[2022] KEHC 14573 (KLR)

Directline Assurance Company & 4 others v Aliker & 8 others (Miscellaneous Civil Application E250 of 2021) [2022] KEHC 14573 (KLR) (Commercial and Tax) (13 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14573 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Miscellaneous Civil Application E250 of 2021

WA Okwany, J

October 13, 2022

IN THE MATTER OF THE ARBITRATION ACT, 1995 AND IN THE MATTER OF AN APPLICATION UNDER SECTIONS 14 (3) AND 15 OF THE ARBITRATION ACT CHALLENGE TO ARBITRATOR AND THE ARBITRATION

Between

Directline Assurance Company

1st Applicant

Royal Media Services Ltd

2nd Applicant

Royal Credit Ltd

3rd Applicant

Samuel Kamau Macharia

4th Applicant

Purity Gathoni Macharia

5th Applicant

and

Philip Aliker

1st Respondent

Sureinvest Company Ltd

2nd Respondent

Stenny Investments Limited

3rd Respondent

Triad Networks Limited

4th Respondent

Akm Investments Limited

5th Respondent

Kevin Dermot McCourt

6th Respondent

Janus Limited

7th Respondent

Geoffrey Gordon Were Radier

8th Respondent

James Kaberere Gachoka

9th Respondent

Ruling

1. This ruling is in respect to the application dated April 26, 2022 wherein the 6th Plaintiff, through its majority/sole shareholder/Applicant, Dr. S.K Macharia seeks the following orders:-a.That this Honourable Court be pleased to order that the Notice of Appointment under protest, the notice of motion herein dated April 20, 2021 and/or any other pleading and documents filed by the firm of W.G Wambugu purportedly on behalf of AKM Investments Limited, the 5th Respondent, be struck out and/or expunged from the record.b.That this Honourable Court do hold and declare that the firm of W.G Wambugu was not appointed by the 5th Respondent, AKM Investments Ltd to act for it in this suit.c.That this Honourable Court do hold and declare that Notice of Appointment under protest, the notice of motion herein dated April 20, 2021 and/or any other pleading and documents filed by the firm of W.G Wambugu purportedly on behalf of AKM Investments Limited, 5th Respondent, are in contravention of the law and therefore null and void.d.That costs of and occasioned by the said Notice of Appointment under protest, the notice of motion herein dated April 20, 2021 and/or any other pleading and documents filed by the firm of W.G Wambugu purportedly on behalf of AKM Investments Limited, the 5th Respondent be provided for by Messrs W.G. Wambugu personally.e.That this Honourable Court be pleased to order that the Applicant be awarded costs for this application.

