REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA
AT NAKURU

Civil Case 143 of 2006

NAKURU WATER & SANITATION SERVICES CO. LTD.…PLAINTIFF

VERSUS

MIKE OLUOCH & 12 OTHERS……………....................…DEFENDANTS

RULING

    This is an application by the plaintiff made under Order XXXIX rule 1 & 2 of the Civil
Procedure Rules seeking to restrain the defendants herein by themselves, their agents or
representatives by means of an interlocutory injunction from disrupting, evicting or in any
other way interfering with the activities of the plaintiff’s company pending the hearing and
determination of the suit. The grounds in support of the application are stated on the face of
the application which is basically that the defendants had threatened to disrupt the plaintiff
from performing its functions if the plaintiff did not abide and implement a Collective
Bargain Agreement (CBA) which had been entered between the 13th defendant and the
Association of the Local Government Employers. The plaintiff’s complaint is that it is being
forced to implement a CBA which it was not party to. The application is supported by the
annexed affidavit of Jason O. Ongeri, the managing director of the plaintiff.

    The application is opposed. The defendants have filed a notice of preliminary objection
and a replying affidavit sworn by the 2nd defendant Joel Ogola Otiende, the Nakuru Branch
Union Secretary of the 13th defendant. In the preliminary objection, the defendants content
that the plaintiff’s suit was incompetent because it had been filed on behalf of a company
before a resolution had been passed by the directors of the company. They further stated that
the suit was res judicata because it raised issues which were heard and determined by the
Industrial Court. In the replying affidavit, the 2nd defendant swore that the plaintiff was a
wholly on subsidiary of the Nakuru Municipal Council which was a signatory to the CBA and
whose employees were transferred to the plaintiff’s company when it was formed in the year
2002. In paragraph 7 of the said replying affidavit, the 2nd defendant swore that;

“Pursuant to the Articles and Memorandum of Association of the applicant (plaintiff) the
applicant is an affiliate body to the Local Authorities and was created to provide special
services of water and sanitation to the Local Counties. Allegation that it is a distinct and
independent entity are misleading and or non-disclosure of material facts (annexed and
marked ‘LKM 2’ is a copy of the Memorandum of Associates (sic)).”

   In effect it is the defendant’s case that the fact that the plaintiff is a wholly owned subsidiary
of the Municipal Council of Nakuru, then it is bound by the CBA that was entered between
the Municipal Council of Nakuru and the 13th defendant, the union representing the
employees working for the Municipal Council of Nakuru.

   At the hearing of the application, I heard the submission made by Mr. Akang’o on behalf of
the plaintiff and by Mr. Mbuvi on behalf of the defendants. Mr. Akang’o reiterated the
contents of the application and the supporting affidavit. He submitted that the plaintiff was
incorporated in the year 2002 as a wholly owned subsidiary of the Municipal Council of
Nakuru pursuant to the amendments which were made to the Local Government Act and the
Water Act. He submitted that the effect of incorporation of the plaintiff meant that the
plaintiff became an independent entity from its share holder, the Municipal Council of
Nakuru. He submitted that CBA which the defendants were seeking to have the plaintiff
implement was an agreement which was entered between the 13th defendant and the
Municipal Council of Nakuru. The plaintiff was not a party to the said CBA. He submitted
that as a separate entity from the Municipal Council of Nakuru, the plaintiff would not be
forced in law to implement a CBA which it never participated during its negotiation and its
signing. Mr. Akang’o argued that the decision of the industrial court which the defendants
were referring to did not bind this court nor was the plaintiff a party to the said proceedings
before the industrial court. The plaintiff referred this court to several decided cases in support
of its case. Mr. Akang’o further submitted that for the above reasons, the plaintiff had
established a prima facie case with a likelihood of success and therefore it should be granted
the orders of injunction sought with costs.

