By amended plaintiff dated 10 th June 2023, the plaintiff seeks the following orders against the defendants
An order of account requiring the 1 st and 2 nd Defendants to render an account in respect of all transactions in the five bank accounts from June 2021 to date.
An order of compensation requiring the 1 st , 2 nd and 3 rd defendants to pay unto the plaintiff his share of the profits as agreed upon in the agreement from June 2021 to date being Ksh. 89,409, 782.00 that remain unpaid.
An order that the defendants do pay the plaintiff his goodwill estimated at Ksh. 10,000,000.00.
Punitive and general damages.
Costs and Interest of this suit on full indemnity basis and
Any other relief that this Honourable Court may deem fit.
The basis of the plaintiff’s case is that he was made a director of the third defendant on invitation of the 1 st and 2 nd defendants on understanding that he would be entitled to among other things 20 per cent of the net profits derived from business of the 3 rd defendant. The plaintiff’s claim is based on business the 3 rd defendant did with six clients where it earned a sum of Kshs 1,330,459,149.00 of which he claims Kshs 89,409,782.00 as balance of his share of profits which the defendants have failed to pay in addition to what he believes to be his good will. The 1 st and 2 nd defendants are shareholders and directors of the 3 rd defendant.
The defendants filed their defence denying liability and put up a counterclaim praying for;
All payments received by the defendant in his role as director-commercial, which comprises the bonus payments, monthly retainer payment and loan, amounting to a total of Ksh. 8,963,608.7/=.
Interest at court rates from date of last payment, being June, 2021, until payment in full.
Costs of, and incidental to this suit.
Plaintiff’s evidence
The plaintiff told the court that while working as a business development manager with a company known as Arcon Construction Co. Limited (hereinafter referred to as ‘Arcon’), the 1 st defendant who was a colleague in the said company approached the him and another colleague known as Alfred Mumo with an idea of starting their own business. After discussions, the 1 st defendant convinced him to join the 3 rd defendant whose directors were the 1 st and 2 nd defendants instead of starting a new company.
The plaintiff and Alfred Mumo were subsequently incorporated as directors in the 3 rd defendant in February 2019 upon terminating their employment with Arcon. The four entered into what they called a director’s service agreement which provided among other terms that;
The 1 st and 2 nd defendants shall remain the shareholders of the 3 rd defendant.
The plaintiff and Alfred Mumo shall be added as directors.
Each of the directors shall be entitled to a revenue share of 20 per cent of the net profit.
Each of the directors was allocated a role with the plaintiff being designated as in charge of commercial.
The witness added that the board of directors resolved to open four bank accounts in Equity Bank (K) Limited to which all the directors were signatories and through which the revenues of the 3 rd defendant was to be managed. The plaintiff added that he carried out his duties diligently which resulted to the 3 rd defendant being awarded tenders by the Kenya Judiciary, County Assembly of Nakuru, County Assembly of Machakos, Parliamentary Service Commission, Meru University Mariene Research Institute and Tharaka University College which were valued at Kss 1,330,459,149.00.
He stated further that in August 2021, he discovered that the 1 st and 2 nd defendants had opened a separate bank account for the 3 rd defendant with Equity Bank Kilimani branch without his knowledge and inclusion and that of Alfred Mumo. He stated that the said account was opened for purposes of defrauding him of his share of the revenue which was coming to Kshs 99,409,782.00 inclusive of good will of Kshs 10,000,000.00. He added that the change of accounts only came to his attention when someone for Tharaka University College, one of the 3 rd defendant’s clients called and asked him the reasons for changing of accounts to which payments were to be made. It is this new account which the defendants diverted the monies earned from the aforesaid businesses. The plaintiff complained that the 1 st and 2 nd defendants had also removed him from the list of signatories to the bank accounts.
The plaintiff added that the 3 rd defendant was not doing well at the time he joined it and that he participated and was instrumental in reviving and taking it to level of profitability. He stated that conflict between them started in August 2021 when the 1 st defendant wrote to him insinuating that his services were no longer required. He justified his demand for the amount through calculations done by a co-director, Alfred Mumo who is a quantity surveyor and was in charge of operations.
On the defendant’s counterclaim, the plaintiff maintained that the same was unfounded. He rubbished claims that he was not qualified for the job he was handling on grounds that no interviews were conducted or advertisement for the job done before he joined the 3 rd defendant and his academic qualifications was not an issue during when he was joining. He alleged that all the six projects he mentioned came through his efforts in organising meetings which bore the contracts.
He also denied forging certificates and added that he had a diploma in marketing from Nairobi Aviation College and stated that he had enrolled for a bachelors degree in 2012 which he completed in 2021 after deferring for some years. He said further that the certificates produced by the defendants in respect of him were not genuine and had been forged by the 1 st defendant when he was working at Arcon in order to assist the company get tenders. The plaintiff denied sending emails to the 1 st defendant and insinuated that the 1 st defendant used his email which he had access to. He produced a total of 11 exhibits.
In cross-examination, the plaintiff stated that their relationship was governed by the agreement dated 29-10-2019. He stated that he was a director and has never been a shareholder of the 3 rd defendant. He also admitted that the directors were paid a salary of Kshs 50,000.00 per month each and that the 3 rd defendant paid NHIF, NSSF and other statutory deductions but he denied that the 3 rd defendant was his employer and also denied being a contractor. Although he confirmed an email address put to him, he denied having sent his CV to the 3 rd defendant although the bio on the CV was correctly his. When shown a profile of Arcon which indicated that he was listed as an employee holding a bachelors degree in business administration, he stated that he was seeing that for the first time. He maintained that the documents he was shown as having been deposited with Arcon were forged by the 1 st defendant and the tender team.
