Laudea Company Limited v Immaculate Njoki Karuru

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT MACHAKOS** **CIVIL DIVISION (APPELLATE SIDE)** **HCCOMA NO. E009 OF 2025** **BETWEEN** **LAUDEA COMPANY LIMITED….………...........................................APPELLANT** **AND** **IMMACULATE NJOKI KARURU……………………….…………..RESPONDENT** **(*Being an appeal from the Judgement and Decree of Hon. B.A Luova, RM/Adjudicator dated 9th January 2025 at the Small Claims Court at Machakos in SCCC No. E128 of 2025*)** **JUDGMENT** **Introduction and Background** 1. The Appellant filed suit against the Respondent in the subordinate court seeking inter alia judgment of Kshs.250,000.00 and damages for breach of contract, financial loss, mental stress and anguish suffered plus interest and costs of the suit. The Appellant stated that it entered into a Real Estate Commission Agreement with the Respondent on or about 22nd April 2024 and the agreement was for the Appellant to find a purchaser for the Respondent's property, a bungalow known as House No. 380 in *Greenpark*, Athi River, Machakos County. 2. That the Respondent agreed to pay the Appellant a commission of 3% of the total sale price, which was Kshs.20,000,000.00 and that the commission was to be paid within seven days of receiving the purchase price. The Appellant claimed that it introduced a purchaser, KO, who bought the house and that the commission was initially Kshs.600,000.00 but was discounted by Kshs.100,000.00 to a final amount of Kshs.500,000.00. It averred that the Respondent paid only Kshs.250,000.00 and failed to pay the outstanding balance of Kshs.250,000.00, despite receiving the full purchase price on or before 9th August 2024 hence the suit. 3. In response, the Respondent denied owing the Appellant any money and that she had already paid all the amounts owed to the Appellant in accordance with the terms of the agreement dated 22nd April 2024. She thus sought that the court dismisses the Appellant’s claim with costs. When the matter was set down for hearing, the Appellant presented its director, Geoffrey Omukuti as its witness whereas the Respondent opted to adopt and rely on her witness statement and documents filed rather than testify in court. 4. The parties then filed written submissions and the Adjudicator rendered the judgment on 9th October 2025. The trial court identified four issues for determination; whether the Appellant had the capacity to enter into a real estate commission agreement, whether the failure to file the company's resolution to institute the claim was fatal, whether the Respondent owed the Appellant the alleged balance and whether the Appellant was entitled to the reliefs sought. 5. The trial court found that the transaction was illegal as the Appellant’s director admitted he did not have a valid practicing license for the year 2024 when the agreement was entered into, only a certificate of registration. The trial court held that without proof of a valid license, the contract was illegal and unenforceable under **section 18(1)(c)** of the ***Estate Agents Act(Chapter 533 of the Laws of Kenya)***. The trial court also found that the failure to file a company resolution was fatal to the claim and it relied on this court’s decision in **Jurist Enterprises Limited v Tabete Company Limited & another [2025] KEHC 12682 (KLR)** stating that a company resolution is a mandatory requirement to establish a clear corporate decision to engage in legal proceedings and non-compliance affects the foundation of the proceedings. 6. The trial court found that the Respondent did owe the Appellant the pleaded sum of Kshs.250,000.00 because the Respondent did not file any documents to prove payment and did not call a witness to testify but despite this finding, the trial court dismissed the claim due to the illegality of the contract (and the procedural defect of not having a company resolution. The trial court then ordered that the suit be dismissed with no orders as to costs. 7. The Appellant is dissatisfied with this decision by the subordinate court and now appeals to the court through its memorandum of appeal dated 14th October 2025. It avers that the Adjudicator erred in law and fact by finding that the Respondent owed the Appellant Kshs.250,000.00, but then proceeding to dismiss the claim, dismissing the claim on procedural technicalities contrary to **section 3** of the ***Small Claims Act*** and ***Article 159(2)*** of the ***Constitution*** and upholding strict rules of evidence contrary to **section 17** of the ***Small Claims Act(Chapter 10A of the Laws of Kenya)***. The Appellant further states that the Adjudicator incorrectly interpreted the law on the requirement for a company resolution in litigation, especially where a sole director is involved and that she erred by acknowledging the validity of the commission agreement and the debt owed but simultaneously disputing the agreement's validity by dismissing the claim, dismissing the claim despite the Respondent failing to provide any oral or documentary evidence to rebut the Appellant's evidence. That she also erred by dismissing the claim on the incorrect assumption that the Appellant was not a registered real estate agent, despite proof to the contrary being provided. 