Mr. Mbuvi, learned counsel for the defendants opposed the application. He reiterated the
contents of the notice of preliminary objection and the replying affidavit sworn by the 2nd
defendant. He submitted that the plaintiff’s suit was incurably defective because the plaintiff
had filed the suit before a resolution by the directors of the plaintiff had been passed
authorizing the suit to be filed. He further submitted that nothing had been placed before this
court by the plaintiff to support the allegation that the defendant had violently disrupted the
activities of the plaintiff. He submitted that the plaintiff had not proved that a report had been
made to the police of the said alleged acts of violence by the defendants. He argued that the
CBA which was entered between the Municipal Council of Nakuru and the 13th defendant
bound the plaintiff as a wholly owned subsidiary or affiliate of the said Municipal Council of
Nakuru. He submitted that the Industrial Court had heard the matters which the plaintiff was
seeking to canvass before this court and determined it in favour of the 13th defendant. He
further submitted that the plaintiff had not placed before this court materials which would
make this court reach a finding that the plaintiff had established a prima facie case. He
argued that the affidavit evidence that the plaintiff was relying on swore to facts which were
inconsistent and contrary to the plaintiff’s own pleadings. He further argued that the plaintiff
had brought the case before this court on purely matters which the industrial court has
exclusive jurisdiction to hear and determine. He urged this court to dismiss the plaintiff’s
application with costs.

I have read the pleadings filed by the parties in this suit in support of their respective cases. I
have further carefully considered the rival submissions made before me including the decided
cases which were referred to me. The issue for determination by this court is whether the
plaintiff has established a case to enable this court grant it the orders of injunction sought. The
principles to be considered by this court in deciding whether or not to grant the order of
interlocutory injunction sought by the plaintiff are well settled. The plaintiff must establish
that it has a prima facie case with a likelihood of success when the case would finally be
heard on merits. The plaintiff must also establish that it would suffer irreparable loss or
damage which may not likely be compensated by an award of damages. And finally, if the
court is in doubt, it may decide the application on a balance of convenience (See Giella vs
Cassman Brown [1973] EA 358).

The issue in dispute in this application is whether the plaintiff is bound by the CBA which
was entered between the association representing the Municipal Council of Nakuru and the
13th defendant, a union representing the majority of the employees of the Municipal Council
of Nakuru. It is not disputed that the Municipal Council of Nakuru incorporated the plaintiff
for the purposes of providing water and sanitation services to the residents within the
jurisdiction of the Municipal Council of Nakuru. It is further not disputed that the plaintiff is
a wholly owned subsidiary or affiliate (as referred to by the defendants). The plaintiff’s
company was incorporated in the year 2002 and upon incorporation took over the functions of
providing water and sanitation services from the Municipal Council of Nakuru. The
employees who used to work in the water and sewerage departments of the Municipal Council
of Nakuru were absorbed by the plaintiff. However from the pleadings filed by the parties
herein, it is apparent that the workers who joined the plaintiff company were still members of
the 13th defendant. When the CBA was entered into between the Association of Local
Government Employers and the 13th defendant and which was supposed to come into effect
on 1st of September, 2005, the employees of the plaintiff who were members of the 13th
defendant assumed that the said implementation of the CBA who also apply to them.

The plaintiff company is however of the contrary view. It has submitted before court that it is
an independent entity separate from its one and only shareholder, the Municipal Council of
Nakuru. It is the plaintiff’s cases that it was neither consulted nor did it participate in the
negotiations that led to the signing of the said CBA between the representative of the
Municipal Council of Nakuru and the 13th defendant. The plaintiff further argued that it was a
member of the Association of Local Government Employers. On the other hand, the
defendants are of the firm opinion that the plaintiff being an ‘affiliate’ of the Municipal
Council of Nakuru, ought to implement the said CBA signed on its behalf by the said
Municipal Council of Nakuru.

Having carefully evaluated the matters in dispute in this application, the issue that would
determine this case is whether the plaintiff is a party to the CBA which was entered between
the Association representing the Municipal Council of Nakuru and the 13th defendant. I have
perused the said CBA. It is clear that when the said agreement was signed on the 24th of
November, 2005 between the association representing Local Governments and the 13th
defendant, it was mistakenly stated that the CBA would apply to employees of Local
Authorities and the water companies established by the Local Authorities. It was however
realized later that the water companies ought not to have been included because they were
independent entities. By a letter written on the 6th of March, 2006 by the said association, the
association requested for the CBA to be amended to exclude the water companies from the
said agreement. Although the 13th defendant was not amused by the turn of events, the
Permanent Secretary, Ministry of Local Government by his letter dated the 5th of May, 2006
directed that the employees of the water companies incorporated by the various local
authorities be excluded from the said CBA. It is therefore clear that the employees of the
plaintiff, being no longer employees of the Municipal Council of Nakuru, cannot be
beneficiaries of the CBA entered between the 13th defendant and the Municipal Council of
Nakuru.

