1.The Plaintiff/Respondent herein, who describes himself a tea farmer and a member/shareholder of Tombe Tea Factory Ltd filed the Plaint dated 3rd February 2022 seeking a raft of orders including a declaration that the firm of JM Onyancha and Associates was illegally in office after it had been ousted through a Resolution of the members at the Annual General Meeting held on 8th November 2021 where the firm of BP Ombuki and Associates was appointed as auditors.
2.Before the matter could be set down for hearing, the Plaintiff filed an Application dated 3rd February 2022 seeking several orders including orders for a temporary injunction to restrain the defendants from allowing or contracting anyone as auditors and from dealing with the firm of JM Onyancha and Associates. The Plaintiff also sought orders for disciplinary action to be taken against the firm of JM Onyancha and Associates by ICPAK and that the officials of the company be fined for contravening the Resolution of the Shareholders.
3.In a Ruling dated 7th July 2022, Ochieng J. (as he then was) dismissed the said Application on the grounds that the proceedings constituted a derivative suit and had not been sanctioned by leave of the Court.
4.When the matter came up for mention to confirm compliance with Order 11, Counsel for the Defendants informed the Court that they were yet to be served with an Application to continue with the suit as a derivative suit. This position formed the basis of the Preliminary Objection (PO) that is the subject of this ruling.
The Applicants’ Submissions
7.The Defendants submitted on two main issues, namely; whether the suit is competent as filed and whether the court has jurisdiction to entertain the suit.
8.It was submitted that the suit was incompetent as the Plaintiff did not attach any share certificate confirming that he was a shareholder or a farmer and did not attach the list of the farmers that he purported to represent. The Defendants argued that there was no proof that the farmers in this suit had consented to the filing of the suit and that failure to obtain such consent made the suit incompetent ab initio. According to the Defendants, it was also not clear if the suit was meant to be a representative suit or a derivative suit.
9.The Defendants argued that the Plaintiff ought to have complied with Order 1, Rule 8 of the Civil Procedure Rules which requires notice to be issued to all those affected by the suit if he meant it to be a representative suit, he. It was also submitted that Section 780 of the Companies Act required the Plaintiff to prove that he was a member of the company or a shareholder, which he did not do.
10.It was the Defendant’s case that even if the Plaintiff was a shareholder, he ought to have applied for leave of the court to proceed with the suit as a derivative suit. He cited the case of Wilmot Mwadilo, Edwin Mwakaya, Amos Nyatta & Patrick Mbinga vs. Eliud Timothy Mwamunga & Sagalla Ranchers Ltd (2017) eKLR where the court set out the requirements for a derivative suit and Tatu City Ltd & 3 Others vs. Stephen Jennings & 6 Others (2015) eKLR where Ogola J held that the remedy in a derivative action was not available to non-shareholders in a company.
11.It was submitted that the Plaintiff did not demonstrate that he was seeking reliefs on behalf of the company or protecting the other members against unfair prejudice by the acts of the directors and neither did he demonstrate that he was a member of the firm of BP Ombuki & Associates so as to seek orders on their behalf. The Defendant maintained that the proper plaintiff in any proceedings in respect of a wrong done to the company was the company itself as stated by Jenkins L.J. in Edwards vs. Halliwell (1950) All ER 1064 and as reiterated by the Court of Appeal in Amin Akberalis Manji & 2 Others vs. Altaf Abdulrasul Dadani & Another (2015) eKLR. It was argued that the Plaintiff did not institute this suit within the exception of the rule in Foss vs. Habottle.
12.On jurisdiction, the Defendants submitted that the issues raised in the Plaint related to a dispute between the outgoing and incoming auditors and should have been raised before ICPAK for consideration by its Disciplinary Committee under Section 32 of the Accountants Act before being brought to the High Court, which could only sit on appeal in such matters. It was submitted that because the Plaintiff had not exhausted the Dispute Resolution Mechanism under the Accountants Act, the High Court lacked jurisdiction to entertain the suit.
