[2023] KEHC 23304 (KLR)

Pevans East Africa Ltd v Ndungu & another (Civil Suit E002 of 2023) [2023] KEHC 23304 (KLR) (Commercial and Tax) (12 October 2023) (Ruling)

Neutral citation: [2023] KEHC 23304 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Suit E002 of 2023

A Mabeya, J

October 12, 2023

Between

Pevans East Africa Ltd

Plaintiff

and

Paul Wanderi Ndungu

1st Defendant

Asenath Wachera Maina

2nd Defendant

Ruling

1. There are two applications for determination before me. The first one is dated 6/1/2023 and was filed by the plaintiff while the second one is dated 14/2/2023 filed by the 2nd defendant.

First Application 2. The first application was brought, inter-alia, under article 159(2)(b) of the Constitution of Kenya and order 40 rules 2 & 4 of theCivil Procedure Rules.

3. In the application, the plaintiff sought, pending the hearing of this suit, a temporary injunction to restrain the defendants or their agents from interfering with any business dealings of the plaintiff, making any representations, correspondences, contracts or dealing in any assets of the plaintiff in any manner whatsoever purporting to be acting on behalf of or in the interest of the plaintiff.

4. The application was based on the grounds that the plaintiff was incorporated on or around 23/11/2011 and was until 2018 licensed by the Betting Control and Licensing Board (BCLB) to conduct betting business under the name “SportPesa”. Thereafter, from 2019, BCLB did not grant the plaintiff a licence to carry on the betting business.

5. That prior to 8/10/2022, the defendants were members of the plaintiff holding 170 and 210 shares respectively and were both directors of the plaintiff until their resignation on 14/11/2019. That the defendants as shareholders in the plaintiff have no legal capacity either by law or by the Memorandum and Articles of Association of the Company to commit, enjoin or enter into any binding contractual agreement with any person or make any representations for or on behalf of the plaintiff without the express authority of the plaintiff.

6. The plaintiff averred that the defendants have filed malicious, frivolous and vexatious suits, purportedly on behalf of the plaintiff, against the business partners and the regulators of the plaintiff's business. That the 1st defendant also made and published false and slanderous statements against the directors, business partners and regulators of the plaintiff.

7. That the failure by the plaintiff to get its betting licence renewed by the BCLB and the consequent downward spiral of the value of its shares is directly attributable to the action of defendants of making false and slanderous statements about the plaintiff, its directors and other shareholders and that the defendants were expelled from membership of the plaintiff during a general meeting attended to by all members of the plaintiff on 8/10/2022 in Dar es Salaam.

8. The plaintiff asserted that the defendants were expelled from the membership of the plaintiff, therefore have no right nor locus standi whatsoever to maintain and or continue any suits or institute any proceedings on behalf of the company. The plaintiff urged that the orders sought in the Motion be granted.

9. The 1st defendant ardently opposed the application through grounds of opposition dated 20/1/2023 and his replying affidavit sworn on 24/1/2023. He contended that the purported resolution to expel him and the 2nd defendant from the plaintiff was passed in contravention of the provisions of section 257 of the Companies Act which requires at least 75% shareholding to vote yet only 40% of the shareholding was represented at the meeting of 8/10/2022.

10. That the person hired by the plaintiff to audit the plaintiff was not a registered practising accountant as is required by section 772 of the Companies Act and the Accountants Act 2008 and that the plaintiff has come to Court with dirty hands as there is no evidence that its officials have ever notified the defendants of the purported resolutions prior to the filing of the present suit.

11. That the meeting was held in Dar es Salaam whereas the registered office of the plaintiff is in Nairobi and no reason was given to justify the hosting of the meeting elsewhere than in the registered office of the Company. That even though the agenda of the meeting would have been to discuss the conduct of the defendants, they were not given the opportunity to defend themselves.

12. That any losses incurred by the Company can be attributed to the incompetence and imprudent decisions of the directors more so, Robert Macharia and Ronald Karauri.

13. The 2nd defendant also opposed the instant application vide grounds of opposition dated 23/1/2023 and her replying affidavit sworn on 24/1/2023.

14. Her averments largely echoed those of the 1st defendant as set out above. She contended that upon receiving the notice of the meeting scheduled for 8/10/2022, she raised concerns including a request to have the meeting held in Kenya where the plaintiff is domiciled or to have the meeting on a hybrid basis, that is, online and physically. That however, the company secretary ignored her request.

15. That the resolutions purportedly passed by members of the plaintiff on 8/10/2022 were invalid as the notice of the meeting and the resolutions were not given in accordance with the Companies Act and the plaintiff’s Articles of Association. That the meeting was not conducted in accordance with the Companies Act and the plaintiff’s Articles of Association.

