https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/8595

REPUBLIC OF KENYA IN THE HIGH COURT OF KENYA AT NAIROBI COMMERCIAL AND TAX DIVISION CORAM: F. MUGAMBI, J PETITION NO. E023 OF 20234 BETWEEN DENINS MOMBO MWANGEKA ….………………..… PETITIONER AND JERRY KAMUSA NTHUKA ………..……………… 1ST RESPONDENT JM GLOBAL CARGO LIMITED …………….…... 2ND RESPONDENT JUDGMENT Introduction and Background 1. The Petitioner filed the Petition dated 25th October 2024 under sections 780, 782, 786, 789, 1003, and 1004 of the Companies Act, as well as Articles 22, 23, and 48 of the Constitution. He sought declaratory orders that the conduct of the 1st Respondent ("the Respondent”) was oppressive and unfairly prejudicial, and that the Respondent had breached the Partnership Agreement dated HCCOMM NO. E023 OF 2024 RULING Page 1 15th August 2023, specifically Clauses 15, 16, 18, 19, and 20. 2. The Petitioner averred that he and the Respondent incorporated the 2nd Respondent Company in January 2020 and that on 15th August 2023 they executed a Partnership Agreement (“the Agreement”) to govern the Company's management. Under the Agreement, the Respondent was appointed Managing Partner for the first year. The Agreement further obligated the parties to act in mutual good faith and with transparency, to consult on major decisions, to obtain written consent for transactions exceeding Kshs. 1,000,000/-, and to maintain proper books of account with unrestricted access to financial records and annual audited accounts. 3. The Petitioner alleged that from November 2023, the Respondent had excluded him from key business decisions and daily operations and denied him access to financial records. It was his case that the Respondent had failed to conduct audits or prepare financial statements, that he had undertaken major transactions without HCCOMM NO. E023 OF 2024 RULING Page 2 consultation, ceased sharing profits and financial updates, and ignored formal requests from the Petitioner, for information. 4. He argued that this conduct constituted oppression and unfair prejudice within the meaning of section 780 of the Companies Act, and amounted to a breach of directors' statutory duties under sections 143 and 145 of the Act. 5. In terms of relief, the Petitioner sought orders directing the Respondent to avail a schedule of all assets and liabilities of the Company, together with copies of all contracts and commercial documents entered into by the Company for inspection and to convene a general meeting within 14 days. He also sought orders restraining the Respondent from transacting on behalf of the Company without consulting him; orders appointing an independent auditor to audit the Company and value its shares; and directing the Respondent to remit his share of profits from September 2024 onwards. 6. The Respondent opposed the Petition by way of a Replying Affidavit sworn on 13th November 2025. While he admitted executing the Partnership HCCOMM NO. E023 OF 2024 RULING Page 3 Agreement, he relied on Clause 14 thereof, which designated him as Managing Partner for the first year with the Petitioner to be involved only when necessary, as the basis for his conduct. He denied excluding the Petitioner from the Company's management, denying him access to financial records, engaging in oppressive or unfairly prejudicial conduct, breaching his statutory duties, or concealing any information. He contended instead that it was the Petitioner who had failed and refused to participate in the Company's affairs despite being given notice and opportunity to do so, and characterized the Petition as speculative, exaggerated, and filed in bad faith. 7. The Respondent also raised an objection to the jurisdiction of this Court grounded on Clause 27 of the Agreement, which contained an arbitration clause, and submitted that all disputes arising under the Agreement ought to have been referred to arbitration before the Court was approached. He further submitted that the Petitioner had failed to exhaust the alternative remedies available under the Companies Act, such as convening a board meeting or invoking the intervention of the HCCOMM NO. E023 OF 2024 RULING Page 4 Registrar of Companies, thereby rendering the Petition premature and misconceived. 8. At the Court's direction, the parties filed written submissions, which I have considered. Analysis and Determination 9. I turn first to the Respondent's jurisdictional objection. His case rested on Clause 27 of the Partnership Agreement, and the alleged failure by the Petitioner to exhaust alternative statutory and internal dispute resolution mechanisms before approaching this Court. 10. On the question of exhaustion of remedies, the Courts have consistently held that where an agreed or statutory alternative dispute resolution mechanism exists, it ought to be exhausted before the Court's jurisdiction is invoked. This principle is consonant with Article 159 of the Constitution, which enjoins courts to promote alternative dispute resolution, and the Court ordinarily gives it full effect (see Geoffrey Muthinja & Another V Samuel Muguna Henry & 1756 Others, [2015] KECA 304 (KLR )). HCCOMM NO. E023 OF 2024 RULING Page 5 11. The Respondent's invocation of the arbitration clause however faces a more fundamental objection. Section 6(1) of the Arbitration Act requires a party who wishes to refer a dispute to arbitration to make a formal application to the Court for a stay of proceedings, and to do so before taking any other step in the proceedings. This requirement is mandatory and is designed to prevent parties from engaging the judicial process and then belatedly retreating to arbitration when convenient. It preserves the integrity of the arbitral process and protects the judicial process from abuse by discouraging tactical maneuvers that delay proceedings or create uncertainty about the forum for dispute resolution. 