8. For these reasons, the Appellant urges the court to allow the appeal with costs, set aside the subordinate court's judgment, allow the Appellant's claim in its entirety and award costs of the appeal to the Appellant. The appeal has been canvassed by way of written submissions which I have considered together with the record and I will make relevant references to them in my analysis and determination below. **Analysis and Determination** 1. In determining this appeal, I am aware that the court’s jurisdiction is limited by **section 38(1)** of the ***Small Claims Court Act*** which provides that ‘*A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.’* A court limited to matters of law is not permitted to substitute the Subordinate Court’s decision with its own conclusions based on its own analysis and appreciation of the facts unless the findings are so perverse that no reasonable tribunal would have arrived at them (**Mati v Returning Officer Mwingi North Constituency & 2 others [2018] KECA 700 (KLR)**]. Thus, the duty of this court is to determine whether the subordinate court’s conclusions were supported by the evidence on record and the law. 2. In its submissions, the Appellant has condensed the issues for the court’s determination to the following: 3. *Whether the absence of a board resolution was fatal to the suit* 4. *Whether the trial court improperly determined the dispute on unpleaded issues* 5. *Whether the dismissal offends Article 159(2)(d) of the Constitution and Sections 3, 17, and 32 of the Small Claims Act* 6. *Whether the Respondent’s pleadings, unsupported by evidence, displaced the Appellant’s evidence* 7. *Whether the absence of a practicing certificate defeated the Appellant’s claim* **Absence of the Board Resolution** 1. The Appellant submitted that the absence of a formal board resolution does not invalidate the suit and that under the *CR 12* on record, the Appellant is a single-member, single-director private company. Further, that under **section 319** of the ***Companies Act (Chapter 486 of the Laws of Kenya)***, decisions taken by a sole member do not require a formal multi-person board meeting or board resolution and that a written record or action by the sole member suffices and failure to comply with formal record-keeping does not invalidate the decision. 2. The Appellant further submits that under **section 133** of the ***Companies Act*** and **Article 20** of the ***Companies (General) Regulations 2015 (Model Articles***), the acts of a director remain valid even if formal defects exist and that **section 21** gives directors full discretion to make rules on how decisions are taken. It contended that the sole director testified in person and produced company documents and that courts should not allow corporate authority objections to defeat substantive justice where authority is clearly inferred. In support of this position, the Appellant relied on the court’s (Ringera J., as he was then) decision in **Microsoft Corporation v Mitsumi Computer Garage Ltd & another [2001] KEHC 846 (KLR)** 3. On her part, the Respondent submitted that the Appellant lacked the requisite locus standi, rendering the suit an absolute nullity and that as an artificial corporate entity registered under the ***Companies Act***, the Appellant possesses no physical presence and must act through its designated directors. She relied on the principle in **Salomon v. Salomon & Co. Ltd [1897] A.C. 22** and the case of **Omondi v National Bank of Kenya Limited and others[2001] EA 177** that a company has a distinct personality and only the company itself, acting through lawful authorization, has the capacity to sue. She asserted that legal proceedings brought in a company's name must be authorized by a resolution passed by its Board of Directors and she relied on a number of decisions including **Bugerere Coffee Growers Ltd v. Sebaduka & Another [1970] 1 EA 147** and **Thome Farmers Company No. 4 Ltd v Farm of Faith Investors Ltd [2019] KEELC 2704 (KLR).** The Respondent submitted that the Appellant failed to produce any board resolution at the trial court leaving a fatal jurisdictional defect that cannot be cured on appeal. 4. As stated, in the judgment of the subordinate court and in determining this issue, the Adjudicator relied on this court’s (Nyakundi J.,) decision in ***Jurist Enterprises Limited(supra)*** where it was held as follows: ***Whether failure to file a company resolution authorizing the institution of a suit was fatal to the competence of the Appellant’s claim.*** *28. The starting point is that a company being an artificial person may ordinarily sue in its corporate name only through persons authorised to act on its behalf. The procedural rules and company law prescribe formalities intended to establish authority to institute litigation on behalf of a company. The parties have placed before court competing authorities and positions as to whether omission to file a company resolution is a fatal defect.