The plaintiff further confirmed that he did not complete the tender documents in respect of businesses he laid claim on. He stated that the tender documents were compiled by a technical team but he used to submit them by delivering and attending tender opening exercises. However, if the submissions were done online, they would be done by someone else but maintained that the contracts were awarded through his efforts. He stated that he used to meet the people who were responsible for awarding the tenders and that is why they were successful but denied that his actions of meeting the clients were illegal and unethical.
The plaintiff denied that the tender by judiciary was awarded before he joined the 3 rd defendant as he was still working for it even when he was at Arcon. He admitted that the tender was submitted in January 2019 and that he had been paid Kshs 7,900,000.00 exclusive of monthly stipends. He also admitted that he did not produce evidence to show fraud on the part of the 1 st and 2 nd defendants and the tender documents or bank account statements. He denied being aware of the complaint that he unlawfully accessed the 3 rd defendant’s bank accounts. He stated that some 300,000/= was sent to his telephone line from the 3 rd defendant’s account but it was reversed and denied being the one who did it.
In re-examination, he stated that the emails he was referred to did not make any reference to job application. He also maintained that the issue of CV came after the defendants decided to kick him out of the 3 rd defendant. He added that the computation of his entitlements was sent to him by Alfred Mumo under directions of the managing director.
Defendant’s evidence
The defendants called the 1 st defendant as their only witness. He testified that he and the 2 nd defendants are directors and shareholders of the 3 rd defendant. In 2019, the two sought to onboard executive directors to assist in realising the 3 rd defendant’s objectives and operations and having worked with the plaintiff in a different company, he approached him to assess whether he would be a suitable candidate for director commercial. He requested the plaintiff to submit his resume and certificates in proof of his qualifications.
The plaintiff complied and supplied his curriculum vitae and certificates through his personal email on 11-04-2019 to the 3 rd defendant’s official email which upon scrutiny, the directors/shareholders decided to engage him on the position of director commercial which led to execution of director service agreement dated 29-10-2019.
The 1 st defendant added that since his incorporation into the position, the plaintiff failed to perform satisfactorily and diligently which led them to suspect his qualifications and his ability to undertake his duties under the directors service agreement. The directors/shareholders then decided to interrogate the plaintiff’s academic qualifications. He then sought to confirm from Kenya Methodist University which purportedly awarded the plaintiff a bachelors degree in Business Administration (Marketing) which revealed that the certificate submitted by the plaintiff was a forgery which was unethical and criminal.
He claimed that the plaintiff’s conduct exposed the 3 rd defendant to risk of litigations owing to the nature of their business as they were required to provide academic documents to their clients in the tendering process. Consequently, the 3 rd defendant communicated his intention to terminate the agreement on account of the forged certificates through a letter dated 26-02-2021. Following this, the directors/shareholders attempted to amicably solve the matter but the plaintiff failed to replace the forged certificates with genuine ones.
The 1 st defendant added that the plaintiff made attempts to ground the 3 rd defendant by repeatedly refusing to sign cheques and other documents to enable the 3 rd defendant operate following which the shareholders authorised opening of new account number 145xxxxxx618 at Equity Bank Kilimani branch to ensure that the plaintiff does not cripple the operations of the 3 rd defendant.
He testified further that a notice dated 25-10-2021 confirmed the defendant’s intention to formally remove the plaintiff as a director of the 3 rd defendant and the 3 rd defendant convened an annual general meeting on 22-11-2021 where a resolution to formally terminate the director’s service agreement and to immediately remove the name of the plaintiff from the register of the board of directors was passed. Following this, the 3 rd defendant lodged necessary notices at the company registry to effect the changes and ensure that the companies register reflected the proper directors. He insisted that the plaintiff ought not to be included as a signatory to the account. He went on and denied that there was any compensation due to the plaintiff as he had been paid all his dues in accordance with the directors service agreement. He produced a total of 21 exhibits.
He added in his oral testimony while highlighting his adopted witness statement that before the 3 rd defendant brought in the plaintiff, it was looking for two key members, one biased in construction in private institutions. He told the court that, he had known the plaintiff in 2018 when he was working for Acorn and him in a sister company. They were looking for the partners because there was a tender from the judiciary which they intended to participate in. The plaintiff was one of the referrals and after he shared his documents, they felt that he was suited as a marketing director and decided to engage him in marketing and creating social networks and coming up with a website to ensure returns as they were undertaking their projects. He added that the plaintiff’s role was to handle private projects and that there was another person for public projects.
It was the 1 st defendant’s further testimony that during the engagement, the plaintiff was paid Kshs 9,000,000.00 which was through false pretences and sought refund of the same. He claimed that the tenders the plaintiff seeks a share from were in the public sector which involved vigorous process and the tender from judiciary was won before the plaintiff joined the 3 rd defendant.
He also stated that the 3 rd defendant did not win the tenders from the Parliamentary Service Commission and the County Assembly of Machakos following which they appealed to Public Procurement Oversight and Review Board which directed the procurement entities to award the tenders to the 3 rd defendant. He added that the Nakuru County Assembly tender was a high-level process which was submitted through IFMIS. The Eldoret University tender was also awarded through intervention of the PPOARB.
He added that the Meru University project stalled at 35 per cent and Machakos County at 40 per cent. The Tharaka University project also stalled and the client terminated the same while the judiciary project was at 95 per cent and not completed while their work in the Parliamentary Service Commission was valued at 97 per cent with the rest going to other providers directly.
In cross-examination by Mr. Munyalo, he stated that he was an employee of Alphin a sister company of Acorn when he met the plaintiff. He added that he did not know the plaintiff as someone who could deliver. He admitted that the directors service agreement provided that each director was to get 20 per cent of the profits. He also admitted that all directors were equal and were getting equal shares. He added that when they sought to incorporate two directors, they had several referrals but settled on Alfred Mumo and the plaintiff with interviews done in 2019. He stated that there were minutes to show that they conducted interviews but the same were not in court. He stated further that it was one of the plaintiff’s colleagues who sent his documents to them.
