

JUDGE

12TH OCTOBER, 2011.