* *29. It is common ground in the submissions that the relevant provisions of the Companies Act and the Civil Procedure Rules require demonstration of authority where a company sues. The Respondents contend that those provisions are mandatory and that the absence of a resolution renders proceedings incompetent and liable to be struck out. The Appellant argues that the omission is not inevitably fatal, that the Director-General’s or an authorised officer’s affidavit can constitute sufficient proof of authority, and that the Small Claims Court, being a forum for expeditious disposal of minor claims, should not be hyper-technical.* *30. From the above facts, I would like to make reference to the specific provisions of the Civil Procedure Rules. Specifically, Order 4, Rule 1(4) of the Civil Procedure Rules 2010 provides as follows; 4. Where the plaintiff is a corporation, the verifying affidavit shall be sworn by an officer of the company duly authorized under the seal of the company to do so. In the case of Mavuno Industries Limited & 2 Others Vs Keroche Industries Limited [2012] eKLR, it was held: -* *“ As properly submitted by the defendant, under Order 4 rule 1 (4) of the Civil Procedure Rules, where the plaintiff is a corporation, the verifying affidavit shall be sworn by an officer of the company duly authorized under the seal of the company to do so. Nowhere is it stated that such authority or resolution must be filed. The failure to file the same may be a ground for seeking particulars assuming that the said authority does not form part of the plaintiff’s bundle of documents, which common sense dictates it should. Of course, if a suit is filed without a resolution of a corporation, it may attract some consequences.* *31. I take cognizant note that there was no evidence of any resolution to demonstrate the fact that the officer who swore the affidavit had any authority and/or had been authorized by the company under its seal to do so. This thus implies that Order 4 Rule 1(4) of the Civil Procedure Rules 2010 has succinct provisions which ought to be complied with by a corporate litigant representing a corporate entity as is the case with the Appellant herein. Bearing this in mind, I make reference to Order 4 Rule 1(5 & 6) of the Civil Procedure Rules which provides as follows;* *(5) The provisions of sub-rule (3) and (4) shall apply mutatis mutandis to counterclaims.* *(6) The court may of its own motion or on the application by the plaintiff or the defendant order to be struck out any plaint or counterclaim which does not comply with sub-rule (2) (3), (4) and (5) of this rule. The implication of this provision is that it gives the court inherent and express legal authority to strike out a plaint where there is non- compliance with the rules regarding the proper institution of the suits.* *32. Similarly, section 35 of the Companies Act 2015 provides as follows;* *35.Company contracts* *(1) A contract may be made –* *(a) by a company, in writing; or* *(b) on behalf of a company, by a person acting under its authority, express or implied.* *(2) Any formalities required by law for a contract made by a natural person also apply, unless a contrary intention appears, to a contract made by or on behalf of a company.* *33. This provision underscores the principle that a company, being a distinct legal entity from its directors and shareholders, can only operate through duly authorized representatives. Any person who purports to act on behalf of a company without demonstrating authority conferred under seal through a board resolution acts ultra vires, rendering such actions null and void. In the case of Royal Tulia Estate Ltd Vs Davidson Matano & 3 Others [2012] KEHC 4360 (KLR) also cited by the 2nd Respondent, it was held as follows;* *“4.In my considered view, the objections raised are not mere technicalities but matters of substance that go to the root of the case as they challenge the authority to bring the suit and hence its validity. It was held in the Bugerere case that “when companies authorise the commencement of legal proceedings, a resolution or resolutions have to be passed either at a company or Board of Directors` meeting and recorded in the minutes”.* *34. A court must balance two competing public interests: (a) ensuring that a party before the court has legal capacity and authority to bring the proceedings; and (b) securing substantive justice by resolving disputes on their merits without undue formality. The balance is struck by asking whether the defect goes to the court's jurisdiction or is merely curable by amendment or additional evidence.* *35. A company resolution's primary function in litigation is to establish a clear, documented corporate decision to engage in legal proceedings, including the authority to sue or be sued and to appoint representatives like lawyers or company officers to act on the company's behalf. These resolutions serve as formal evidence of the company's position, demonstrate internal approval for litigation, define the scope of the legal action, and ensure compliance with corporate governance, making them crucial for both the company and the court.