The 1 st defendant stated further that, the 3 rd defendant had several bank accounts to which the plaintiff was included when he joined and they opened more accounts in order to remodel the 3 rd defendant’s operations. The tender for the judiciary was signed in March 2019 although it was won before the plaintiff joined but they had not been engaged before the plaintiff came in. He admitted that the letter dated 17-04-2023 was demanding payment and did not specify that the project was at 45 per cent complete. He also admitted that several letters which the he had produced referred to notice suspend works but he had no evidence to prove that the works were suspended.
He stated that the agreement provided for qualifications and that National Construction Authority required that all directors must have university degrees. He further claimed that they reported the issue of forged certificates to the police but he was not aware of what happened. He admitted that the percentage of sharing profits was not depended on whether the projects were private or public. He also claimed that they came to learn that the plaintiff had incorporated another company called Bentor. He also claimed that the plaintiff did not bring any business to the 3 rd defendant and that the 3 rd defendant had work but there was no performance.
He also stated that when the plaintiff was terminated, they did not audit what he owed them. He claimed further that the profit sharing was done in real time and the plaintiff had been paid his share by the time he left. He added that they had not done accounts to know how much was due to the plaintiff. He admitted that the Nakuru project was open at 100 per cent while the judiciary one was complete but payment was not done. The Parliament one was also complete but not paid and the other contracts had expired and could not proceed unless the clients called them back.
He insisted that the forged documents were supplied by the plaintiff and that the 3 rd defendant was active since 2015 before the plaintiff joined although he had no documents to prove that. He also stated that the plaintiff had track record of forgery including withdrawal of money from Arcon.
When he was re-examined, he told the court that the 20 per cent share was not automatic and that he did not engage the plaintiff on account of his strength of performance as he had known him for barely six months and insisted that the plaintiff’s CV was a point of consideration in onboarding him. He added that he could not authenticate minutes produced by the plaintiff as they were not signed while the defendant’s minutes were always signed. He ended by stating that their report of the plaintiff’s forgery was booked at Kilimani police station under occurrence book entry number 19/10/02/2024.
Analysis and determination
At the close of the hearing the parties filed their submission. The plaintiff’s submissions are dated 9-12-2024 while those of the defendants are dated 22-01-2025. The plaintiff also filed supplementary submissions dated 7-02-2025. I have read and considered the evidence of the parties, the pleadings, the exhibits and the submissions. I find that there is no dispute that the agreement dated 29-10-2019 was executed as presented. There is also no dispute that the plaintiff was kicked out of the 3 rd defendant between February and November 2021.
In my considered opinion, the issues for determination in this matter are;
Whether the defendants were in breach of the agreement in removing the plaintiff as a director.
Whether the plaintiff is entitled to compensation and if so, how much?
Whether the defendants are entitled to recover the money paid to the plaintiff and if so, how much?
The undisputed agreement clearly set out the rights and duties of the directors. Pertinent to this suit are clauses 14.1 and 14.2 which cover the termination of the agreement and the remuneration and entitlements of the directors. The agreement as well as the CR12 form produced as the defendants’ exhibit 2 do not disclose how the plaintiff and Alfred Mumo became directors of the 3 rd defendant but it is common ground that they were brought on board either in February or March 2019 going by the testimony of the witnesses.
The defendant alleged that the plaintiff was brought on board through interviews conducted in April 2019 but did not produce any minutes or advertisement for the job to that effect. The agreement does not describe the plaintiff as an employee but a director with voting rights and profit share equal to all the other directors including the shareholders. Again, the defendant’s position on this issue cannot be true because by April 2019, the plaintiff was already a director if the contents of the resolution dated 2-04-2019 produced as the plaintiff’s exhibit 9 is anything to go buy.
The agreement gives methods and instances at which one could cease to be a director and this being a mutual agreement between the parties, one could only be removed in accordance with the provisions of the agreement. In my assessment, the steps taken by the defendants and going by the reasons advanced for removing the plaintiff falls the defendants leverage the process on clauses 14.1 (b) and 14.2 (h).
The agreement at clause 14.1(b) provides that it shall come to end on the date a director is removed by the action of one or more shareholders in accordance with the Company’s Articles of Association. The plaintiff has pleaded that he was not properly removed and I take that to mean that his removal was not in accordance with the company’s Articles of Association and the circumstances under clause 14.2(h) did not arise. Based on the evidence produced by the plaintiff, I find that he has established on a balance of probabilities that his removal violated the provisions of the agreement thus placing the burden of proof to the contrary on the defendants. If no more evidence on that issue was adduced, the defendants would be the loser and as such, they were under an obligation to rebut the plaintiff’s evidence. That is the position in law under Section 109 of the Evidence Act Chapter 80 of the Laws of Kenya which provides that;
‘The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.’
The 1 st defendant testified that he was the one who initiated the process of investigating the conduct and performance of the plaintiff. He was therefore bound to prove that his actions were proper and in tandem with the agreement or that the provisions of clauses 14.1(b) and 14.2(h) came into fruition. Clause 14.2(h) provided that the agreement would come to an end if the director sought to be removed committed an action or omission which brought the name or reputation of the company to a serious disrepute or prejudiced the business interest of the company.
It has been alleged that the plaintiff had supplied the defendant with a CV which had false information and forged certificates through email dated 11-04-2019. The email which was produced as part of the defendants’ exhibit 3 is shown to have been sent from the plaintiff’s email address to the 3 rd defendant’s email address. The plaintiff denied sending the email and alleged that the 1 st defendant had access to his email password and could have sent it himself. The email does not have any text or purpose for which it was sent. Irrespective of who sent the email, it is in my opinion it is not relevant to this suit because the plaintiff was brought on board in February or March 2019 which preceded the email and I do believe that if the same was sent, it was not a relevant factor for consideration in onboarding the plaintiff in the 3 rd defendant.
