https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10189

Kariuki v Githinji & 2 others (Commercial Case E480 of 2025) [2026] KEHC 10189 (KLR) (Commercial and Tax) (10 July 2026) (Ruling) Neutral citation: [2026] KEHC 10189 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Commercial Courts) Commercial and Tax Commercial Case E480 of 2025 FG Mugambi, J July 10, 2026 Between Nancy Muthoni Kariuki Plaintiff and James Murimi Githinji 1st Defendant Rose Wangechi Murimi 2nd Defendant The Registrar Of Companies 3rd Defendant Ruling 1.This ruling determines the 1st and 2nd Respondents' Notice of Preliminary Objection dated 8th December 2025, filed in response to the Plaintiff's application dated 16th July 2025. The Preliminary Objection is founded on three grounds:a.That this Court lacks jurisdiction by virtue of the arbitration clause contained in Article 43 of the Articles of Association of the company;b.That, pursuant to Section 4(2) of the Limitation of Actions Act, the claims founded on fraud are statute-barred; andc.That the suit as constituted offends Part XI of the Companies Act, as read with Section 239 thereof.Pursuant to directions issued by this Court, the parties filed written submissions in support of their respective positions, which I have duly considered. Analysis and Determination a. The Arbitration Clause: 2.On the question of the arbitration clause, the Plaintiff submits that the clause binds only the Plaintiff and the 1st Defendant, and cannot be invoked in a dispute that includes the 2nd Defendant, who is a stranger to the arbitration agreement. The Plaintiff further contends that she was in any event amenable to out-of-court resolution, as evidenced by her letter dated 4th June 2025 addressed to the 1st Defendant, to which no response was received. 3.The Defendants, for their part, maintain that this Court is bound by Section 6 of the Arbitration Act to stay the proceedings and refer the dispute to arbitration. 4.I have considered the rival positions. I am mindful of the narrow compass within which a court operates once the question of arbitration is raised. Even so, the Court is duty-bound to satisfy itself that the mandatory requirements of Section 6(1) of the Arbitration Act have been strictly complied with before it can be said to be divested of jurisdiction, or, conversely, that it retains the authority to hear and determine the dispute before it. 5.Section 6 of the Act governs applications for a stay of proceedings pending referral to arbitration. It is not in dispute that an arbitration clause exists in the Articles of Association of the company. What is contested is whether the Defendants have properly invoked that clause in strict conformity with the law. It is well settled that a party seeking to rely on an arbitration clause must do so promptly, unequivocally, and at the earliest opportunity. An application for stay must be made not later than the time of entering appearance or otherwise acknowledging the claim. This is not a mere technicality but a substantive safeguard against parties who litigate first and retreat to arbitration only when convenient. 6.The rationale is twofold: first, it safeguards the integrity of the arbitral process by ensuring consistency of conduct on the part of those who have agreed to arbitrate; and second, it protects the judicial process from tactical manoeuvring calculated to delay proceedings or engender uncertainty as to the proper forum. In short, Section 6(1) demands consistency; a party must elect, at the outset, either to stand by the arbitration clause or be taken to have waived it. 7.This principle finds firm support in judicial authority. In Charles Njogu Lofty V Bedouin Enterprises Ltd, [2005] eKLR, the Court of Appeal held that even where the conditions in Section 6(1)(a) and (b) are met, an application for stay may still be refused if it is not made at the time of entering appearance, or, where no appearance is entered, at the time of filing any pleading or taking any step in the proceedings. Similarly, in Adrec Limited V Nation Media Group Ltd, [2017] eKLR, the Court affirmed that a party wishing to invoke an arbitration clause must apply for reference to arbitration at, or before, the time of entering appearance. In Diocese of Marsabit Registered Trustees V Techno Trade Pavilion Ltd, HCCC No. 204 of 2013, Gikonyo J was equally emphatic that Section 6(1) is clear, unambiguous, mandatory and that an application filed even fourteen days after the memorandum of appearance falls outside the window the law permits. 8.Turning to the present case, the record shows that the Defendants entered appearance but contrary to the requirements, did not apply for a stay of proceedings and referral of the dispute to arbitration. That was the earliest and proper opportunity to invoke the clause. Instead, of doing so, they opted to file a Notice of Preliminary Objection, thereby submitting the dispute to the jurisdiction of this Court and inviting the Court to pronounce itself on the matter. It is trite that a party who takes a step in the proceedings, whether by filing pleadings or raising objections before the Court, is deemed to have waived any right to rely on an arbitration clause. The Defendants’ conduct amounts to an unequivocal submission to this Court's jurisdiction. Arbitration cannot be invoked as an afterthought, resorted to only after a party has tested the waters of litigation and found them