* *36. The Court of Appeal in the case Arthi Highway Developers Limited v West End Butchery Limited & 6 others (2015) eKLR as held follows:* *44. The submission that there ought to have been a resolution to authorize the filing of the suit in the name of the company appears to have emanated from a decision of the Uganda High Court which has been followed and applied in this country for a long time; Bugerere Coffee Growers Ltd v Sebaduka & Anor (1970) 1 EA 147.The court in that case held:* *- “When companies authorize the commencement of legal proceedings, a resolution or resolutions have to be passed either at a company or Board of Directors’ meeting and recorded in the minutes, but no resolution had been passed authorizing the proceedings in this case. Where an advocate has brought legal proceedings without authority of the purported plaintiff the applicant becomes personally liable to the defendants for the costs of the action.”* *37. In the instant case, the trial magistrate found that no company resolution authorizing the institution of suit had been filed and that the Appellant had not demonstrated authority to sue. The Appellant’s own witness (CW1) conceded that no such resolution had been produced at the trial. That factual finding is on the record and was not challenged by any cross-examination marker in the submissions that would vitiate the trial court's conclusion. Moreover, I also take note that the Appellant failed to file or present any resolution under the seal authorizing the institution of the claim and the appointment of M/s Bundotich Korir & Company Advocates rendering the suit fatally defective.* *38. Where the defect goes to the court's jurisdiction i.e., where the party before the court lacks capacity to sue the court has no power to adjudicate the merits of the dispute until the jurisdictional defect is cured. Questions of capacity and locus standi often go to jurisdiction. If jurisdiction is lacking, any decision on the merits would be a nullity or advisory. The law commonly affords courts a discretion to permit amendment or to allow the defect to be cured where justice so requires. However, where the question is whether the claimant has capacity to sue, the court must be satisfied that authority exists before proceeding. The Small Claims Court Act and the Rules governing small claims emphasize expedition and informality but do not relieve parties from the need to comply with mandatory provisions which underpin the court's jurisdiction to entertain a matter. Specifically, section 36(4) of the Small Claims Courts Act provides as follows: (4) Nothing in this section precludes the Court from making any order or giving any direction it thinks necessary for the achievement of the purposes of this Act.* *39. I take note that the Appellant made reference to Article 159 (2) of the Constitution of Kenya 2010 which provides as follows:* *(2)In exercising judicial authority, the courts and tribunals shall be guided by the following principles-* *(a) justice shall be done to all, irrespective of status;* *(b) justice shall not be delayed;* *(c) alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted, subject to clause (3);* *(d) justice shall be administered without undue regard to procedural technicalities; and* *(e) the purpose and principles of this Constitution shall be protected and promoted.* *40. The requirement for a company resolution to institute a suit and engage legal counsel is deliberately anchored in statute, namely the Civil Procedure Rules 2010 and the Companies Act, 2015. When the law sets out such a mandatory obligation, non-compliance affects the very foundation and validity of the proceedings, rather than being a matter of mere form. Such defects go to the root of the case and cannot be remedied by reliance on Article 159(2)(d) of the Constitution. Statutory requirements are substantive and cannot be dismissed as mere procedural technicalities. With this, I would like to make reference to the case of O. Bayusuf & Sons Limited v Aunashamsi Hauliers Limited [2016] KEELC 392 (KLR) where the court held as follows;* *“…The Applicant also relied on the provisions of article 159 (2) (d) of the Constitution that states that justice shall be administered without undue regard to procedural technicalities. Would this omission be treated as a procedural technicality? I do not agree as requiring company resolution to be filed together with the plaint or counter-claim is a statutory requirement under section …… of the Companies Act. There is a reason the legislators included it in statute. It is therefore improper to pass it of as a procedural technicality.* *16. Secondly the rules are meant to serve a purpose. Non-compliance with certain provisions particularly those worded those in mandatory terms cannot be assumed to be a procedural technicality. The consequence of non-compliance of this specific rule is given under Order 4 rule 1 (6) i.e the Court may order to be stuck out. The Court is given a discretion in meting out the penalty. In the circumstance should the suit be struck out? The plaintiff has submitted that the error can be rectified. In the case of D. T. Dobie Kenya Ltd vs Muchina (1982) KLR 1, the Court of Appeal held that striking out should only be allowed where the error or omission cannot be cured even by amendment.