The 1 st defendant claimed that he started interrogating the plaintiff’s qualifications after he underperformed. He however did not elaborate or give areas of underperformance except where he stated that the 3 rd defendant’s website had not been created. He did not produce any documents or minutes of a meeting where the underperformance was discussed. I have looked at the agreement especially the duties of the 1 st defendant provided for in clause 7.2 and I have not seen any provision giving the 1 st defendant the authority to investigate others. If indeed there were issues with the plaintiff’s performance, they should have been raised in the directors’ meetings or in any correspondence. It is my position that by deciding to investigate the plaintiff in the manner he did, the 1 st defendant treated him as he would treat an employee and not as a fellow director.
Even if the plaintiff was liable to investigations as the 1 st defendant did, he should have been given an opportunity to be heard or give his side of the story. Waking up on a day and telling the plaintiff that he had been removed as a director was not what the agreement especially clauses 14.1 and 14.2 envisaged. This is what the letter dated 26-02-2021 produced as the defendant’s exhibit 6 which advised the plaintiff that he had been removed did.
The letter dated 26-02-2021 aforesaid did not make any reference to underperformance. I have also looked ta the WhatsApp communication produced as plaintiff’s exhibit 10 and it is clear to me that, actually the person who seems to have been under pressure to perform was the 1 st defendant. These WhatsApp communications which were on 28-01-2021 or thereabout did not speak of the forgery of the plaintiff’s certificates either. In view of this, I take the position that the defendant’s journey to remove the plaintiff began with the frustrations seen in the said chats and noting that the letter aforesaid followed after about one month, the issue of authenticity of the plaintiff’s degree certificate was not a genuine concern but one of the methods devised by the defendants to get him out.
The letter dated 26-02-2021 informed the plaintiff that he had been removed by the shareholder in accordance with clause 14.2(h) of the directors’ service agreement which I have set out above. The letter gave the plaintiff thirty days to hand over all the company property and documents in his possession. The defendants in their submissions make reference to this letter as a notice to show cause. In my assessment, the letter speaks with finality and those submissions do not hold water. It was a unilateral decision and I therefore make a finding that it went against the plaintiff’s rights to be heard in a matter that was obviously going to affect him adversely.
The above procedure adopted by the defendants did not comply with Sections 139 (1) and (2) of the Companies Act which provides that;
A company may, by ordinary resolution at a meeting, remove a director before the end of the director's period of office, despite anything to the contrary in any agreement between the company and the director.
However, a special notice is required for a resolution to remove a director under this section or to appoint a person to replace the director so removed at the meeting at which the director is removed.
While addressing the need to adhere to the above procedure Honourable Lady Justice F.G. Mudambi stated in Pakenya Beans & Pulses Limted v Ijaz (2024) KEHC 15801 (KLR) that;
‘The combined effect of these provisions is that a director may be removed from office before the expiration of their term, provided the company passes an ordinary resolution to that effect during a properly convened meeting. The removal process ought to comply with the requirement for a special notice under Section 139(2). See: Mohamed Jelle Omar & Abdiweli Adan Kalic (Suing for and on behalf of Total Quality Halal Correct Ltd) V Ali Salal & Salem Najem Mubarak, [2020] KEHC 6423 (KLR) and Francis Asunah Kisumu Water & Sewerage Co Ltd & Governor Kisumu County Peter Anyang’ Nyong’o, [2018] KEHC 7695 (KLR).’
The defendants also produced a notice dated 25-10-2021 which was authored by the 2 nd defendant which purportedly gave notice that the 2 nd defendant would move a motion during the 3 rd defendant’s annual general meeting for removal of the plaintiff from the directorship. It is interesting that this letter came eight months after the 1 st defendant had unilaterally kicked out the plaintiff through the letter dated 26-02-2021. The extract of the annual general meeting of the 3 rd defendant produced by the defendants as their exhibit 8 shows that the meeting was held on 22-11-2021 with attendance of the 1 st and 2 nd defendants. This meeting was obviously set to sanitize the unprocedural removal of the plaintiff and this court finds that it is of no probative value as far as the defence is concerned.
The above discussion leads me to the inevitable conclusion that the defendants breached the directors service agreement in the manner in which they removed the plaintiff as a director of the 3 rd defendant. In addition, they breached the express provisions of Sections 139 (1) and (2) of the Companies Act Chapter 486 of the Laws of Kenya. That settles the first issue
I now turn to the second issue. Clause 14.3 of the agreement provided that all obligations of each party that would have accrued before the effective date of termination that is of continuing nature would survive termination or expiration of the agreement. Even if I were wrong in finding that the plaintiff was wrongly removed, this clause is clear that the obligation which accrued up to the date of removal shall survive. The question here is whether the plaintiff’s right to a share in profits of the six projects he lays claim on had accrued. It is common ground that contracts for the County Assembly of Nakuru, the County Assembly of Machakos, the Parliamentary Service Commission, Meru University Mariene Research Institute and Tharaka University College were procured during the period the plaintiff was a director of the 3 rd defendant.
The defendants argue that the contract for the Kenya Judiciary was won before the plaintiff became a director of the 3 rd defendant. On the other hand, the plaintiff argued that he helped in getting the business for the judiciary. The 1 st defendant admitted in cross-examination that the judiciary project was not engaged until March 2019 when the plaintiff joined the 3 rd defendant. As observed above, it is not stated in form of documents the plaintiff came in but it is apparent that he was onboarded in either February of March 2019. The agreement between the parties did not make a difference between the projects which were ongoing, those which had not taken off and those which were to come. Indeed, the agreement made reference to all the business conducted by the 3 rd defendant. The bottom line is that the business took off and was ongoing at the time the plaintiff was onboard.