unfavourable. (b) Limitation: 9.On the question of limitation, the Plaintiff contends that Section 26 of the Limitation of Actions Act postpones the running of time in claims founded on fraud until the fraud or mistake is discovered, and that she discovered the fraud in or around October 2023, following which a demand letter went unanswered, prompting investigation and the present suit. 10.The Plaint dated 16th July 2025 pleads at paragraph 6 that the fraud relating to the alteration of the company's shareholding was discovered in October 2023, with particulars of fraud set out at paragraph 16. The Respondents have adduced no evidence to controvert these averments. As this remains a contested question of fact which requires evidentiary prove, it is not a matter capable of resolution at the preliminary-objection stage. (c) Leave under Section 239 of the Companies Act: 11.Finally, the Respondents contend that the Plaintiff ought to have sought leave under Section 239 of the Companies Act before instituting what they characterize as a derivative claim. They rely on the Court of Appeal's observations in Amin Akberali Manji & Another V Altaf Abdulrasul Dadani & Another, Nairobi Civil Application No. 101 of 2004, where the Court reaffirmed the long-established rule that the proper plaintiff in respect of a wrong done to a company is the company itself, in conformity with the rule in Foss V Harbottle, (1843) 67 ER 189. 12.The Plaintiff, however, maintains that the suit is brought on grounds of oppression and unfair prejudice under Section 780 of the Companies Act, raising the question of what distinguishes such a claim from a derivative action properly so called. As defined in the Companies Act, in a derivative claim the wrong complained of is done to the company and the cause of action vests in the company, and any recovery should accrue to the company. On the other hand, in an oppression or unfair-prejudice claim, under section 780 of the Companies Act, the wrong complained of is done to the member, in their capacity as shareholder. 13.Having examined the Plaint dated 16th July 2025, I am satisfied that, besides the claims properly founded by the Plaintiff in her own personal right, the claim for a full accounting of rental income received by the company represents a company asset, any misappropriation of which is a wrong done not to the Plaintiff alone but to the company. The claim for disclosure of company bank account details, transactions, and signatories similarly seeks the company's own records rather than vindicating any personal right of the Plaintiff. The claim for general damages for breach of fiduciary duty is one that, in law, belongs to the company since fiduciary duties of directors are owed to the company and not to individual shareholders. 14.Finally, the question of the validity of the appointments of the 2nd Defendant as director and of Lucy W. Waweru as company secretary goes to the root of the company's own governance and constitution, and is not a matter personal to the Plaintiff. These claims, in my view, take the form of derivative claims 15.As to whether leave was required, I note that the parties have placed before the Court conflicting lines of authority from the High Court. The Respondents also rely on Tatu City Ltd & Another V Stephen Jennings & Another, Nairobi HCCC No. 46 of 2015, in which reference was made to the observations of Musinga, JA in the Matter of CMC Holdings Limited, Miscellaneous Civil Case No. 273 of 2012, to the effect that where the law requires a party to obtain leave before commencing a derivative or other suit, and the party fails to do so but nonetheless institutes proceedings, the interests of justice favour permitting that party to return to court and, upon showing good cause, seek leave to continue the action as a derivative or other suit, rather than shutting the door on a litigant who has already sought the court's assistance. 16.Adopting that approach, and having regard to the framework under Section 239 of the Companies Act, I decline to strike out the suit on this ground at this stage. Instead, the Plaintiff shall be at liberty to apply for joinder of the Company and for leave to continue the proceedings as a derivative action, such application to be filed and served within thirty (30) days of the date of this ruling, failing which the suit shall stand struck out as against any derivative claims without further reference to this Court. Disposition 17.For the foregoing reasons, I find and hold as follows:i.The objection premised on the arbitration clause is dismissed.ii.The question of limitation, being contested on the facts, is not suitable for determination on a preliminary objection and is accordingly reserved for trial.iii.The suit, being in substance a derivative claim, required leave under Section 239 of the Companies Act. The Plaintiff is granted thirty (30) days from the date of this ruling within which to apply for leave to continue the suit as a derivative action, failing which the derivative claims shall stand struck out.iv.The Notice of Preliminary Objection dated 8th December 2025 accordingly succeeds only in part, to the extent of the derivative claim findings, and is otherwise dismissed.v.Each party shall bear their own costs. DATED, SIGNED AND DELIVERED AT NAIROBI THIS 10TH DAY OF JULY 2026.F. MUGAMBIJUDGEDelivered in presence of:Mwangi for Githinji for 1st defendantCourt Assistants: Lillian & Gloria