16. The 2nd defendant argued that the plaintiff fatally failed to satisfy the threshold for the granting an interlocutory injunction.

17. The plaintiff filed a further affidavit sworn on 27/3/ 2023 by Robert Macharia, its director and corporation secretary. This was in response to the grounds of opposition and replying affidavits of the 1st and 2nd defendant.

18. He contended that the defendants have never initiated any process of convening a general meeting of the company to express their disapproval of any act of the directors nor instituted any suit for the benefit of the company but for their own personal benefit. Further, that there is evidence that the defendants were given notice of the general meeting but failed to attend by proxy or otherwise without giving any valid notice.

19. The 1st defendant filed a further replying affidavit sworn on 6/2/2023 in response to the plaintiff’s further affidavit of 27/1/2023. He reiterated that the actions pursued by the defendants were confined only to derivative claims and that the meeting of 8/10/2022 was an extraordinary general meeting. That in the premises, only a special resolution could be made at the meeting 75% of eligible voters would be required in accordance with section 257 of the Companies Act.

20. The parties filed submissions for and against the subject application which I have considered.

21. This is an application for an interlocutory injunction. In the well-known case of Giella v Cassman Brown [1973] EA 358 the principles to be considered before granting an interim injunction are that: (i) the applicant must establish a prima facie case with a probability of success, (ii) the applicant must illustrate that he will suffer irreparable loss and damage if the injunction is not granted, and (iii) if the court is in doubt, it will determine the matter on a balance of convenience.

22. The court now first will consider the first limb on whether a prima facie case with a probability of success has been established.

23. In Mrao LtdvFirst American Bank of Kenya Ltd & 2others Civil Appeal No 39 of 2002, a prima facie case was described to be a case in which on the material presented to the court, a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party to call for an explanation or rebuttal from the latter.

24. The plaintiff submitted that the defendants were expelled from membership of the plaintiff therefore they have no authority or right to file or maintain any suit in the name of or for the benefit of the plaintiff. That the defendants have usurped the plaintiff’s right to sue and be sued in its own name. Based on the foregoing, the plaintiff argued that it has established a prima facie case with a probability of success.

25. Conversely, the defendants submitted that the plaintiff failed to establish a prima facie case as there is no clear right accruing to the plaintiff which it seeks to protect through these proceedings.

26. My understanding of a prima facie case is that the same is established when an applicant demonstrates that there is a right to be protected which is directly threatened by an act sought to be restrained. Has the plaintiff established a right that the defendants have allegedly infringed or threatened to infringe?

27. An analysis of the pleadings show that, on various occasions, the defendants as shareholders instituted derivative claims or are part of other claims involving the plaintiff. In this regard, through this application, the plaintiff seeks to restrain them from continuing such actions on the grounds that the defendants lack locus standi as they have been allegedly expelled from the company.

28. The defendants fervently argued that the general meeting and resolution to expel them as members of the company were carried out illegally and have no effect on their shareholding.

29. In my view, a derivative claim is a right that is statutorily established to enable a minority shareholder to bring a suit for the benefit of a company where, due to the nature of the claim, the majority members of the company may not bring such a claim. It is meant to protect the rights of the company.

30. That being the case, it is expected that where such a claim is lodged by a member not deserving leave to bring such a claim, the company and the remaining members of the company are entitled to oppose such a suit as a frivolity. The challenge should be thrown in those suits. It would be in extreme exceptional circumstances that a court of law will entertain an independent suit to bar such a right where it is being abused.

31. Although there is evidence that the defendants may have been involved in the filing of such derivative suits, I doubt if the plaintiff has established how its rights have been infringed by the defendants so as to call for a rebuttal by them. There are no clear rights accruing to the plaintiff which it seeks to protect through these proceedings.

32. The view the court takes is that, this application is more of an attempt by the plaintiff to execute the impugned resolutions obtained from the meeting of 8/10/2022.

33. Further, if the orders sought are granted, the defendants would not be able to continue with the derivative claims that they have instituted, which would mean that this Court would be interfering with the proceedings pending before other courts.

34. As the plaintiff has failed to establish a prima facie case, there is no need to delve into the other limbs in Giella (supra), as the grounds are to be considered sequentially. The first application lacks merit and is dismissed.

Second Application: 35. In the second application dated 14/2/2023, the 2nd defendant sought an interlocutory injunction, pending determination of this suit, to restrain the plaintiff from implementing the impugned resolutions passed at the general meeting.

36. The facts and pleadings forming the basis and opposition of the second application are similar in content to those in the first application. They are both centred around the plaintiff’s general meeting of 8/10/2022 and the resolutions passed thereon. The meeting took place in Dar es Salaam, Tanzania.

37. The 2nd defendant argued, inter alia, that she had established a prima facie case as the defendants were expelled in a sham meeting and that she did not get an opportunity to defend herself in the said meeting which went against the law of natural justice.