2. The application is supported by the affidavit of Mr. Samuel Kamau Macharia and is premised on the grounds that: -a.On April 20, 2021 the firm of W.G Wambugu & Co Advocates purporting to act for the 5th Respondent, AKIM Investments Ltd, filed a notice of appointment under protest for the 5th Respondent herein and a notice of motion dated the same day despite the fact the 5th Respondent has not appointed the said firm to act for it; it has subsequently purported to file other pleadings on behalf of the said 5th Respondent; the said firm of W.G Wambugu & Co Advocates acted on the authority of David Karanja Macharia, Ms. Stella Nyanjiru Macharia, Lisa Anyango Amenya and Adam Kamau Macharia who purport to be the directors of the 5th Respondent whilst they are not;b.The 5th Respondent is a limited liability company whose majority shareholder and indeed the sole shareholder was and still is, the late John Gichia Macharia; he initially subscribed to 599,999 shares whilst his former girlfriend, Lisa Anyango subscribed to 1 share which she subsequently transferred to the late John Gichia Macharia; currently, the late John Gichia Macharia is the owner of all the 600,000 shares in the company.c.Consequently, according to CR 12 issued by the registrar of companies on April 16, 2020 and January 13, 2021, the late John Gichia Macharia was registered as being the owner of all 600,000 ordinary shares;d.Initially, after the death of John Gichia Macharia, David Karanja Macharia and Stella Karanja Macharia were wrongly registered as directors of the 6th plaintiff on the basis of a limited grant issued for 90 days in Nairobi High Court Succession Cause No 691 of 2018; in the Matter of the Estate of John Gichia Macharia (deceased); their tenure ended on August 31, 2018 when the limited grant expired;e.With effect from April 5, 2019, Dr. S. K Macharia and Mrs. Serah Njeri Macharia are the legal representatives of the estate of the late John Gichia Macharia within the meaning of Section 79 of the Law of Succession Act by virtue of a grant issued to them by the High Court on April 5, 2019 and rectified on May 23, 2019; consequently, all the shares of the said late John Gichia Macharia vest in them pending distribution to his heir/ heirs;f.As personal representatives, Dr. SK. Macharia and Serah Njeri Macharia Constitute the sole shareholder and director of the company.g.From April 5, 2019 when Dr. S.K. Macharia and Sarah Njeri Macharia were appointed administrators of the estate of the late John Gichia Macharia; no general meeting of the company shareholders; whether annual or extra-ordinary, has been held to elect new directors under the companies Act and the company's articles of association; consequently the said David Karanja, Stella Nyanjiru, Lisa Anyango or Adam Kamau have not been legally appointed as directors of the company and hence are impostors; they have no authority to instruct W. G. Wambugu Advocates to act for the company.h.By virtue of the rule in Asia Pharmaceutical vs Nairobi Veterinary Center Limited HCC 291 of 2000, it is only the majority shareholders or valid directors of a company who can sue or authorize a suit in the name of the company like the 5th Respondent; Lisa Anyango and Adam Kamau nor the former purported directors, David Karanja Macharia and Stella Nyanjiru Macharia can confer authority on the firm of W.G Wambugu and Company Advocates to act for it; only the legal representatives of the sole shareholder, Dr. S. K Macharia and Mrs. Serah Njeri Macharia can do so;i.There is no resolution or valid resolution of the 5th Respondent company approving the defending or prosecuting of this suit through the firm of W.G Wambugu and Company Advocates;j.The filing of the said notice of appointment under protest and the notice of motion and other documents by the said firm of advocates is thus invalid for want of authority from the 5th Respondent company;k.The said David Karanja Macharia, Ms. Stella Nyanjiru Macharia, Lisa Anyango and Adam Kamau who purports to have authorized Mrs. Wambugu to act for the company are neither legal representatives of the estate of the late John Gichia Macharia nor directors in the 5th Respondent;l.in Company law, a suit on behalf or in the name of the company can be filed only on authority of the Company taking the form of a resolution passed by its valid directors; according to a 5 Judge Bench judgment in Troustik Union International vs Jenny Mbeyu, Court of Appeal at Mombasa, Civil Appeal No. 145 of 1990 and (1993) KLR 2. }.Q, only legal representatives have the capacity to sue on behalf of an estate;m.By virtue of Section 79 of the Law of Succession Act, all the property of the late John Gichia Macharia, including the shares held by AKM Investments Ltd is vested in the legal representatives of his estate who are his parents;n.David Karanja Macharia and Ms Stella Nyanjiru Macharia are not directors of the 5th Respondent, AKM Investments Ltd, and that they unlawfully hold themselves out as such; as stated above, they were only issued with a limited grant which lapsed on August 31, 2018; since then, their parents have petitioned and subsequently been issued with letters of administration intestate; they, therefore, ceased to be eligible to serve as directors of that Company once the limited grant lapsed; they hold a CR 12 which falsely describes them as directors of the 5th Respondent;o.In High Court at Nairobi Civil Case No 3791 of 1993: I.Z Engineering Construction Ltd —v- Trade Bank Ltd & 2 Others. the court held that an advocate, having not been authorized or appointed by the lawful directors or shareholders, could not have been lawfully authorized by those directors unlawfully appointed to act on behalf of the company; the court proceeded to strike out the application, memorandum of appearance and pleadings filed by the said advocates on behalf of the company and ordered Messrs Kaplan Stratton Company Advocates to pay the costs personally.

3. The 5th Defendant/Respondent filed a Notice of Preliminary Objection in response to the application in which it listed the following grounds:-a.That the application is bad in law in that it is filed in contravention of The Companies Act, 2015. b.That the Applicant lacks capacity to file the application and/or the suit in that he has been adjudged bankrupt in HCCOMM Bankruptcy Cause No. 25 and 26 of 2009 Purity Gathoni Githae and Samuel Kamau Macharia vs Ocean freight Transport Company Ltd.c.That the application is bad in law and calls for striking out for failure to comply with the provisions of Order 9 Rule 5 of the Civil Procedure Rules.d.That the application is an abuse of the due process of the court in that the deponent of the affidavit in support of the application cannot be a Plaintiff and a Defendant at the same time.

4. The 5th respondent also opposed the application through the replying affidavit of its director Ms. Lisa Anyango Amenya who avers that Serah Njeri Macharia is not an administrator of the estate of the late John Gichia Macharia and that the Company did not appoint M/S Gacheru Ng'ang'a & Co. Advocates to represent it. She further states that W. G. Wambugu & Co. Advocates is authorized to defend the Company and adds that the instant the Application was filed by a person who has no legal capacity to file it having been adjudged bankrupt in HCCOMM Bankruptcy Cause No. 25 and 26 of 2009 Purity Gathoni Githae and Samuel Kamau Macharia vs Oceanfreight Transport Company Ltd.