Being an independent entity, the 13th defendant ought to first apply to be recognized as a
union representing the employees of the plaintiff then it can enter into a CBA with the
plaintiff at an appropriate time. I do not subscribe to the argument made by the defendants
that the plaintiff is an extension of the Municipal Council of Nakuru, its only shareholder. As
was held by the Privy Council in the New Zealand case of Lee vs Lee’s Air Farming Ltd
[1960] 3 All ER 420 where the Privy Council was asked to determine whether a director of a
company who was its majority shareholder could enter into an agreement with the said
company, Lord Morris of Borth-y-Gest, reading the judgment of the court stated at page 425
that
“Their Lordships find it impossible to resist the conclusion that the active aerial operations
were performed because the deceased was in some contractual relationship with the
respondent company. That relationship came about because the deceased, as one legal
person, was willing to work for and to make a contract with the respondent company which
was another legal entity. A contractual relationship could only exist on the basis that there
was consensus between two contracting parties. It was never suggested (nor, in their
Lordships’ view, could it reasonably have been suggested) that the respondent company
was a sham or a mere simulacrum. It is well established that the mere fact that some one is
a director of a company is no impediment to his entering into a contract to serve the
company. If, then, it be accepted that the respondent company was a legal entity, their
Lordships see no reason to challenge the validity of any contractual obligations which were
created between the respondent company and the deceased. In this connexion, reference
may be made to a passage in the speech of Lord Halsbury L.C in Salomon vs Salomon &
Co. (4):
 ‘My Lords, the learned judges appear to me not to have been absolutely certain in their own
minds whether to treat the company as a real thing or not. If it was a real thing; if it had a
legal existence, and if consequently the law attributed to it certain rights and liabilities in its
constitution as a company, it appears to me to follow as a consequence that it is impossible to
deny the validity of the transactions into which it has entered.’

A similar approach was evidenced in the speech of Lord Macnaghten when he said (5):
‘It has become the fashion to call companies of this class ‘One man companies’. That is a
taking nickname, but it does not help one match in the way of argument. If it is intended t
convey the meaning that a company which is under the absolute control of one person if not a
company legally incorporated, although the requirements of the [companies] Act of 1862 may
have been complied with, it is inaccurate and misleading: if it merely means that there is a
predominant partner possessing an overwhelming influence and entitled practically to the
whole of the profits, there is nothing in that that I can see contrary to the true intention of the
Act of 1862, or against public policy, or detrimental to the interest of creditors.’

Nor, in their Lordships’ view, were any contractual obligations invalidated by the
circumstance that the deceased was sole governing director in whom was vested the full
government and control of the respondent company.”

In the present application, it cannot be said that the plaintiff, as wholly owned subsidiary of
the Municipal Council of Nakuru, is part and parcel of Municipal Council of Nakuru and
therefore bound by an agreement entered between the Municipal Council of Nakuru in its
capacity as such, and with another legal entity. I therefore hold that the plaintiff, having been
excluded from the negotiations leading to the CBA between the 13th defendant and the
Association representing the Municipal Council of Nakuru, cannot be bound by the resultant
CBA. I therefore hold that the plaintiff has established a prima facie case with the likelihood
of success.

As to the complaint by the defendants that the plaintiff had not annexed a resolution by its
directors granting it permission to file suit against the defendants, I think the correct position
of the law is that such resolution is required to be filed by the company in the suit anytime
before the suit is heard during the main hearing. As to whether the decision by the Industrial
Court referred to by the defendants renders the plaintiff’s suit res judicata, I hold that said
proceedings before the Industrial Court cannot be said to be proceedings before a High Court
and therefore lead to the High Court to reach a determination that a case is res judicata. In
any event, having perused the said proceedings, it is clear that the plaintiff was not a party to
the said suit before the Industrial Tribunal. The said tribunal has not rendered any decision in
favour of the 13th defendant against the plaintiff. I further hold that the issues that were
canvassed before this court in this application were not matters that are within the purview of
the Industrial Court. This court is not being called upon to determine a labour dispute; rather
it is being asked to determine whether or not an agreement existed between the plaintiff and
the defendants.

The upshot of the above reasons is that the application filed by the plaintiff dated the 10th of
July, 2006 is hereby allowed. The defendants, jointly and severally, by themselves, their
agents and or representatives are hereby restrained by means of an interlocutory injunction
from disrupting, evicting or in any way interfering with the discharge of the mandate
conferred on the plaintiff pending the hearing and determination of the suit filed. The
plaintiff shall have the costs of the application.

DATED at NAKURU this 24th day of November, 2006

L. KIMARU

JUDGE