The defendants argue that the Tharaka University and Meru University stalled while the others were not fully completed and were cancelled. The letters they produced in proof of this allegation were authored by the defendants and were actually notices to suspend the works for lack of funds. There is nothin
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An order of account requiring the 1 st and 2 nd Defendants to render an account in respect of all transactions in the five bank accounts from June 2021 to date.
An order of compensation requiring the 1 st , 2 nd and 3 rd defendants to pay unto the plaintiff his share of the profits as agreed upon in the agreement from June 2021 to date being Ksh. 89,409, 782.00 that remain unpaid.
An order that the defendants do pay the plaintiff his goodwill estimated at Ksh. 10,000,000.00.
Punitive and general damages.
Costs and Interest of this suit on full indemnity basis and
Any other relief that this Honourable Court may deem fit.
The basis of the plaintiff’s case is that he was made a director of the third defendant on invitation of the 1 st and 2 nd defendants on understanding that he would be entitled to among other things 20 per cent of the net profits derived from business of the 3 rd defendant. The plaintiff’s claim is based on business the 3 rd defendant did with six clients where it earned a sum of Kshs 1,330,459,149.00 of which he claims Kshs 89,409,782.00 as balance of his share of profits which the defendants have failed to pay in addition to what he believes to be his good will. The 1 st and 2 nd defendants are shareholders and directors of the 3 rd defendant.
The defendants filed their defence denying liability and put up a counterclaim praying for;
All payments received by the defendant in his role as director-commercial, which comprises the bonus payments, monthly retainer payment and loan, amounting to a total of Ksh. 8,963,608.7/=.
Interest at court rates from date of last payment, being June, 2021, until payment in full.
Costs of, and incidental to this suit.
Plaintiff’s evidence
The plaintiff told the court that while working as a business development manager with a company known as Arcon Construction Co. Limited (hereinafter referred to as ‘Arcon’), the 1 st defendant who was a colleague in the said company approached the him and another colleague known as Alfred Mumo with an idea of starting their own business. After discussions, the 1 st defendant convinced him to join the 3 rd defendant whose directors were the 1 st and 2 nd defendants instead of starting a new company.
The plaintiff and Alfred Mumo were subsequently incorporated as directors in the 3 rd defendant in February 2019 upon terminating their employment with Arcon. The four entered into what they called a director’s service agreement which provided among other terms that;
The 1 st and 2 nd defendants shall remain the shareholders of the 3 rd defendant.
The plaintiff and Alfred Mumo shall be added as directors.
Each of the directors shall be entitled to a revenue share of 20 per cent of the net profit.
Each of the directors was allocated a role with the plaintiff being designated as in charge of commercial.
The witness added that the board of directors resolved to open four bank accounts in Equity Bank (K) Limited to which all the directors were signatories and through which the revenues of the 3 rd defendant was to be managed. The plaintiff added that he carried out his duties diligently which resulted to the 3 rd defendant being awarded tenders by the Kenya Judiciary, County Assembly of Nakuru, County Assembly of Machakos, Parliamentary Service Commission, Meru University Mariene Research Institute and Tharaka University College which were valued at Kss 1,330,459,149.00.
He stated further that in August 2021, he discovered that the 1 st and 2 nd defendants had opened a separate bank account for the 3 rd defendant with Equity Bank Kilimani branch without his knowledge and inclusion and that of Alfred Mumo. He stated that the said account was opened for purposes of defrauding him of his share of the revenue which was coming to Kshs 99,409,782.00 inclusive of good will of Kshs 10,000,000.00. He added that the change of accounts only came to his attention when someone for Tharaka University College, one of the 3 rd defendant’s clients called and asked him the reasons for changing of accounts to which payments were to be made. It is this new account which the defendants diverted the monies earned from the aforesaid businesses. The plaintiff complained that the 1 st and 2 nd defendants had also removed him from the list of signatories to the bank accounts.
The plaintiff added that the 3 rd defendant was not doing well at the time he joined it and that he participated and was instrumental in reviving and taking it to level of profitability. He stated that conflict between them started in August 2021 when the 1 st defendant wrote to him insinuating that his services were no longer required. He justified his demand for the amount through calculations done by a co-director, Alfred Mumo who is a quantity surveyor and was in charge of operations.
On the defendant’s counterclaim, the plaintiff maintained that the same was unfounded. He rubbished claims that he was not qualified for the job he was handling on grounds that no interviews were conducted or advertisement for the job done before he joined the 3 rd defendant and his academic qualifications was not an issue during when he was joining. He alleged that all the six projects he mentioned came through his efforts in organising meetings which bore the contracts.
He also denied forging certificates and added that he had a diploma in marketing from Nairobi Aviation College and stated that he had enrolled for a bachelors degree in 2012 which he completed in 2021 after deferring for some years. He said further that the certificates produced by the defendants in respect of him were not genuine and had been forged by the 1 st defendant when he was working at Arcon in order to assist the company get tenders. The plaintiff denied sending emails to the 1 st defendant and insinuated that the 1 st defendant used his email which he had access to. He produced a total of 11 exhibits.
In cross-examination, the plaintiff stated that their relationship was governed by the agreement dated 29-10-2019. He stated that he was a director and has never been a shareholder of the 3 rd defendant. He also admitted that the directors were paid a salary of Kshs 50,000.00 per month each and that the 3 rd defendant paid NHIF, NSSF and other statutory deductions but he denied that the 3 rd defendant was his employer and also denied being a contractor. Although he confirmed an email address put to him, he denied having sent his CV to the 3 rd defendant although the bio on the CV was correctly his. When shown a profile of Arcon which indicated that he was listed as an employee holding a bachelors degree in business administration, he stated that he was seeing that for the first time. He maintained that the documents he was shown as having been deposited with Arcon were forged by the 1 st defendant and the tender team.
The plaintiff further confirmed that he did not complete the tender documents in respect of businesses he laid claim on. He stated that the tender documents were compiled by a technical team but he used to submit them by delivering and attending tender opening exercises. However, if the submissions were done online, they would be done by someone else but maintained that the contracts were awarded through his efforts. He stated that he used to meet the people who were responsible for awarding the tenders and that is why they were successful but denied that his actions of meeting the clients were illegal and unethical.
