https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/13010

REPUBLIC OF KENYA IN THE HIGH COURT OF KENYA AT KIAMBU CIVIL SUIT NO. 15 OF 2018 JAMES PETER MBIYU WAMBUI………....…………….…..1ST PLAINTIFF SUPERIOR MACNUTS PROCESSORS COMPANY LIMITED…………………………...….………….2ND PLAINTIFF WAWERU KURIA………………..……………….……….….….DEFENDANT -VS- JUDGMENT Introduction 1. The Plaintiffs initiated this suit by way of a Plaint dated 11th May, 2018 against the Defendant, seeking the following prayers:- a) A declaration that all the business transacted by Defendant while having diverted funds to his personal account, from the Company’s business and the revenue thereby generated belongs to the 2nd Plaintiff/Company. b) A declaration that the diversion of Company funds to his personal account by the Defendant was wrong and/or unlawful. c) A mandatory injunction compelling the Defendant to produce and deliver to the Plaintiffs a true and accurate record of all the financial affairs of the 2nd Plaintiff from the year 2016 to date and to pay to the 2nd Plaintiff all the sums of money found not to have been accounted for. d) A mandatory injunction compelling the Defendant to produce and HCCC NO.15 OF 2018 JUDGMENT - Page 1 of 10 deliver to the 2nd Plaintiff all its property, assets, books, records, computers, printers and documents. e) A declaration that the Defendant is jointly and severally liable to personally pay all the 2nd Plaintiff’s creditors. f) General damages against the Defendant g) Interest on damages and costs. h) Any other or further reliefs that this Honourable Court may deem just to grant 2. According to the Plaint, the 1st Plaintiff subscribed 50% shareholding in the 2nd Plaintiff in 2016 as a Director. The 2nd Plaintiff, Superior Macnuts Processors Company Limited is in the business of processing packaging, supply and sourcing of raw macadamia nuts upon order from clients within and outside the country. He alleged that the Defendant had continued to be in-charge of the day to day activities of the 2nd Plaintiff which includes but no limited to conducting day operations of sourcing and marketing Macadamia nuts and managing the financial matters which means managing payments of suppliers and handing cash received from proceeds of sale or other business conducted by the 2nd Plaintiff. Through this business, the 2nd Plaintiff managed to accumulate considerable assets to be used in its core business and made profits. 3. That in order to ease the process of doing business for the 2nd Plaintiff, the 1st Plaintiff and Defendant opened a bank account at Standard Chartered Bank, Thika on 1st November, 2016, where all business proceeds were to be deposited on Account No.01024448022500. They also agreed to continuing with the Lease Agreement over premises situated in Thika Town, Godown HCCC NO.15 OF 2018 JUDGMENT - Page 2 of 10 A&D on Land Parcel N0.Thika Municipality Block 9/522 L.R No.4953/19988, which is where the factory is situated. 4. The 2nd Plaintiff secured lucrative business from Wu Huazhong and Dynasty Universal Limited and was in the process of finalizing a 20 years supply with an American Company namely Hayven Shield Limited, when the Defendant diverted business from Wu Hauzong to himself by diverting funds meant for the 2nd Plaintiff to his personal account at Equity Bank despite actual processing of the produce being conducted in 2nd Plaintiff’s premises. The client Dynasty Univeral Limited deposited cash deposit of Kshs. 4,034,578/= to the 2nd Plaintiff account for deliveries. The Defendant made withdrawals of the bulk money and such supply was never made. That the 1st Plaintiff is apprehensive that the 2nd Plaintiff is likely to be sued for breach of contract/agreement and or for obtaining by false pretence, hence put it in jeopardy. 5. The 1st Plaintiff and the Defendant agreed to make withdrawals of Kshs. 200,000/= each and Kshs. 261,000/= as rent for March, April and May, 2017. He stated that a further sum of Kshs. 24,000/= for security and sundry debts of Kshs. 175,000/=. The total sum withdrawn was Kshs. 860,000/= in the month of May, 2017 before the bulk withdrawal. And in June, 2017, a sum of Kshs. 250,000/= was paid for salaries and rent of Kshs. 87,000/= was withdrawn. 6. The Plaintiff alleged that all other withdrawals were made under directions of the Defendant and the 1st Plaintiff was advised that the withdrawals were meant to honour the order made by Dynasty Universal Limited. The Defendant directed the landlord to deny the 1st Plaintiff access of the HCCC NO.15 OF 2018 JUDGMENT - Page 3 of 10 premises where the business operates. At Paragraph 21 of the Plaint, the 1st Plaintiff pleaded fraud on the part of the Defendant including closure of the business without consent, diversion of business proceeds into his personal account, failing to account for the business proceeds, obtaining the 2nd Plaintiff’s property by deception and processing of the 2nd Plaintiff’s products as his own. 7. It is the 1st Plaintiff’s contention that it is imparable to obtain a resolution to bring their proceedings though the 2nd Plaintiff as the Defendant is a Director and has deliberately paralysed it. Further, that the 1st Plaintiff and Defendant , a joint inventory in the premises on 4th April, 2018 after the illegal closure of the business and it emerged that some crucial equipment, being a cracker vacuum packer, portable weighing scale, 6 grading tables, a computer and printer were missing and the Defendant could not account for them. And despite numerous meetings between the 1st Plaintiff and Defendant to resolve the issues, the Defendant has failed, neglected and or refused to make good the claim. 