13.The main issue for determination is whether the PO is merited. What constitutes a PO was discussed in the locus classicus case of Mukisa Biscuits Manufacturing Ltd vs. West End Distributors (1969) EA 696 where it was held: -
14.In the same case Sir Charles Newbold, P. stated: -
15.From the pleadings filed before this Court, it is evident that the Respondent instituted this suit on his own behalf as a shareholder of Tombe Tea Factory Company Ltd and on behalf of other shareholders. It is averred that the Respondent should have made an Application seeking leave of the Court to commence or to continue with the suit as a derivative action.
16.A company is considered a separate entity from its members and is a legal person. Thus, if it is wronged or commits a wrong, it can seek its own remedy or be sued. In Moir vs. Wallersteiner (1975)1 ALL ER 849 at p. 857. Lord Denning held: -
17.Thus, a shareholder can institute legal proceedings on behalf of a company through a derivative action. The legal framework for a derivative suit is premised on Sections 238 and 242 of the Companies Act. Section 238 stipulates as follows: -1.In this Part, "derivative claim" means proceedings by a member of a company—a.in respect of a cause of action vested in the company; andb.seeking relief on behalf of the company.2.A derivative claim may be brought only—a.under this Part; orb.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.5.It is immaterial whether the cause of action arose before or after the person seeking to bring or continue the derivative claim became a member of the company.6.For the purposes of this Part—a."director" includes a former director;b.a reference to a member of a company includes a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law.
18.It is trite that before a member/shareholder can bring an action under a derivative suit, such a party must first seek the leave of the court or may in other instances, seek leave to continue with the suit as a derivative action where he has already instituted proceedings on behalf of the company. The Court of Appeal provided guidance on this issue in the case of Amin Akberali Manji & 2 Others vs. Altaf Abdulrasul Dadani & Another  eKLR as follows:-
19.Similarly, in Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another  eKLR Onguto J. explained the principles in a derivative suit thus:-
20.In the present case, I note that the Respondent/Plaintiff did not obtain leave of the Court before instituting this claim on behalf of the company. It is noteworthy that the Respondent/Plaintiff did not comply with the requirements under section 238 of the Companies Act despite the Ruling of 7th July 2022 requiring him to seek leave of the Court to proceed with the suit at hand. Furthermore, the Plaintiff did not demonstrate to this Court that he sought and obtained the consent of the other shareholders to institute the present suit.
21.I have also considered the Applicants’ argument on the issues raised concerning the accountants actions, which, to my mind, fall under the ambit of professional misconduct as outlined in Section 30 of the Accountants Act No. 15 of 2008. The same legislation provides for a disciplinary mechanism that must first be explored under Sections 31-32 thereof before any matter is referred to the High Court on appeal under Section 34 of the said Act.
22.From the above foregoing, it is clear that the High Court lacks original jurisdiction to determine any matters relating to professional misconduct because there is already in place a body mandated with that authority under the Accountants’ Act. It is trite that jurisdiction is everything. In Owners of the Motor Vessel “Lillian S” vs. Caltex Oil (Kenya) Ltd. (1989) it was held: -
23.In the premises, I find that this Court lacks jurisdiction to hear and determine matters relating to the professional misconduct of the incoming and outgoing accountants of Tombe Tea Factory Ltd.
24.I further find that since the issues raised in this Application are purely on points of law, I will steer clear from delving into any other substantive issues in these proceedings. The proceedings before me are improper and it is my finding that the Preliminary Objection has merit. The effect of upholding a Preliminary Objection is to summarily dispose of an entire case. Such an eventuality seems to be draconian and this Court must exercise caution and only reach that conclusion as a last resort.
25.I have perused the Record and noted that the Plaintiff/Respondent was last seen in Court on 22nd March 2022 and has never made any further steps to pursue the case even after the Ruling of 7th July 2022. It is probable that he has lost interest in pursuing the cause.
26.In the premises, I hereby allow the Preliminary Objection dated 20th February. Civil Suit No. 001 of 2022 is hereby struck out with costs to the Defendant.Orders accordingly.