[2019] KECA 272 (KLR)
The Court of Appeal held that Security Coordinates Services Ltd, having been incorporated as a limited liability company, is a separate legal entity from its directors. The appellant, as a director, could not be held personally liable for the acts or omissions of the company. The trial court erred in failing to...
Source-derived case information.
- Citation
- [2019] KECA 272 (KLR)
- Parties
- Appellant: Shadrack Obuya Mukanda; Respondent: Jason Mogaka Otiso
- Court
- Court of Appeal
- Court Station
- Court of Appeal at Nairobi
- Jurisdiction
- Kenya
- Case Number
- Civil Appeal 146 of 2016
- Procedural Posture
- Civil Appeal / Judgment
- Outcome
- appeal_allowed
- Judges
- J Wakiaga, MA Warsame, F Sichale
- Legal Topics
- Unlawful Termination, Separate Legal Personality, Director Liability, Employment Contracts
- Source Language
- en
Source-derived case record
Summary, issues, holding and outcome
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Parties
Shadrack Obuya Mukanda
Appellant
Jason Mogaka Otiso
Respondent
Procedural Posture
Civil Appeal / Judgment
Legal Issues
- 1 Whether the appellant, as a director, could be held personally liable for the acts or omissions of Security Coordinates Services Ltd.
- 2 Whether the respondent was wrongfully terminated by the appellant or by the company.
Ratio Decidendi
The Court of Appeal held that Security Coordinates Services Ltd, having been incorporated as a limited liability company, is a separate legal entity from its directors. The appellant, as a director, could not be held personally liable for the acts or omissions of the company. The trial court erred in failing to appreciate this fundamental principle of company law. As such, the respondent's claim should have been directed at the company, not the appellant personally. The appeal was allowed, the judgment and decree of the Employment and Labour Relations Court were set aside, and the respondent's suit was dismissed with costs to the appellant.
Court Disposition
appeal_allowed
Orders
- The appeal is allowed.
- The judgment and decree of the Employment and Labour Relations Court dated 7th April, 2016 are set aside.
Full Case Text
Judgment text and source record
36 paragraphs
IN THE COURT OF APPEAL
AT NAIROBI
CORA: WAKI, WARSAME & SICHALE, JJA
CIVIL APPEAL NO. 146 OF 2016
BETWEEN
SHADRACK OBUYA MUKANDA.....APPELLANT
AND
JASON MOGAKA OTISO................RESPONDENT
(Being an appeal from the Judgment of the Employment and Labour Relations Court (Monica Mbaru, J) dated 7th April, 2016,INE&LRC Cause No. 342 of 2015
**********************************
JUDGMENT OF THE COURT
The appellant, Shadrack Obuya Mukanda was dissatisfied with the judgment ofMbaru, Jdelivered on7thApril, 2016. In the judgment, the appellant was found to have unprocedurally terminated the employment of Jason Mogaka Otiso, the respondentherein.
The brief facts giving rise to this appeal are that in a Memorandum of Claim dated6thMarch, 2015, the respondent averred that: “On or about February, 2013, the respondent employed the services of the claimant as a Security guard at a monthly salary of Kshs 6,000/= and did not give him an appointment letter as required by the laws; that the claimant commenced employment on February, 2013 as aforesaid and served the respondent with loyalty and diligence until June, 2014 when the claimant resigned due to frustration from the respondent and respondent refused to pay him, his terminal benefits”.
The respondent sought several reliefs.
In a Memorandum of response dated 24th March, 2015, the appellant denied having employed the respondent.
In the evidence adduced at the trial court, the respondent told the court that he was employed by the appellant in February, 2013. In cross-examination he stated “Iwas employed by Security Coordinates Services by the Director Shadrack”.
In his defence, the appellant testified that he is one of the four (4) directors of Security Coordinates Services Ltd, which was registered as a Limited Liability Company on 16th April,2008 vide certificate No. C.153122.
The gist of the appellant’s appeal is that the trial Court failed“---to find that Security Coordinate Services Limited ……….. and the appellant are two separate and distinct persons”.This was the point taken when the appeal came up for hearing before us on13th May, 2019.
Mr. Kadera, learned counsel holding brief forMr. Ochichfor the appellant, and in the appellant’s written submissions dated 10th May, 2019, it was pointed out that a company is distinct and a separate entity from its directors.
We have considered the record, the rival arguments before us and the law.
In the timeless case of Salomon vs. Salomon & Co. Ltd [1897] AC, it was held:
“the Company is at law different persons altogether from the subscribers to the memorandum and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers and the same hands receive the profits, the company is not in law the agent of the subscribers or trustees for them nor are the subscribers as members liable, in any shape or form, except to the extent provided by the act”
The appellant, being one of the directors, was a distinct and separate entity from Security Coordinates Services Ltd. In the claim, the respondent was named as Shadrack Obuya MukandaT/A Security Coordinates Services. The learned Judge failed to find that a director cannot be sued for the acts and /or omissions of the company, which has its own legal status. Security Coordinates Services having transcended to a limited liability company on 16th April, 2008 vide Certificate of Incorporation dated 16th April, 2008, became a separate and distinct legal entity from its directors. It was therefore not proper for the respondent to go after one of its directors. The trial court failed to appreciate the clear and correct position of the law.
The upshot of the above is that we allow this appeal, set aside the judgment and decree of the Employment and Labour Relations Court dated 7th April, 2016 with costs to the appellant. The effect of which the respondent’s suit being Employment and Labour Relations Cause No. 342 of 2015 is dismissed with costs both in the two lowercourts to the appellant.
Dated and delivered at Nairobi this 25th day of October, 2019.
P. N. WAKI
………………………………
JUDGE OF APPEAL
M. WARSAME
………………………………
JUDGE OF APPEAL
F. SICHALE
……………………………….
JUDGE OF APPEAL
I certify that this is a true copy of the original.
DEPUTY REGISTRAR