Case ID:167655

Peter Wekesa Fwamba (Derivatively on behalf of

Trans Nzoia Investment Co. Ltd) v Ronald Sawenja Walubengo & 6 others; Trans Nzoia

Investments Co Ltd (Affected Party) [2020] eKLR

Case Metadata

Case Number:

Environment and Land Case 74 of 2019

Parties:

Peter Wekesa Fwamba (Derivatively on behalf of Trans Nzoia Investment Co. Ltd) v Ronald Sawenja Walubengo, Paul Simiyu Wekesa, George Imbera Ludisa, Kalori Isoso, Mundebe Investment Co. Ltd, Vipul Ratilal Dodhia & Cherangani Investments Co. Ltd ; Trans Nzoia Investments Co Ltd (Affected Party)

Date Delivered:

01 Oct 2020

Case Class:

Civil

Court:

Environment and Land Court at Kitale

Case Action:

Ruling

Judge(s):

Francis Mwangi Njoroge

Citation:

Peter Wekesa Fwamba (Derivatively on behalf of

Trans Nzoia Investment Co. Ltd) v Ronald Sawenja Walubengo & 6 others; Trans Nzoia

Investments Co Ltd (Affected Party) [2020] eKLR

Court Division:

Environment and Land

County:

Trans Nzoia

Case Outcome:

Application allowed.

Disclaimer:

The information contained in the above segment is not part of the judicial opinion delivered by the Court. The metadata has been prepared by Kenya Law as a guide in understanding the subject of the judicial opinion. Kenya Law makes no warranties as to the comprehensiveness or accuracy of the information

REPUBLIC OF KENYA

IN THE ENVIRONMENT & LAND COURT AT KITALE

LAND CASE NO. 74 OF 2019

PETER WEKESA FWAMBA

(Derivatively on behalf of

TRANS NZOIA INVESTMENT CO. LTD)...................................PLAINTIFF

VERSUS

RONALD SAWENJA WALUBENGO...............................1

ST

DEFENDANT

PAUL SIMIYU WEKESA..................................................2

ND

DEFENDANT

GEORGE IMBERA LUDISA............................................3

RD

DEFENDANT

KALORI ISOSO.............................................................4

TH

DEFENDANT

MUNDEBE INVESTMENT CO. LTD................................5

TH

DEFENDANT

VIPUL RATILAL DODHIA..............................................6

TH

DEFENDANT

CHERANGANI INVESTMENTS CO. LTD

......................

7

TH

DEFENDANT

AND

TRANS NZOIA INVESTMENTS CO LTD.....................AFFECTED PARTY

RULING

1.

By a Plaint dated

17

th

December 2019

filed in court on

18

th

December 2019

, alongside a Notice of Motion of the even date, the Plaintiff herein sought for orders as stated in the plaint and/or application. In a nutshell, the plaintiff/applicant through the application dated

17/12/2019

is seeking leave to continue this suit as a derivative action on behalf of Trans-Nzoia Company Limited (The affected party). The said application is supported by an affidavit sworn by the Applicant.

2.

On

10/1/2020

, the 3

rd

and 4

th

Defendants/Respondents filed a replying affidavit sworn on

8/1/2020

which appears to support the application. They have indicated that they have no objection to the suit filed with the application being continued as they are interested to see that the dispute disclosed in the suit is heard and determined on merits.

3.

The 1

st

Respondent filed his response to the application on

15/1/2020

. His case is that the instant application seeks to abuse the court by calling upon the said court to sit and give orders as a criminal court; that no evidence has been tendered to show that the allegations made herein warrant the court to issue the orders sought; that any action that was taken by the management board including the 1

st

respondent was not only done procedurally but with the consent of all persons whose consent was needed; that the applicant herein is a minority shareholder and has no right to make the instant application.

4.

The 6

th

Respondent filed Replying Affidavit on

27/2/20202

in which he contended that the Plaintiff’s intended suit and the application offends the mandatory provisions of

Sections 4(1)(a) &7

of the

Limitation

of

Actions Act

and thus is time barred; that the suit also offends the mandatory provisions of

Section 7

of the

Civil Procedure Act

as it raises the same issues which were directly and substantially in contention with

Kakamega HCCC No. 20 of 1995

which was determined by courts of competent jurisdiction and ownership of the suit property was conclusively settled; that the application does not meet the threshold set out in

Section 238

of the

Companies Act

to merit the grant of permission to continue with the purported derivative claim.

5.

The 6

th

and 7

th

respondents filed grounds of opposition to the Plaintiff’s application which document is a replica of the Replying Affidavit sworn by the 6

th

Respondent.

6.

This court then directed that the matter proceed by way of written submissions which all the respective parties’ advocates subsequently filed and exchanged. I have considered the same.

ISSUES FOR DETERMINATION

7.

From the outline of the parties’ submissions, the following issues emerged for determination.

(a) Whether the

matters pleaded by the Plaintiff are Res judicata and offend the provisions of Section 6 and 7 of the Civil Procedure Act, having been directly and substantially in issue and determined in

Kakamega HCCC No. 20 of 1995.

(b) Whether the applicant has established a prima facie case sufficient to be given leave to bring a derivative suit?

(a) Whether the matters pleaded by the plaintiff are res judicata and offend the provisions of Section 6 and 7 of the Civil Procedure Act, having been directly and substantially in issue and determination in Kakamega HCCC No. 20 of 1995

8.

The doctrine of

res judicata

is provided for in our jurisprudence by dint of

Section 7 of the Civil Procedure Act

which provides as follows:

“No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court.”

9.