* *41. Accordingly, I find that the absence of any demonstrable company resolution in the record, particularly where the Appellant's witness admitted non-production, was a material defect that properly engaged the jurisdiction of the trial court. The trial magistrate faced with no evidence of authority to sue was entitled to regard the defect as fatal to the competence of the suit and to strike it out. It is thus my considered view that the trial magistrate did not error in law in dismissing the Appellant’s claim on failure to produce a company’s resolution.* 1. I am in agreement with the aforementioned holding by my colleague brother that **Order 4 Rule 1 (4)** of the ***Civil Procedure Rules*** is clear that a verifying affidavit for a company must be sworn by an officer duly authorized under the seal of the company and that this is a procedural rule that the courts have consistently interpreted as mandatory. The requirement for a resolution is not a mere technicality but a matter that establishes the company's legal capacity and authority to sue and without it, the company is not properly before the court. Whereas some courts have taken a softer approach on this requirement, this does not overturn the mandatory requirement for demonstrating authority. Statutory requirements are substantive and cannot be dismissed as mere procedural flaws and it is therefore my finding that the trial court was properly guided and bound by this court’s decision that the failure to file a company resolution was a fatal defect. The Appellant's reliance on **section 319** of the ***Companies Act*** is not a sufficient answer to the clear procedural requirement to demonstrate formal authority to the court. **Determination of the dispute on unpleaded issues** 1. The Appellant submitted that the trial court erred in basing its dismissal on unpleaded issues because neither the lack of a board resolution nor the lack of a practicing certificate was raised in the Respondent’s defense and that both surfaced unexpectedly during cross-examination. That by relying on unpleaded points, the trial court ambushed the Appellant and denied it the opportunity to present evidence in rebuttal such as producing the valid license in effect when the contract or cause of action arose. Relying on inter alia the decision of **Independent Electoral and Boundaries Commission & another v Mule & 3 others [2014] KECA 890 (KLR)**, the Appellant submitted that parties are strictly bound by their pleadings and evidence led on unpleaded issues goes to no issue and must be disregarded. 2. While I agree that parties are generally bound by their pleadings and courts should not decide cases on matters not raised by the parties, this rule is not absolute and courts have consistently held that it must be balanced against the need to do substantive justice and must yield to fundamental legal requirements that go to the core of a dispute and the court’s jurisdiction. 3. As stated, the Appellant’s authority to institute the suit was a jurisdictional issue that a court can and must consider even if not pleaded. The Supreme Court, in **Dina Management Ltd v County Government of Mombasa & 5 others [2023] KESC 30 (KLR)** held that the issue of jurisdiction can be raised at any stage of the proceedings in any court including this court at the appellate stage and that an appellate court has inherent jurisdiction to right jurisdictional wrongs and that this court can assume jurisdiction and interrogate those alleged wrongs. I therefore find that the trial court was entitled to determine whether the Appellant was properly before it and whether the trial court had jurisdiction to determine the suit before it. 4. The requirement for a company resolution is a well-known and established principle under the ***Companies Act*** and the Appellant, as a litigant, is presumed to know the law and its procedural requirements. The trial court's reliance on this established rule cannot be considered an ambush. Further, the issue of the license was raised during the cross-examination of the Appellant's own witness, Mr. Omukuti and he admitted under oath that he did not have a practicing license for the year 2024. This admission came from the Appellant's own evidence and the trial court was entitled to consider this admission, as it went directly to the legality of the contract the Appellant was seeking to enforce. 5. Importantly, the Appellant did have the opportunity to address these issues as the case did not end immediately upon the issue being raised. The Appellant could have sought an adjournment and applied to the trial court to adduce both the resolution and the license if at all they existed. The trial court also considered the parties’ arguments in their submissions and ultimately found those of the Appellant to be unpersuasive. 