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Case Brief · caselaw.co.ke
Court of AppealPartially AllowedCivil Appeal No. 146 of 2016

Shadrack Obuya Mukanda v Jason Mogaka Otiso [2019] KECA 272 (KLR)

Court of Appeal
25 October 2019
714 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal confirmed that employees with claims against a company must sue the company, not its directors personally.

What this practically means

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Executive summary

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The Court of Appeal allowed the appellant's appeal against the judgment of the Employment and Labour Relations Court (Mbaru, J) of 7th April 2016, which had found that the appellant unprocedurally terminated the employment of the respondent, a security guard who claimed he was employed in February 2013 at a monthly salary of Kshs 6,000 and resigned in June 2014 without receiving terminal benefits. The appellant's sole ground on appeal was that the trial court failed to find that he and Security Coordinates Services Limited are separate and distinct legal persons, the company having been registered as a limited liability company on 16th April 2008. Relying on the classic principle in Salomon v Salomon & Co Ltd, the Court held that an incorporated company is a separate and distinct legal entity from its directors and subscribers, and that a director cannot be sued personally for the acts or omissions of the company, which has its own legal status. The Court found it improper for the respondent to pursue one of the company's directors and held that the trial court failed to appreciate the correct position of the law. The appeal was allowed, the judgment and decree of the ELRC were set aside, and the respondent's suit was dismissed with costs to the appellant in the appeal and in both lower courts. The judgment was delivered at Nairobi on 25th October 2019 by Waki, Warsame and Sichale, JJA, as a single judgment of the court.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether a director of a limited liability company can be personally sued for the acts and omissions of the company given the doctrine of separate legal personality

Key legal issues

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01

Separate legal personality of an incorporated company

Holding

The appellant, being a director, was distinct and separate from Security Coordinates Services Ltd, which was incorporated on 16th April 2008; the respondent's claim should have been brought against the company, not one of its directors

Reasoning

Applying the Salomon principle, the court held that upon incorporation the company acquired its own legal status separate from its subscribers and directors. The respondent named the appellant as trading as Security Coordinates Services, but the company had transcended to a limited liability company before the employment relationship, so the director was not the proper defendant. The trial court erred in failing to appreciate this.

p. 2

Legal principles established

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  • A limited liability company is a separate and distinct legal entity from its directors, and a director cannot be sued personally for the acts or omissions of the company

Court orders

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  1. 1.Appeal allowed
  2. 2.Judgment and decree of the Employment and Labour Relations Court dated 7th April 2016 set aside
  3. 3.Respondent's suit in Employment and Labour Relations Cause No. 342 of 2015 dismissed
  4. 4.Costs of the appeal and of the two lower courts awarded to the appellant

The bench

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One judgment of the whole court — no separate or dissenting opinions.

majority
Mohamed Abdulahi Warsame
M. WarsameJA
Currently serving
majority
majority
On appeal from
Employment and Labour Relations Court
E&LRC Cause No. 342 of 2015
Jurisdiction invoked
First appeal to the Court of Appeal from the Employment and Labour Relations Court (statutory appeal)

Relief refused

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Respondent's claim for terminal benefits against the appellant personally

The company, Security Coordinates Services Ltd, is a separate legal entity from its director; the respondent should not have sued one of its directors

p. 2

Costs

Costs of the appeal and of both lower courts awarded to the appellant

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

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.
p. 2Final orders - appeal allowed and decree below set aside
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.
p. 2Directors not personally liable for company obligations
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
p. 2Salomon principle of separate corporate personality

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Shadrack Obuya Mukanda v Jason Mogaka Otiso [2019] KECA 272 (KLR)", Case Analysis (2019). Civil Appeal No. 146 of 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/272/eng@2019-10-25

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.