The Court of Appeal remarked as follows in the recent appeal decision in

Independent Electoral & Boundaries

Commission v Maina Kiai & 5 Others (2017) eKLR:

“The rule or doctrine of res judicata serves the salutary aim of bringing finality to litigation and affords parties closure and respite from the spectre of being vexed, haunted and hounded by issues and suits that have already been determined by a competent court. It is designed as a pragmatic and common-sensical protection against wastage of time and resources in an endless round of litigation at the behest of intrepid pleaders hoping, by a multiplicity of suits and fora, to obtain at last, outcomes favourable to themselves. Without it, there would be no end to litigation, and the judicial process would be rendered a noisome nuisance and brought to disrepute and calumny. The foundations of res judicata thus rest in the public interest for swift, sure and certain justice.”

10.

The provisions in

Section 7

of the

Civil Procedure Act

were also restated in the case of

Bernard Mugo Ndegwa -v- James Nderitu Githae and 2 others [2010] eKLR

where in summary the Court held that the applicant alleging

res judicata

, must show that:

(a) The matter in issue is identical in both suits,

(b) That the parties in the suit are substantially the same.

(c) There is a concurrence of jurisdiction of the court

(d) That the subject matter is the same and finally,

(e) That there is a final determination as far as the previous decision is concerned.

11.

I have carefully perused the case referred to by the 6

th

Defendant/Respondent that is

Kakamega HCC No. 20 of 1995

, and I do not think that the issue of

res judicata

should arise in the instant suit since it has not been demonstrated that the matter has been adjudicated to its conclusion and the issue(s) in dispute finally determined.

12.

Accordingly, I decline to declare this suit is

res judicata

as was alleged by the 6

th

Defendant.

(b)

Whether the applicant has established a prima facie case sufficient to be given leave to bring a derivative suit

?

13. Section 238

of the

Companies Act, No. 15 of 2017

defines a “

derivative claim

” in

Part XI

in the following manner-

“(1) In this part, “derivative claim” means proceedings by a member of the Company-

(a) In respect of a cause of action vested in the Company; and

(b) Seeking relief on behalf of the company.

(2) A derivative claim may be brought only-

(a) Under this part; or

(b) In accordance with an order of the court in proceedings for protection of members against unfair prejudice brought under this Act.

(3) A derivative claim under this Part may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the Company.

(4) A derivative claim may be brought against the director or another person, or both.”

14.

In summary, the provisions of

Section 248

of the

Companies Act

are to the effect that a derivative suit can be brought by a member of the company and the cause of action must be vested in a company and for the benefit of a company when there are issues of negligence, default, breach of duty or breach of trust through commission or omission.

15.

The plaintiff in the Plaint he filed on

18/12/2019

at

paragraph 1

states that he is a minority shareholder in the affected company and he goes ahead at

paragraphs 5

to

20

of the same plaint to show the relationship between himself, the defendants and the affected party.

16.

The 3

rd

and 4

th

Defendants in their replying affidavit filed in court on

19/1/2020

have indicated that they have been sued as directors of the affected party and that they have no objection to the application filed by the applicant. In fact, they contend that they are interested to see that the dispute disclosed in the suit is heard and determined on merits.

17.

In

Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another (2017) eKLR

where the court held that:-

“A derivative action is a mechanism which allows shareholders to litigate on behalf of the corporation often against an insider (whether a director, majority shareholder or other officer) or a third party, whose action has allegedly injured the corporation. The action was designed as a tool of accountability to ensure that redress was obtained against all wrongdoers, in the form of a representative suit filed by a shareholder on behalf of the corporation.”

18

. It was further held in the same decision cited above that:

“44. Statutory procedure is now the exclusive method of pursuing derivative claims. The Act sets out what sorts of company claims may be pursued and is also explicit that derivative claims may only be pursued under the Act. The question must only be the factors the court ought to consider before approving a derivative claim.

45. There appears, in my view, to exist a two stage process. The court must first satisfy itself that there is a prima facie case on any of the causes of action noted under S. 238(3). S.239(2) of the Act provides that the application for permission will be dismissed if the evidence adduced in support “do not disclose a case” for giving of permission. The essence of judicial approval under the Act is to screen out frivolous claims. The court is only to allow meritorious claims. All that the applicant needs to establish, through evidence, is a prima facie case without the need to show that it will succeed

46. The second stage entails a consideration of statutory provisions and factors which ordinarily guide judicial discretion albeit in the realm of derivative action.

47. I must point out that the exercise of discretion in the circumstances would be more than adjudication, in view of the rather clear provisions of Part XI of the Act. I also observe that it is not feasible for the legislature to draw an exhaustive list of factors to be considered in the exercise of judicial discretion. In these respects, there must be something new through statute, something old through factors which guided common law exceptions to the rule in Foss v Harbottle and something borrowed from various decisions in the United Kingdom which have interpreted and applied the Companies Act 2006 (UK) especially ss. 260-264 which are pari materia ss. 238-242 of the Act, 2015.

48. The statutory provisions to be met include the requirement under s. 238(3) of the Companies Act that the derivative action be commenced only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty, breach of trust by a director of the company. It is also necessary to establish that the claimant is a member of the company.”

19. Upon carefully considering the issues, the application before me and the substantive suit and being persuaded by the above decision, I am satisfied that the applicant has established a

prima facie

case sufficient to be granted leave to bring a derivative suit.

20. The notice of Motion dated

17

th

December 2019

is therefore granted in terms of

prayer No. (2).

Further the plaint filed herein shall be served upon the defendants within

15 days

for them to file their response in accordance with the

Civil Procedure Rules

. The costs of this application shall be in the cause. Parties shall fully comply with the rules within

30 days

. This matter shall be mentioned on

2/11/2020

to ascertain compliance by the parties and to issue a hearing date for the main suit.

Dated, signed and delivered at Kitale via electronic mail on this 1

st

day of October, 2020.

MWANGI NJOROGE

JUDGE, ELC, KITALE.