https://new.kenyalaw.org/akn/ke/judgment/scc/2026/31

Obobo v Adab Nafuu Traders Ltd (Commercial Case E028 of 2026) [2026] SCC 31 (KLR) (22 May 2026) (Judgment) Neutral citation: [2026] SCC 31 (KLR) Republic of Kenya In the Small Claims Court at Voi Commercial Case E028 of 2026 FM Mulama, RM May 22, 2026 Between Phinick Odhiambo Obobo Claimant and Adab Nafuu Traders Ltd Respondent Judgment 1.This is a claim for payment of Kshs.603,498 being the value of the goods allegedly supplied to the respondent. The claim is opposed by the respondent whose main argument is that the it has no contract for supply of goods with the claimant herein and has primarily asserted that the claimant has no locus to institute this claim. 2.At viva voce hearing of the matter, it was apparent that the claimant is an employee of Kensalt Limited which supplied the goods to the respondent. The claimant on being cross examined admitted as much but was quick to justify that pursuant to his employment contract the employees of Kensalt Ltd were personally liable for any unpaid goods supplied to customers assigned to them. 3.From the onset and even without going into the merits or otherwise of the claim, it is important that a determination as to locus standi of the claimant be established first as it has the effect of disposing off the suit in limine. Issue For Determination.a.Whether the claimant has locus standi to institute the claim.b.Whether the claim is meritoriousc.Who bears the costs of the claim. Analysis And Determination. a. Whether the claimant has locus standi to institute the claim. 4.During the cross examination of the claimant, he admitted that the contract and/or engagement was between the respondent and Kensalt Ltd and that infact the invoices and acknowledgement customer copy he produced as exhibits were between Kensalt and the respondent. It then became apparent that the contract was between the respondent and Kensalt and upon this realization, the claimant took refuge in his employment contract. 5.It was his testimony that as per employment contract he was personally liable for any unpaid goods supplied to customers assigned to him. He referred the court to the specific clause. This in essence meant in my understanding that in as much as the contract is between the respondent and Kensalt, the claimant was suing to recover the monies on behalf of Kensalt pursuant to the employment contract. 6.It is against that background that I am of the view the claim stands or falls on this particular issue. Locus standi is defined in Black’s Law Dictionary, 9th Edition at page 1026 as-“The right to bring an action or to be heard in a given forum”. 7.The Court in Alfred Njau & 5 others v City Council of Nairobi [1983] eKLR put it in the following terms:-“The term locus standi means a right to appear in Court and, conversely, as is stated in Jowitt’s Dictionary of English Law, to say that a person has no locus standi means that he has no right to appear or be heard in such and such a proceeding.” 8.It is now common knowledge to any advocate and/or legal practitioner that any company has a separate legal entity distinct from its directors and/or shareholders and it has been said that the separate corporate personality of a company as a legal person in Salomon v Salomon is the greatest legal innovation in company law. 9.Although it is an artificial person that does not possess the body of natural person, a company is a juristic person; a legal person in law. It exists only in contemplation of law. Because of its artificial nature, a company acts through human persons, namely, the directors, officers, shareholders, and corporate managers among others for its management and day to day running. But these individuals represent the company and accordingly whatever they do within the scope of the ostensible or authority conferred upon them by the Memorandum and Articles of Association and in this case the agreement the claimant makes reference to do so in the name and on behalf of the company, they bind the company and not themselves. Thus, the Directors, members or shareholders of a limited liability company are not liable for the debts or liabilities of the company; the company is. 10.It matters not that the contract of employment provides that they are personally liable and for the claimant in his submissions to propose as much is misleading and inaccurate legally speaking. His submission on that issue has no merit. 11.Lord Denning MR in his characteristic literary style summed up the law in Moir V. Wallersteiner[1975] 1 ALL ER 849atp. 857, as follows:“It is a fundamental principle of our law that a company is a legal person with its own corporate identity, separate from the directors or shareholders and with its own property rights and interests to which alone it is entitled. If it is defrauded by a wrong doer, the company itself is the one person to sue for the damage. Such is the rule in Foss V. Harbottle[1843] 2 Hane 461. The rule is easy enough to apply when the company is defrauded by outsiders. The company itself is the only one who can sue. Likewise, when it is defrauded by insiders of the minor kind, once again the company is the only person who can sue”. 12.Back and closer home in the case of Law Society of Kenya vs Commissioner of Lands & Others, Nakuru High Court Civil Case No.464 of 2000, as follows:-“Locus Standi signifies a right to be heard, A person must have sufficiency of interest to sustain his standing to sue in Court of Law”. 