The plaintiff denied that the tender by judiciary was awarded before he joined the 3 rd defendant as he was still working for it even when he was at Arcon. He admitted that the tender was submitted in January 2019 and that he had been paid Kshs 7,900,000.00 exclusive of monthly stipends. He also admitted that he did not produce evidence to show fraud on the part of the 1 st and 2 nd defendants and the tender documents or bank account statements. He denied being aware of the complaint that he unlawfully accessed the 3 rd defendant’s bank accounts. He stated that some 300,000/= was sent to his telephone line from the 3 rd defendant’s account but it was reversed and denied being the one who did it.
In re-examination, he stated that the emails he was referred to did not make any reference to job application. He also maintained that the issue of CV came after the defendants decided to kick him out of the 3 rd defendant. He added that the computation of his entitlements was sent to him by Alfred Mumo under directions of the managing director.
Defendant’s evidence
The defendants called the 1 st defendant as their only witness. He testified that he and the 2 nd defendants are directors and shareholders of the 3 rd defendant. In 2019, the two sought to onboard executive directors to assist in realising the 3 rd defendant’s objectives and operations and having worked with the plaintiff in a different company, he approached him to assess whether he would be a suitable candidate for director commercial. He requested the plaintiff to submit his resume and certificates in proof of his qualifications.
The plaintiff complied and supplied his curriculum vitae and certificates through his personal email on 11-04-2019 to the 3 rd defendant’s official email which upon scrutiny, the directors/shareholders decided to engage him on the position of director commercial which led to execution of director service agreement dated 29-10-2019.
The 1 st defendant added that since his incorporation into the position, the plaintiff failed to perform satisfactorily and diligently which led them to suspect his qualifications and his ability to undertake his duties under the directors service agreement. The directors/shareholders then decided to interrogate the plaintiff’s academic qualifications. He then sought to confirm from Kenya Methodist University which purportedly awarded the plaintiff a bachelors degree in Business Administration (Marketing) which revealed that the certificate submitted by the plaintiff was a forgery which was unethical and criminal.
He claimed that the plaintiff’s conduct exposed the 3 rd defendant to risk of litigations owing to the nature of their business as they were required to provide academic documents to their clients in the tendering process. Consequently, the 3 rd defendant communicated his intention to terminate the agreement on account of the forged certificates through a letter dated 26-02-2021. Following this, the directors/shareholders attempted to amicably solve the matter but the plaintiff failed to replace the forged certificates with genuine ones.
The 1 st defendant added that the plaintiff made attempts to ground the 3 rd defendant by repeatedly refusing to sign cheques and other documents to enable the 3 rd defendant operate following which the shareholders authorised opening of new account number 145xxxxxx618 at Equity Bank Kilimani branch to ensure that the plaintiff does not cripple the operations of the 3 rd defendant.
He testified further that a notice dated 25-10-2021 confirmed the defendant’s intention to formally remove the plaintiff as a director of the 3 rd defendant and the 3 rd defendant convened an annual general meeting on 22-11-2021 where a resolution to formally terminate the director’s service agreement and to immediately remove the name of the plaintiff from the register of the board of directors was passed. Following this, the 3 rd defendant lodged necessary notices at the company registry to effect the changes and ensure that the companies register reflected the proper directors. He insisted that the plaintiff ought not to be included as a signatory to the account. He went on and denied that there was any compensation due to the plaintiff as he had been paid all his dues in accordance with the directors service agreement. He produced a total of 21 exhibits.
He added in his oral testimony while highlighting his adopted witness statement that before the 3 rd defendant brought in the plaintiff, it was looking for two key members, one biased in construction in private institutions. He told the court that, he had known the plaintiff in 2018 when he was working for Acorn and him in a sister company. They were looking for the partners because there was a tender from the judiciary which they intended to participate in. The plaintiff was one of the referrals and after he shared his documents, they felt that he was suited as a marketing director and decided to engage him in marketing and creating social networks and coming up with a website to ensure returns as they were undertaking their projects. He added that the plaintiff’s role was to handle private projects and that there was another person for public projects.
It was the 1 st defendant’s further testimony that during the engagement, the plaintiff was paid Kshs 9,000,000.00 which was through false pretences and sought refund of the same. He claimed that the tenders the plaintiff seeks a share from were in the public sector which involved vigorous process and the tender from judiciary was won before the plaintiff joined the 3 rd defendant.
He also stated that the 3 rd defendant did not win the tenders from the Parliamentary Service Commission and the County Assembly of Machakos following which they appealed to Public Procurement Oversight and Review Board which directed the procurement entities to award the tenders to the 3 rd defendant. He added that the Nakuru County Assembly tender was a high-level process which was submitted through IFMIS. The Eldoret University tender was also awarded through intervention of the PPOARB.
He added that the Meru University project stalled at 35 per cent and Machakos County at 40 per cent. The Tharaka University project also stalled and the client terminated the same while the judiciary project was at 95 per cent and not completed while their work in the Parliamentary Service Commission was valued at 97 per cent with the rest going to other providers directly.
In cross-examination by Mr. Munyalo, he stated that he was an employee of Alphin a sister company of Acorn when he met the plaintiff. He added that he did not know the plaintiff as someone who could deliver. He admitted that the directors service agreement provided that each director was to get 20 per cent of the profits. He also admitted that all directors were equal and were getting equal shares. He added that when they sought to incorporate two directors, they had several referrals but settled on Alfred Mumo and the plaintiff with interviews done in 2019. He stated that there were minutes to show that they conducted interviews but the same were not in court. He stated further that it was one of the plaintiff’s colleagues who sent his documents to them.