8. On 19th June, 2018 the Defendant entered appearance vide a Memorandum of Appearance dated 16th June, 2018. Further, on 19th September, 2022 the Defendant’s advocates, Tripple N. W & Co, Advocates filed a Notice of Appointment dated 19th September, 2022. 9. On 18th April, 2023, the 1st Plaintiff point out that the Defendant has never entered appearance and or filed a defence. Upon perusal of the court’s record, the court confirmed that eh Defendant had not filed a defence and on request by Plaintiff entered interlocutory Judgment against the Defendant for failure to file a defence within the specified period as provided for under HCCC NO.15 OF 2018 JUDGMENT - Page 4 of 10 Order 10 rule 10 of the Civil Procedure Rules pursuant to a request for Judgment dated 18th April, 2023 and the matter was set down for formal proof hearing on 25th September. 2023. Evidence 10.It was also confirmed by counsel for the 1st Plaintiff that they had already complied with Order 11 of the Civil Procedure Rules and the court then set the formal proof hearing for 25th September, 2023 when this matter came up for formal proof hearing, PW1-James Peter Mbiyu Wambui, the Plaintiff herein testified that the Defendant, Waweru Kuria, his a Co- director of Superior Merchants Processors Co. Ltd, the 2nd Plaintiff herein. He confirmed that he had recorded a witness statement dated 11th May 2018 which he asked the court to adopt as his evidence in chief. He also stated that he had filed a list of documents dated 11th May 2018 and sought the same to be adopted as Plaintiff exhibits 1-7 in support of their case. He asked the court to grant the prayers being sought in the Plaint. 11.At the close of the hearing, this court issued directions on filing of written submissions. The Plaintiffs’ submissions are dated 10th November, 2023 and were duly filed. Analysis and Determination 12.I have carefully considered the pleadings, the evidence by way of formal proof hearing and the Plaintiffs written submissions. I find the following issues relevant for determination; a) Whether the Plaintiffs have proved their case on a balance of probabilities? HCCC NO.15 OF 2018 JUDGMENT - Page 5 of 10 b) Whether the prayer for general damages has been proved? c) Whether the Plaintiffs are entitled to the reliefs sought. 13.This matter proceeded by way of formal proof hearing after the Defendant despite having been served with the Plaint and summons to enter appearance failed to file a defence as required by law. This court then proceeded to enter interlocutory judgment against the Defendant and on request by 1st Plaintiff this matter was listed for formal proof hearing. The 1st Plaintiff’s witness statement was adopted as his evidence in-chief and it remained unchallenged. The uncontroverted evidence establishes that the Defendant was a director and manager of the 2nd Plaintiff and therefore owed fiduciary duties to act in good faith and in the best interests of the Company. The diversion of Company funds into a personal account and failure to account for the same amounts to misappropriation, breach of trust, and breach of fiduciary duty. Order 2 rule 11 of the Civil Procedure Rules provides that; 1) Subject to subrule (4), any allegation of fact made by a party in his pleading shall be deemed to be admitted by the opposing party unless it is traversed by that party in his pleading or a joinder of issue under rule 10 operates as a denial of it. 2) A traverse may be made either by denial or by a statement of non- admission and either expressly or by necessary implication. 3) Subject to subrule (4), every allegation of fact made in a Plaint or counterclaim which the party on whom it is served does not intend to admit shall be specifically traversed by him in his defence or defence to counterclaim; and a general denial of such allegations, or a general statement of non-admission of them, shall not be a sufficient traverse of them. HCCC NO.15 OF 2018 JUDGMENT - Page 6 of 10 4) Any allegation that a party has suffered damage and any allegation as to the amount of damages shall be deemed to have been traversed unless specifically admitted. 14.From the evidence adduced, this Court is satisfied that the Plaintiffs have proved that the Defendant unlawfully diverted and misused the Company funds. The Defendant did not file a defence, witness statement or attend court to deny the claim by the Plaintiffs. In view of this, his failure to present evidence to rebut the Plaintiff’s claim, the same is deemed to have been admitted. This court finds that the Plaintiffs have proved their case on a balance of probability as against the Defendant. 