13.Further in the case of Alfred Njau and Others v City Council of Nairobi [1982] KAR 229, the Court also held that:-“the term Locus Standi means a right to appear in Court and conversely to say that a person has no Locus Standi means that he has no right to appear or be heard in such and such proceedings”. 14.Therefore, locus standi means the right to appear before and be heard in a court of law. Without it, even when a party has a meritorious case, he cannot be heard because of that. Locus standi is so important that in its absence, party has no basis to claim anything before the Court. 15.Further in Amin Akberali Manji & 2 others v Altaf Abdulrasul Dadani & another [2015] eKLR the Court of Appeal discussed at length the issue of locus in relation to a limited liability company. It held thus:-“......... The centuries-old case of Salomon v Salomon Company Limited [1895-99] All ER 33 laid that principle to rest. There is also no argument that the proper plaintiff in any proceedings or action in respect of a wrong done to the company, is the company itself. Again, that was established over 160 years ago in Foss v Harbottle [1843] 67 ER 189 (the Foss case), popularly referred to in company law as “the rule in Foss v. Harbottle” (the rule). The rule was restated by Jenkins L. J. in the case of Edwards v Halliwell [1950] All ER 1064 as follows:-“The rule in Foss-v-Harbottle, as I understand it, comes to no more than this. First, the proper Plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio; or if the simple majority challenges the transaction, there is no valid reason why the company should not sue.”In essence the rule established two principles. The first is the "proper plaintiff principle" and the second is "the majority principle”. Through the former, a wrong done to the company may be vindicated by the company alone. On the second principle, if the alleged wrong can be confirmed or ratified by a simple majority then a shareholder is barred from bringing an action. The principal effect in the rule is to bar actions by minority shareholders.This Court and others in this country have indeed cited and followed the Foss case and others which came after it, as good law. The cases of Rai and Others v Rai and Others [2002] 2 EA 537 and Grace Wanjiru Munyinyi & Another v Gedion Waweru Githunguri & 5 others [2011] eKLR were cited before us to confirm that the rule in Foss case still stands in Kenya. In a recent case, Arthi Highway Developers Ltd v Westend Butchery Ltd & 6 Others Civil appeal No. 246 of 2013 this Court followed the summing up of the rule by Lord Denning M.R in Mir vWallerstainer [1975] 1 All ER 849 at pg 857, thus:-“It is a fundamental principle of our law that a company is a legal person with its own corporate identity, separate from the directors or shareholders and with its own property rights and interests to which alone it is entitled. If it is defrauded by a wrongdoer, the company itself is the one person to sue for the damage. (Emphasis mine by underlining). Such is the rule in Foss V. Harbottle [1843] 2 Hane 461. The rule is easy enough to apply when the company is defrauded by outsiders. The company itself is the only one who can sue. Likewise, when it is defrauded by insiders of the minor kind, once again the company is the only person who can sue.” 16.From the elaborate legal dispositions on this issue, the facts of this case are that the claimant an employee of Kensalt Ltd has instituted this case to claim from the respondent monies it owes Kensalt. In essence it is Kensalt that should be getting this money and not the claimant. 17.The respondent in his submissions has touched on the issue of privity of contract. I agree entirely with his submissions and the authority relied upon on this matter. It is apparent now that the contract is between Kensalt and the respondent and the claimant cannot purport to enforce rights and/or obligations that he is not a party to. 18.Even if for all that is worth were to ignore the issue and/or assume for argument sake assume that the suit was properly in the name of Kensalt, still the claimant would have needed a written authority that would have allowed him to plead and execute documents on behalf of the company. So it is not just enough to sue in its name but also to obtain the necessary written authority to institute the case on behalf of Kensalt. 19.It is therefore based on all that I have said that I do find that the claimant has no locus standi to institute this claim as against the respondent. The suit is therefore incompetent for that reason alone. 20.Having made such a finding that effectively disposes off the suit in limine, I do not propose to delve into the other issues as formulated as they fall by the wayside with this finding. For avoidance of any doubt, the company can still pursue its claim as against the respondent if any but in compliance with the law and some shortfalls discovered and pointed out can be rectified in the new claim. Conclusion And Disposition. 21.The upshot of the foregoing I make the following final orders;a.The claim contained in the statement of claim dated 27th March 2026 is wholly incompetent for reasons set out in the judgment and the same is dismissed.b.The respondent having defended the claim and having been successful in his quest, he is awarded costs of the claim.c.The file is closed. 22.Orders accordingly. DATED, SIGNED AND DELIVERED VIRTUALLY AT VOI SMALL CLAIMS COURT THIS 22ND DAY OF MAY 2026F.M. MULAMAADJUDICATOR/RMIn the presence of:Court Assistant:- Abuswaleh.Mr. Mummin for the Claimant.Mr. Bagha for the respondent.Mr. Obobo.