38. As aforementioned, a prima facie case is established when the applicant illustrates that his/her right have apparently been infringed by the opposing party so as to call for an explanation or rebuttal from the latter.

39. The 2nd defendant seeks an interim injunction to restrain the plaintiff from implementing the impugned resolutions allegedly passed at the general meeting.

40. The notice of the general meeting was sent to the shareholders of the company via email on 7/9/2022. The notice is found on pages 3 and 4 of the exhibit marked ‘AWM1A” in the 2nd defendant’s supporting affidavit.

41. The notice indicated that the meeting would be held in Dar es Salaam on 8/10/2022 and paragraph 6 therein stated that the conduct of the 1st defendant would be reviewed and remedial action would be taken. I note that the agenda in the said notice did not indicate that the conduct of the 2nd defendant would be reviewed. The 1st and 2nd defendant were also not notified on the nature of their conduct that would be discussed in order to afford them an opportunity to adequately defend themselves.

42. Further, I note that the 2nd defendant requested the plaintiff via email for relevant documents that would be discussed at the meeting and material that the board intended to present regarding the special resolutions in order for her to participate knowledgeably in the general meeting.

43. However, the plaintiff’s company secretary did not reply to that request. The 2nd defendant also requested to attend the meeting virtually as the meeting was to be held in Dar es Salaam but the company secretary ignored that request.

44. Based on the foregoing, it is clear that the 2nd defendant was kept in the dark regarding what aspects of her conduct was to be discussed during the meeting therefore she was not given the opportunity to defend herself. Further, there seems peremptorily to be no explanation as to why the said meeting had to be held in a place far from the registered office of the company. The 2nd defendant’s right to attend, albeit virtually, was denied. The irresistible conclusion is that the 2nd defendant has established a prima facie case.

45. Would the 2nd defendant suffer irreparable injury if the orders sought are not granted. The 2nd defendant submitted that she stands to suffer irreparable loss if the interlocutory injunction is not granted for various reasons including, that her constitutional and legal rights would be infringed upon which constitutes irreparable loss which cannot be substituted or mended by damages. That she would be deprived of her rights as a shareholder.

46. On the other hand, the plaintiff submitted that as the 2nd defendant was expelled from membership in the company, her shares would be sold and she would receive a fair value of the proceeds of the sale. Therefore, the 2nd defendant would not suffer irreparable loss that cannot be compensated adequately in damages.

47. In the case of Nyando Enterprises Limited v Barclays Bank Kenya Limited [2018] eKLR it was held: -“it is now trite that where there is breach of the law, an applicant cannot be compelled to accept damages as recompense. I would accordingly follow Joseph Siro Mosioma vs. Housing Finance Company of Kenya Limited & 3 Others [2008] eKLR wherein it was held as follows by Warsame, J.:‘... that damages is not an automatic remedy when deciding whether to grant an injunction or not. Damages is not and cannot be a substitute for the loss which is occasioned by a clear breach of the law, in any case, the financial strength of a party is not always a factor to refuse an injunction. More so a party cannot be condemned to take damages in lieu of his crystallised right which can be protected by an order of injunction.”

48. The 2nd respondent has raised weighty questions on the legality of the general meeting held on 8/10/2022 and the resolution passed thereon which led to her expulsion. It is possible that after the hearing of the suit, it would be determined that the defendants’ rights as shareholders were infringed including their constitutional rights to property, fair administrative action and fair hearing. As expressed in Nyando Enterprises Limited(supra), damages cannot be a substitute for the loss which is occasioned by a clear breach of the law. A party entitled to a legal right cannot be made to take damages in lieu of his right.

49. I find therefore that the 2nd defendant would suffer irreparable loss if the interim injunction is not granted pending the determination of this suit.

50. The last limb for consideration is where the balance of convenience lies.

51. The 2nd defendant has established as a prima facie case and that she would suffer irreparable loss if the injunction is not granted. The court is therefore not in doubt that an interim injunction ought to be granted.

52. In any case, I find that it would be a greater inconvenience to the 2nd defendant if the injunction is not granted at this point as the defendants would lose their shareholding in the plaintiff company and the rights that are appurtenant thereto. On the other hand, if the injunction is granted, the 2nd defendant remains a member of the company until the suit is determined but this would not prevent the plaintiff from continuing on with its business.

53. The balance of convenience tilts in favour of the 2nd defendant.

54. In the end I find that the application dated 6/1/2023 lacks merit and is dismissed with costs while the application dated 14/2/2023 is granted as prayed. The costs of the second application are awarded to the 2nd defendant. The interim orders are hereby vacated.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF OCTOBER, 2023. A. MABEYA, FCI ArbJUDGE3