5. Parties canvassed the application by way of written submissions which I have considered. The issue for determination concerns who, between the law firms of Gacheru Ng’an’ga and W.G. Wambugu has the mandate to represent the 5th respondent in these proceedings.

6. Mr. Gacheru, advocate for the applicant, submitted that the law firm of W.G. Wambugu was appointed to act in the matter by persons whose directorship of the 5th respondent Company had been challenged. According to Mr. Gacheru, the said appointment was therefore invalid. He urged the court to carry out an investigation to establish the Company’s valid directors considering that its owner and sole shareholder, one John Macharia died in 2018 after which grant of letters of administration to his estate was issued to the two people. He attributed the dispute over the directorship of the Company to the existence of 2 CR12 forms in respect to the same Company.

7. Dr. Kuria Kamau, also acting for the applicants, supported Mr. Gacheru’s submissions and added that in Company law, it is the majority directors who have the final say over the affairs of the Company. He reiterated that the law firm of Gacheru Advocate was properly on record for the Company.

8. Mrs. Wambugu, learned counsel for the Company submitted that the Company had in its replying affidavit produced its CR12 from which shows the names of its the Directors as at 13th January, 2021 together with a copy of the 5th Respondent's minutes of the Board of Directors’ meeting held on October 13, 2020 wherein it was resolved that the company appoints the firm of W.G Wambugu & Company Advocates to represent it in proceedings

9. In Civil case No. E256 of 2020- Directline Assurance Company Limited vs AKM Investments Ltd & 6 Others.

10. It is trite that companies can only authorize the commencement of legal proceedings through resolutions made by their Board of Directors (See Bugerere Coffee Growers Ltd vs SSebaduka & Another (1970) EA 147).

11. Courts have also taken the position that they will not interfere with the internal affairs concerning the management of a Company. This is the position that was adopted in Salina Properties Ltd. vs Migui Macharia Mungai & Another [20101 eKLR where it was held that:-“It is unfortunate that matters between Advocates and their appointing clients should be coming to Court, since the decision as to who should or should not represent a company in Court should be taken by the company itself; and not by the Court. To borrow a leaf from the words of Scrutton L.J. in the case of Shuttleworth vs Cox Brothers & co. Ltd. [1927] 2 K.B. 9 at page 22 -. . . to adopt that view would be to make the Court the manager of the affairs of innumerable companies instead of the shareholders themselves . . .”The court went ahead to state and I quote;I find that the disputed resolution appointing Okongo Omogeni & Co., Advocates, is the only prima facie evidence on record to show who the company's Advocates are. The Plaintiff Company should therefore take the cue and organize early elections in order to appoint those that will keep its heart beating. Should they fail to do so, it is the company itself which will be at the receiving end. The application before the Court partly succeeds to the extent that there is a resolution on the record appointing Okongo Omogeni & Co., Advocates, while there is no similar evidence for the appointment of Mungai Kalande & Co., Advocates. At the same time, however, there is no evidence that the firm of Okongo Omogeni & Co., Advocates, were specifically instructed by similar resolution to commence this action. That was improper. On that note each party will bear its own costs of this application with a caveat that the ball is in the company's court... "

12. Taking a cue from the dictum in the above cited case, I find that the issue of legal representation in this matter is one that only the company can resolve by staying true to the provisions of its Memorandum and Articles of Association and holding its Annual General Meetings. It is only in such meetings that critical decisions/resolutions involving the running of the affairs of the Company including the appointment of advocates to represent the company in court proceedings can be made.

13. In the present case, the only evidence placed before this court is the annexure marked “LAA1” to the replying affidavit of Lisa Anyango Amenya which indicates that the Company passed a resolution to appoint the law firm of G.W. Wambugu to act for it in these proceedings.

14. For the above reasons, I find that the application dated April 26, 2022 is not merited and I therefore dismiss it with costs.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 13TH DAY OF OCTOBER, 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Gacheru for 5th Respondent.Mr. Gacheru for Dr. Kuria Senior counsel for Applicant.Ms Janmohamed Senior Counsel for 7th Respondent.Ms Ndumia for 3rd respondent.Ms Sirawa for 2nd, 4th , 6th and 9th Respondents.Mrs Wambugu for AKM Investments 5th RespondentCourt Assistant- Sylvia