12. Filing a defence or substantive response to a claim constitutes an acknowledgment of the claim and an acquiescence to the Court's jurisdiction. This has been taken to amount to a waiver of the right to compel arbitration (see Niazsons (K) Ltd V China Road & Bridge Corporation Kenya, [2001] KECA 376 (KLR)). HCCOMM NO. E023 OF 2024 RULING Page 6 13. Examining the record, it is clear that the Respondent never filed a formal application for stay of proceedings pending referral to arbitration. Whilst it is true that he sought adjournments with a view to pursuing an out-of-court settlement, those negotiations fell well short of invoking arbitration under Clause 27. More critically, when no settlement was reached, the Respondent filed a substantive Replying Affidavit and written submissions addressing both the competence and the merits of the Petition. By taking those steps, he unequivocally acquiesced to the Court's jurisdiction and waived any right he may have had to insist on arbitration. I accordingly find and hold that this Court has jurisdiction to hear and determine the Petition. 14. The substantive question before me is whether the Petitioner has established conduct that is oppressive or unfairly prejudicial to his interests as a member of the Company within the meaning of sections 780 and 782 of the Companies Act. “780 (1) A member of a company may apply to the Court by HCCOMM NO. E023 OF 2024 RULING Page 7 application for an order under section 782 on the ground— (a) that the company's affairs are being or have been conducted in a manner that is oppressive or is unfairly prejudicial to the interests of members generally or of some part of its members (including the applicant); or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be oppressive or so prejudicial. (2) In this section, "member", in relation to a company, includes a person who is not HCCOMM NO. E023 OF 2024 RULING Page 8 a member of the company but is a person to whom shares of the company — (a) have transferred; or (b) have been been transmitted by operation of law. 782 (1) If, on the hearing of an application made in relation to a company under section 780 or 781, the Court finds the grounds on which the application is made to be substantiated, it may make such orders in respect of the company as it considers appropriate for giving relief in respect of the matters complained of. HCCOMM NO. E023 OF 2024 RULING Page 9 (2) In making such an order, the Court may do all or any of the following: (a) regulate the conduct of the affairs of the company in the future; (b) require the company — (i) to refrain from doing or continuing an act complained of; or (ii) to do an act that the applicant has complained it has omitted to do; (c) authorise civil proceedings to be brought the name and in on behalf of the company by such person or persons HCCOMM NO. E023 OF 2024 RULING Page 10 and on such terms as the Court directs; (d) require the company not to make any, or any specified, alterations in its articles without the leave of the Court; (e) provide for purchase the of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly. (3) Subsection (2) does not limit the general effect of subsection (1). HCCOMM NO. E023 OF 2024 RULING Page 11 (4) The company is entitled to be served with a copy of the application and to appear and be heard as respondent at the hearing of the application.” 15. The test for oppression is well-settled. In Velani & 6 Others V Naran & 2 Others, [2021] KEHC 75 (KLR), Mativo J. (as he then was) held that oppressive conduct must be burdensome, harsh, and wrongful, amounting to a visible departure from standards of fair dealing and a violation of the conditions of fair play to which a member is entitled to expect. 16. The foundation of the relationship between the parties is not in dispute. The Partnership Agreement dated 15th August 2023 was duly executed by both parties and is binding on them. This Court's function is not to rewrite its terms but to give full effect to what the parties agreed as per the decision in National Bank of Kenya Ltd V Pipeplastic Samkolit (K) Ltd, [2002] 2 EA 503. HCCOMM NO. E023 OF 2024 RULING Page 12 17. As a 60% majority shareholder and co-director of the Company, the Petitioner had legitimate contractual expectations under Clauses 5, 16, 18, 19, and 20 of the Agreement. Specifically, the rights to good faith dealings, transparency, access to financial records, consultation on transactions exceeding Kshs. 1,000,000/-, and the preparation of annual audited accounts. These expectations are reinforced by the statutory duties imposed on directors under sections 143 and 145 of the Companies Act, which require directors to act in good faith, to promote the success of the company for the benefit of its members as a whole, to exercise independent judgment, and to act with reasonable care, skill, and diligence. 18. The Petitioner adduced specific, uncontroverted evidence in support of his claims. He demonstrated by way of formal written requests dated 8th August 2024 (marked DMM-5) and a demand letter from his advocates dated 12th September 2024 (marked DMM-6) that he had made previous requests to the Respondent who failed to respond or provide any financial records, books of account, or contracts. He produced banking slips from the HCCOMM NO. E023 OF 2024 RULING Page 13 Company's Family Bank Kenyatta Avenue account showing transactions by the Respondent exceeding Kshs. 1,000,000/- in respect of which there is no evidence that he was consulted. He further produced purchase orders, requisitions, and invoices pointing to business transactions conducted by the Respondent in his absence and without his knowledge. 