15.On the issue of liability for Company Creditors in a case where one Director has diverted Company funds into his/her personal account, such Director(s) ought to be make personally liable for the debts/claims. Generally, a Company is separate legal person (See decision in the case of Salomon v Salomon[1897]). However, it is trite that the Court can lift the corporate veil and impose a personal liability where a director engages in fraud and misuse of Company funds. For a corporate veil to be pierced or lifted, there are several conditions to be met for the court to pierce the veil. These conditions were set out in Halbury’s Laws of England Vol. 7 Paragrapgh 9, as follows;- “90. Piecing the corporate veil notwithstanding the effect of a Company’s incorporation. In some cases the court will piece the corporate veil in order to enable it to do justice by treating a particular Company for purposes of litigation before it as identical with the person or persons who control that Company. This will be done not only where there is fraud or improper conduct but in all HCCC NO.15 OF 2018 JUDGMENT - Page 7 of 10 cases where the character of the Company or the nature of the person who control it is a relevant feature. In such a case, the court will go behind the mere status of the Company as a separate legal entity distinct from its shareholders or even agents directors and controlling the activities of the Company. However, where this is not the positon even though an individual’s connection with a Company may cause a transaction with that Company to be subjected to strict scrutiny the corporate veil will not be pierced.” 16.In the instant case, the Plaintiffs’ case is that the 2nd Plaintiff secured business from Wu Huazhong and Dynasty Universal Limited and was in the process of finalizing a 20 years supply with an American Company namely Hayven Shield Limited. The Defendant diverted business from Wu Hauzong to himself by diverting funds meant for the 2nd Plaintiff to his personal account at Equity Bank. The client Dynasty Univeral Limited deposited cash deposit of Kshs. 4,034,578/= to the 2nd Plaintiff account for deliveries. The Defendant made withdrawals of the money and supply was never made and the 1st Plaintiff is apprehensive that the 2nd Plaintiff is likely to be sued for breach of contract. 17.From the evidence adduced, it is clear that the Plaintiffs have proved their claim of fraud against or on the part of the Defendant to warrant lifting of the corporate veil to make him personally liable for the fraud and misuse of 2nd Plaintiff’s funds. 18.The Plaintiffs also seek mandatory injunctions compelling production of records and delivery of Company property. The evidence shows that such records and property are under the control of the Defendant, to which without HCCC NO.15 OF 2018 JUDGMENT - Page 8 of 10 a defence or any other evidence advanced, the prayers are found to be unchallenged and therefore merited. 19.On the issue of general damages, I find that the Plaintiffs did not provide a basis for assessment of such damages. The appropriate remedy in cases of misappropriation is restitution and accounting. This court finds no basis for granting general damages as the Plaintiffs have failed to quantify the loss the have suffered. The prayer for general damages therefore fails. 20.In the end, this Court finds that the Plaintiff have proved their case and are deserving of the reliefs sought. Accordingly, Judgment is hereby entered for the Plaintiffs against the Defendant in the following terms:- a) A declaration that all business transacted by the Defendant using diverted Company funds and all revenue generated therefrom belongs to the 2nd Plaintiff. b) A declaration that the Defendant’s diversion of the 2nd Plaintiff’s funds to his personal account was wrongful and unlawful. c) A mandatory injunction compelling the Defendant to produce and deliver to the Plaintiffs a true and accurate record of all financial affairs of the 2nd Plaintiff from the year 2016 to date. d) The Defendant shall account for and pay to the 2nd Plaintiff all sums found to have been misappropriated or not properly accounted for. HCCC NO.15 OF 2018 JUDGMENT - Page 9 of 10 e) A mandatory injunction compelling the Defendant to deliver to the 2nd Plaintiff all its property, assets, books, records, computers, printers and documents in his possession. f) A declaration that the Defendant is personally liable for debts arising from his unlawful diversion and misuse of the 2nd Plaintiff’s funds. g) The prayer for general damages is dismissed. h) The Plaintiffs shall have costs of the suit. It is so ordered. JUDGMENT DELIVERED VIRTUALLY, DATED AND SIGNED AT KIAMBU THIS 26 TH DAY OF MARCH , 2026. D. O. CHEPKWONY JUDGE In the presence of: M/S Omollo holding brief for Mr. Gachau counsel for Plaintiffs Court Assistant - Martin HCCC NO.15 OF 2018 JUDGMENT - Page 10 of 10