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ELRCAllowedPetition dated 14th July, 2023

Siele v County Secretary, Kericho County & 3 others (Petition E05 of 2023) [2024] KEELRC 1608 (KLR)

Employment and Labour Relations Court
27 June 2024
4,091 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~16 min to read original · ~4 min brief

The bottom line

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Kenya's Employment Court ruled that a company's majority shareholder cannot remove or suspend a CEO through a general meeting—only the board of directors can make such decisions.

What this practically means

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Executive summary

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The Petitioner, Managing Director and CEO of Kericho Water and Sanitation Company Ltd (KEWASCO), employed by the Board of Directors on a five-year contract from 26/6/2020, petitioned the Court to stop the 1st, 2nd and 3rd Respondents - representatives of the County Government of Kericho, the 99.99% majority shareholder - from interfering with his employment through a general meeting rather than a resolution of the board of directors. He alleged the Respondents sought to send him on administrative leave and replace him with their preferred candidate, in violation of his rights to fair labour practices, fair administrative action and fair hearing under Articles 27, 41, 47 and 50 of the Constitution. The Respondents, through a replying affidavit of Dr. Wesley K. Bor, argued the petition was premature, sub judice before the High Court at Kericho, and an abuse of process; that the County Government, obligated by Senate, WASREB and EACC recommendations and section 106(1) of the Water Act, had lawfully requisitioned a Special General Meeting under section 139(2) of the Companies Act and Article 42 of the Articles of Association to have the petitioner step aside for 90 days pending investigations. They urged that courts do not interfere in internal company affairs absent fraud, relying on Paolo Murri and Samuel Gutu Macharia. The Court held that while the majority shareholder may call meetings and give direction, employment, discipline and dismissal of staff are matters for the Board of Directors, and the 1st Respondent attempted to usurp the Board's powers. The petition was allowed with declarations that the Respondents' actions were unlawful, unprocedural and unconstitutional, a restraining order against the Respondents, and costs to the Petitioner.

Questions the Court framed

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

  1. 1.whether the 1st, 2nd and 3rd Respondents as representatives of the County Government of Kericho have any powers in the running of the affairs of KEWASCO
  2. 2.whether the 1st, 2nd and 3rd Respondents are justified in calling for a special general meeting to send the petitioner on administrative leave
  3. 3.whether any rights of the petitioner have been violated
  4. 4.whether this Court can/should interfere in the internal affairs of KEWASCO
  5. 5.who should bear costs of the Petition

Key legal issues

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01

Whether shareholders, as majority owners, may interfere directly with a CEO's employment through a general meeting

Holding

They may not; employment decisions rest with the board of directors, and attempting removal or suspension of the MD via a general meeting is unlawful, unprocedural and unfair.

Reasoning

The petitioner was employed by the Board of Directors of KEWASCO on a five-year contract. Any disciplinary process for non-performance must be instituted by the Board. While the majority shareholder may call meetings and give directions, these must be channelled through the Board, which runs the company day to day. The 1st Respondent attempted to usurp the Board's powers.

p. 8
02

Whether the respondents' conduct violated the petitioner's constitutional rights

Holding

Yes - sending the petitioner on administrative leave and appointing an Ag. MD through a general meeting breached fair administrative procedure and the rights to fair hearing and fair labour practices.

Reasoning

The court found the respondents acted in breach of fair administrative procedure in sending the petitioner on administrative leave through a general meeting rather than through a board resolution, contrary to Articles 27, 41, 47 and 50 of the Constitution, and held the intended action must not be allowed to proceed.

p. 8
03

Whether the court should refrain from interfering in a company's internal affairs

Holding

The court declined to adopt the non-intervention rule as a bar here, finding the petition merited because the respondents' conduct was unfair and illegal.

Reasoning

Respondents relied on authorities that courts do not interfere with internal company management absent fraud or ultra vires. The court acknowledged the majority shareholder's right to call meetings and give direction, but held that exercise of those rights must be through the Board of Directors, and found the petition had merit.

p. 8

Legal principles established

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  • Shareholders exercise their rights through general meetings, but the day-to-day running of a company, including employment, discipline and dismissal of staff, is the preserve of the board of directors.

Court orders

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  1. 1.A declaration that the 1st, 2nd and 3rd Respondents as representatives of the shareholder have no direct powers to interfere with the employment of the petitioner and that the intention to replace the petitioner as managing director via a general meeting and not a resolution of the board of directors is unlawful, unprocedural and unfair and a violation of the Petitioner's rights under Articles 27(1) & (2), 41(1), 50 and 47 of the Constitution
  2. 2.An order restraining the 1st, 2nd and 3rd Respondents from interfering with the employment of the petitioner through a general meeting of the company or any other way other than through the board of directors
  3. 3.The Respondents to pay costs of the Petition

The bench

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

majority

Wrote the judgment

Jurisdiction invoked
Articles 27(1) & (2), 41(1), 47, 50 of the Constitution of Kenya (fair labour practices, fair administrative action, fair hearing)

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.

A declaration that the 1st ,2nd and 3rd Respondents as representative of the shareholder have no direct powers to interfere with the employment of the petitioner and the intention to replace the petitioner as the managing director of the water company via a general meeting and not a resolution of the board of directors is unlawful, unprocedural and unfair and a violation of the Petitioner's right to fair labour practices, right to fair administrative action, right to fair hearing under Article 27(1) &(2), 41(1), 50 and 47 of the Constitution of Kenya.
p. 8final orders - declaration
An order restraining the 1st, 2nd and 3rd Respondents from interfering with the employment of the petitioner through a general meeting of the company or any other way other than through the board of directors.
p. 2final orders - restraining order
The Respondent will pay costs of this Petition.
p. 8final orders - costs
It is however evident that the 1st Respondent though a shareholder of the water company attempted to usurp the powers of the board by calling a special general meeting to remove the Petitioner as Managing Director of 4th Respondent.
p. 8shareholder powers vs board powers

Issues in the judgment

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minor

Judgment refers to 'Articles 417 and 47 of the Kenya Constitution' in the pleadings summary, an apparent typographical error for Articles 41 and 47.

minor

Respondents assert the petition is sub judice before the High Court at Kericho (Constitutional Petition No. E010 of 2023) but the judgment does not resolve that objection.

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, "Siele v County Secretary, Kericho County & 3 others (Petition E05 of 2023) [2024] KEELRC 1608 (KLR)", Case Analysis (2024). Petition dated 14th July, 2023. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2024/1608/eng@2024-06-27

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