The 1 st defendant stated further that, the 3 rd defendant had several bank accounts to which the plaintiff was included when he joined and they opened more accounts in order to remodel the 3 rd defendant’s operations. The tender for the judiciary was signed in March 2019 although it was won before the plaintiff joined but they had not been engaged before the plaintiff came in. He admitted that the letter dated 17-04-2023 was demanding payment and did not specify that the project was at 45 per cent complete. He also admitted that several letters which the he had produced referred to notice suspend works but he had no evidence to prove that the works were suspended.
He stated that the agreement provided for qualifications and that National Construction Authority required that all directors must have university degrees. He further claimed that they reported the issue of forged certificates to the police but he was not aware of what happened. He admitted that the percentage of sharing profits was not depended on whether the projects were private or public. He also claimed that they came to learn that the plaintiff had incorporated another company called Bentor. He also claimed that the plaintiff did not bring any business to the 3 rd defendant and that the 3 rd defendant had work but there was no performance.
He also stated that when the plaintiff was terminated, they did not audit what he owed them. He claimed further that the profit sharing was done in real time and the plaintiff had been paid his share by the time he left. He added that they had not done accounts to know how much was due to the plaintiff. He admitted that the Nakuru project was open at 100 per cent while the judiciary one was complete but payment was not done. The Parliament one was also complete but not paid and the other contracts had expired and could not proceed unless the clients called them back.
He insisted that the forged documents were supplied by the plaintiff and that the 3 rd defendant was active since 2015 before the plaintiff joined although he had no documents to prove that. He also stated that the plaintiff had track record of forgery including withdrawal of money from Arcon.
When he was re-examined, he told the court that the 20 per cent share was not automatic and that he did not engage the plaintiff on account of his strength of performance as he had known him for barely six months and insisted that the plaintiff’s CV was a point of consideration in onboarding him. He added that he could not authenticate minutes produced by the plaintiff as they were not signed while the defendant’s minutes were always signed. He ended by stating that their report of the plaintiff’s forgery was booked at Kilimani police station under occurrence book entry number 19/10/02/2024.
Analysis and determination
At the close of the hearing the parties filed their submission. The plaintiff’s submissions are dated 9-12-2024 while those of the defendants are dated 22-01-2025. The plaintiff also filed supplementary submissions dated 7-02-2025. I have read and considered the evidence of the parties, the pleadings, the exhibits and the submissions. I find that there is no dispute that the agreement dated 29-10-2019 was executed as presented. There is also no dispute that the plaintiff was kicked out of the 3 rd defendant between February and November 2021.
In my considered opinion, the issues for determination in this matter are;
Whether the defendants were in breach of the agreement in removing the plaintiff as a director.
Whether the plaintiff is entitled to compensation and if so, how much?
Whether the defendants are entitled to recover the money paid to the plaintiff and if so, how much?
The undisputed agreement clearly set out the rights and duties of the directors. Pertinent to this suit are clauses 14.1 and 14.2 which cover the termination of the agreement and the remuneration and entitlements of the directors. The agreement as well as the CR12 form produced as the defendants’ exhibit 2 do not disclose how the plaintiff and Alfred Mumo became directors of the 3 rd defendant but it is common ground that they were brought on board either in February or March 2019 going by the testimony of the witnesses.
The defendant alleged that the plaintiff was brought on board through interviews conducted in April 2019 but did not produce any minutes or advertisement for the job to that effect. The agreement does not describe the plaintiff as an employee but a director with voting rights and profit share equal to all the other directors including the shareholders. Again, the defendant’s position on this issue cannot be true because by April 2019, the plaintiff was already a director if the contents of the resolution dated 2-04-2019 produced as the plaintiff’s exhibit 9 is anything to go buy.
The agreement gives methods and instances at which one could cease to be a director and this being a mutual agreement between the parties, one could only be removed in accordance with the provisions of the agreement. In my assessment, the steps taken by the defendants and going by the reasons advanced for removing the plaintiff falls the defendants leverage the process on clauses 14.1 (b) and 14.2 (h).
The agreement at clause 14.1(b) provides that it shall come to end on the date a director is removed by the action of one or more shareholders in accordance with the Company’s Articles of Association. The plaintiff has pleaded that he was not properly removed and I take that to mean that his removal was not in accordance with the company’s Articles of Association and the circumstances under clause 14.2(h) did not arise. Based on the evidence produced by the plaintiff, I find that he has established on a balance of probabilities that his removal violated the provisions of the agreement thus placing the burden of proof to the contrary on the defendants. If no more evidence on that issue was adduced, the defendants would be the loser and as such, they were under an obligation to rebut the plaintiff’s evidence. That is the position in law under Section 109 of the Evidence Act Chapter 80 of the Laws of Kenya which provides that;
‘The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.’
The 1 st defendant testified that he was the one who initiated the process of investigating the conduct and performance of the plaintiff. He was therefore bound to prove that his actions were proper and in tandem with the agreement or that the provisions of clauses 14.1(b) and 14.2(h) came into fruition. Clause 14.2(h) provided that the agreement would come to an end if the director sought to be removed committed an action or omission which brought the name or reputation of the company to a serious disrepute or prejudiced the business interest of the company.
It has been alleged that the plaintiff had supplied the defendant with a CV which had false information and forged certificates through email dated 11-04-2019. The email which was produced as part of the defendants’ exhibit 3 is shown to have been sent from the plaintiff’s email address to the 3 rd defendant’s email address. The plaintiff denied sending the email and alleged that the 1 st defendant had access to his email password and could have sent it himself. The email does not have any text or purpose for which it was sent. Irrespective of who sent the email, it is in my opinion it is not relevant to this suit because the plaintiff was brought on board in February or March 2019 which preceded the email and I do believe that if the same was sent, it was not a relevant factor for consideration in onboarding the plaintiff in the 3 rd defendant.