19. The Respondent's response to this evidence consisted almost entirely of general denials. He placed before the Court no correspondence demonstrating that there had been consultations with the Petitioner, no minutes of meetings, and no financial documents of any kind. The burden to rebut the Petitioner's allegations lay with the Respondent. None of those allegations were disproved. In the absence of any records to prove the contrary, it is also clear that no AGM was held and no audit of the Company’s books has been conducted. 20. The Respondent sought to justify his conduct by reference to Clause 14 of the Agreement, which designated him as Managing Partner for the first HCCOMM NO. E023 OF 2024 RULING Page 14 year. This argument is unpersuasive. Clause 14 conferred management powers but it did not abrogate the Respondent's contractual obligations of good faith and transparency under the Agreement, nor did it suspend the Petitioner's rights to access information, to be consulted on major transactions, and to receive his share of profits. The Respondent's further contention that the Petitioner voluntarily absented himself from Company affairs is directly contradicted by the unchallenged evidence of the Petitioner's formal requests for access, all of which went unanswered. 21. One of the prayers that the Petitioner seeks is an order for a general meeting to be convened. In the circumstances that I have outlined, I am satisfied that such a meeting will go a long way in making right some if not all the infractions complained of. The Petitioner has relied on the decision in Agricultural Development Corporation of Kenya V Nathaniel K. Tum & Another, [2014] eKLR, on the importance of general meetings of shareholders. This Court, (Gikonyo, J) observed as follows: HCCOMM NO. E023 OF 2024 RULING Page 15 “It bears repeating, that an Annual General Meeting serves two important purposes: in one sense as a mechanism for accountability to shareholders and the shaping of the business of the company; and in another sense as an act of compliance with the law. Accountability to the shareholders is best described by the activities which take place in an Annual General Meeting and include; presentation of profit and loss account, and balance sheet; relevant information on the assets and operations of the company; directorship; share dividend and public share issue, if any, is to be undertaken. Compliance with the law is assessed on the company’s adherence to the legal requirements set out in the Companies Act especially the HCCOMM NO. E023 OF 2024 RULING Page 16 making of returns on its operations; the general meetings and resolution it has made during the year, tax returns, directorship of the company, shareholding and so on and so forth. If it does not do the things set out in law, the law has prescribed the penalty thereto.” 22. I am accordingly satisfied that the Petitioner has made out a compelling case. The Respondent's conduct constitutes a clear and sustained departure from the standards of fair dealing to which the Petitioner was entitled. It amounts to oppression and unfair prejudice within the meaning of section 780 of the Companies Act and to a breach of Clauses 15, 16, 18, 19, and 20 of the Partnership Agreement. Disposition and Final Orders 23. For the foregoing reasons, I allow the Petition dated 25th October 2024 and make the following orders: HCCOMM NO. E023 OF 2024 RULING Page 17 i. A declaration is hereby issued that the conduct of the 1st Respondent in the management and administration of the affairs of the 2nd Respondent has been oppressive and unfairly prejudicial to the interests of the Petitioner within the meaning of section 780 of the Companies Act. ii. A declaration is hereby issued that the 1st Respondent has breached the Partnership Agreement dated 15th August 2023, specifically Clauses 15, 16, 18, 19, and 20 thereof. iii. The 1st Respondent is hereby ordered to provide to the Petitioner, within 30 days of the date of this judgment, a full and complete schedule of all assets and liabilities of the 2nd Respondent, together with copies of all contracts, agreements, purchase orders, invoices, and other commercial documents entered into by the 2nd Respondent from the date of its incorporation to the date of this judgment. HCCOMM NO. E023 OF 2024 RULING Page 18 iv. A general meeting of the directors and/or shareholders of the 2nd Respondent shall be convened by the 1st Respondent within 15 days of full compliance with Order (iii) above. v. The 1st Respondent, whether acting personally or through agents, employees, or any other person acting on his behalf or at his direction, is hereby restrained from managing, making decisions in respect of, or conducting any financial or business transaction on behalf of the 2nd Respondent without the prior written consultation and consent of the Petitioner. vi. An independent auditor is hereby appointed to audit the financial affairs of the 2nd Respondent and to prepare a valuation of the 2nd Respondent as a going concern. The auditor shall be agreed upon by the parties within 7 days of the date of this judgment. In the event the parties fail to agree, the Chairperson HCCOMM NO. E023 OF 2024 RULING Page 19 of the Institute of Certified Public Accountants of Kenya (ICPAK) shall appoint a suitable person upon the request of either party. The costs of the audit and valuation shall be borne by the parties in proportion to their respective shareholding in the Company. The auditor shall file a report with this Court within 60 days of this judgment. vii. Having regard to the nature of the relationship between the parties, each party shall bear their own costs of this petition. DATED, SIGNED AND DELIVERED AT NAIROBI THIS 19 TH DAY OF JUNE 2026. F. MUGAMBI JUDGE Delivered in presence of: Mwale for Isoe for Petitioner Ms Masheto for Wageni for 2nd Respondent Court Assistants: Lillian & Gloria HCCOMM NO. E023 OF 2024 RULING Page 20