6. As such, I find that the trial court was not guilty of "ambushing" the Appellant. It relied on issues that were raised by the evidence and were fundamental to its jurisdiction and the legality of the claim. The defects in the Appellant's case were not mere technicalities or unpleaded matters but were substantive legal failures that the court was duty bound to consider. **Whether the dismissal offends Article 159(2)(d) of the Constitution and Sections 3, 17, and 32 of the Small Claims Act** 1. The Appellant submitted that dismissing a proven debt on procedural objections violates the ***Constitution*** and the governing provisions of the ***Small Claims Act***. That the trial court explicitly acknowledged that the Respondent owed the Kshs 250,000.00, yet dismissed the claim and that courts cannot approbate and reprobate. It submitted that elevating procedural requirements over substantive debt recovery contravenes **Article 159(2)(d)** of the ***Constitution*** and **sections 3, 17, and 32** of the ***Small Claims Act*** which mandate informal procedures and exclude strict rules of evidence. 2. It would appear that the Appellant is conflating the trial court's findings with mere procedural technicalities because **Article 159(2)(d)** of the ***Constitution*** and **sections 3, 17, and 32** of the ***Small Claims Act*** are designed to prevent courts from dismissing claims on minor procedural errors, such as incorrect formatting, minor filing errors or the technical rules of evidence. They are not designed to cure fundamental defects that affect the court's jurisdiction or the legality of the claim itself and neither do they absolve the parties in a claim before the court from adducing credible and the best evidence to support their claim (see **Mati & another v Gicheru [2025] KEHC 2062 (KLR)]**. A jurisdictional defect means the court has no power to hear the matter at all and as stated in the ***Jurist Enterprises Limited(supra)***, when a party lacks the capacity to sue, the court cannot assume jurisdiction and any decision on the merits would be a nullity. 3. On the other hand, a substantive legal defect goes to the enforceability of the claim itself. An illegal contract is void *ab initio*. The court cannot enforce it, regardless of how strong the factual evidence of the debt may be as to do so would be to sanction an illegality and undermine the very purpose of the law. The trial court's finding that the Respondent owed the money was a factual observation based on the evidence presented. The Respondent failed to adduce any evidence to counter the Appellant's claim, however, the dismissal was based on legal conclusions that, by their very nature, take precedence over factual findings. The court cannot ignore a fundamental legal impediment simply because the facts point in one direction. The court was not "approbating and reprobating” but was correctly distinguishing between the factual merits of the claim and the legal bars to enforcing it. 4. As stated, the Appellant own witness admitted during cross-examination that he did not have a license for 2024. **Section 18(1)** of the ***Estates Agent Act*** is unequivocal that a body corporate cannot practice as an estate agent unless all its directors are registered. The law does not distinguish between registration and holding a valid practicing license and a license is proof of current authorization to practice (see **Kibor t/a Rewards Agencies v Ole Marima & another[2026] KEHC 2696 (KLR)]** 5. I am in agreement with the Respondent that in **Hussein Ladha v Haresh Soni [2017] KEHC 724 (KLR)**, the court (Otieno J.,) held that courts will not enforce contracts that are founded on a violation of a statute. The Respondent's part payment and the court's acknowledgment of the debt do not cure the fundamental illegality of the contract and the trial court or this court cannot be used as an instrument to enforce an illegal agreement. Therefore, the trial court was correct in finding the underlying contract was illegal and unenforceable due to the lack of a valid practicing license for the relevant period. The fact that the Respondent may have benefited from the services is irrelevant, as the law prioritizes the adherence to statutory requirements over the enforcement of an illegal contract. **Conclusion and Disposition** 1. In the upshot, I find that the appeal is not merited. The trial court's decision to dismiss the claim was legally sound. The lack of corporate authority to sue and the illegality of the underlying contract were fatal to the Appellant's case. Relying on **Article 159(2)(d)** of the ***Constitution*** could not cure such fundamental defects, as they were not mere procedural technicalities but went to the core of the trial court's ability to hear the case and enforce the contract. The appeal now stands dismissed with costs. DATED SIGNED AND DELIVERED virtually this 2nd DAY OF SEPTEMBER 2026 ............................................................................ **J W W MONGARE** **JUDGE** **IN THE PRESENCE OF** 1. Ms. Wangui for the Appellant 2. Ms. Amutavy for the Respondent 3. Abdisalan- Court Assistant