The 1 st defendant claimed that he started interrogating the plaintiff’s qualifications after he underperformed. He however did not elaborate or give areas of underperformance except where he stated that the 3 rd defendant’s website had not been created. He did not produce any documents or minutes of a meeting where the underperformance was discussed. I have looked at the agreement especially the duties of the 1 st defendant provided for in clause 7.2 and I have not seen any provision giving the 1 st defendant the authority to investigate others. If indeed there were issues with the plaintiff’s performance, they should have been raised in the directors’ meetings or in any correspondence. It is my position that by deciding to investigate the plaintiff in the manner he did, the 1 st defendant treated him as he would treat an employee and not as a fellow director.
Even if the plaintiff was liable to investigations as the 1 st defendant did, he should have been given an opportunity to be heard or give his side of the story. Waking up on a day and telling the plaintiff that he had been removed as a director was not what the agreement especially clauses 14.1 and 14.2 envisaged. This is what the letter dated 26-02-2021 produced as the defendant’s exhibit 6 which advised the plaintiff that he had been removed did.
The letter dated 26-02-2021 aforesaid did not make any reference to underperformance. I have also looked ta the WhatsApp communication produced as plaintiff’s exhibit 10 and it is clear to me that, actually the person who seems to have been under pressure to perform was the 1 st defendant. These WhatsApp communications which were on 28-01-2021 or thereabout did not speak of the forgery of the plaintiff’s certificates either. In view of this, I take the position that the defendant’s journey to remove the plaintiff began with the frustrations seen in the said chats and noting that the letter aforesaid followed after about one month, the issue of authenticity of the plaintiff’s degree certificate was not a genuine concern but one of the methods devised by the defendants to get him out.
The letter dated 26-02-2021 informed the plaintiff that he had been removed by the shareholder in accordance with clause 14.2(h) of the directors’ service agreement which I have set out above. The letter gave the plaintiff thirty days to hand over all the company property and documents in his possession. The defendants in their submissions make reference to this letter as a notice to show cause. In my assessment, the letter speaks with finality and those submissions do not hold water. It was a unilateral decision and I therefore make a finding that it went against the plaintiff’s rights to be heard in a matter that was obviously going to affect him adversely.
The above procedure adopted by the defendants did not comply with Sections 139 (1) and (2) of the Companies Act which provides that;
A company may, by ordinary resolution at a meeting, remove a director before the end of the director's period of office, despite anything to the contrary in any agreement between the company and the director.
However, a special notice is required for a resolution to remove a director under this section or to appoint a person to replace the director so removed at the meeting at which the director is removed.
While addressing the need to adhere to the above procedure Honourable Lady Justice F.G. Mudambi stated in Pakenya Beans & Pulses Limted v Ijaz (2024) KEHC 15801 (KLR) that;
‘The combined effect of these provisions is that a director may be removed from office before the expiration of their term, provided the company passes an ordinary resolution to that effect during a properly convened meeting. The removal process ought to comply with the requirement for a special notice under Section 139(2). See: Mohamed Jelle Omar & Abdiweli Adan Kalic (Suing for and on behalf of Total Quality Halal Correct Ltd) V Ali Salal & Salem Najem Mubarak, [2020] KEHC 6423 (KLR) and Francis Asunah Kisumu Water & Sewerage Co Ltd & Governor Kisumu County Peter Anyang’ Nyong’o, [2018] KEHC 7695 (KLR).’
The defendants also produced a notice dated 25-10-2021 which was authored by the 2 nd defendant which purportedly gave notice that the 2 nd defendant would move a motion during the 3 rd defendant’s annual general meeting for removal of the plaintiff from the directorship. It is interesting that this letter came eight months after the 1 st defendant had unilaterally kicked out the plaintiff through the letter dated 26-02-2021. The extract of the annual general meeting of the 3 rd defendant produced by the defendants as their exhibit 8 shows that the meeting was held on 22-11-2021 with attendance of the 1 st and 2 nd defendants. This meeting was obviously set to sanitize the unprocedural removal of the plaintiff and this court finds that it is of no probative value as far as the defence is concerned.
The above discussion leads me to the inevitable conclusion that the defendants breached the directors service agreement in the manner in which they removed the plaintiff as a director of the 3 rd defendant. In addition, they breached the express provisions of Sections 139 (1) and (2) of the Companies Act Chapter 486 of the Laws of Kenya. That settles the first issue
I now turn to the second issue. Clause 14.3 of the agreement provided that all obligations of each party that would have accrued before the effective date of termination that is of continuing nature would survive termination or expiration of the agreement. Even if I were wrong in finding that the plaintiff was wrongly removed, this clause is clear that the obligation which accrued up to the date of removal shall survive. The question here is whether the plaintiff’s right to a share in profits of the six projects he lays claim on had accrued. It is common ground that contracts for the County Assembly of Nakuru, the County Assembly of Machakos, the Parliamentary Service Commission, Meru University Mariene Research Institute and Tharaka University College were procured during the period the plaintiff was a director of the 3 rd defendant.
The defendants argue that the contract for the Kenya Judiciary was won before the plaintiff became a director of the 3 rd defendant. On the other hand, the plaintiff argued that he helped in getting the business for the judiciary. The 1 st defendant admitted in cross-examination that the judiciary project was not engaged until March 2019 when the plaintiff joined the 3 rd defendant. As observed above, it is not stated in form of documents the plaintiff came in but it is apparent that he was onboarded in either February of March 2019. The agreement between the parties did not make a difference between the projects which were ongoing, those which had not taken off and those which were to come. Indeed, the agreement made reference to all the business conducted by the 3 rd defendant. The bottom line is that the business took off and was ongoing at the time the plaintiff was onboard.
The defendants argue that the Tharaka University and Meru University stalled while the others were not fully completed and were cancelled. The letters they produced in proof of this allegation were authored by the defendants and were actually notices to suspend the works for lack of funds. There is nothin
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