' Introduction
1. By a Notice of Motion dated 5th August 2021, the Plaintiffs seek the leave of this Court to continue with a derivative suit on behalf of Gossamer Crossing East Africa Limited (“the Company”) pursuant to Sections 238–241 of the Companies Act, 2015.
2. The Application is based on the grounds on the face of the application and the supporting affidavit of Suzanne Jane Belcher, the 2nd Plaintiff herein, who also describes herself as an employee, a director, and shareholder of the 1st Plaintiff Company.
3. The Defendants opposed the Application through Grounds of Opposition dated 24th April 2025, contending that the Applicants lack the requisite locus standi and have not satisfied the statutory threshold for the grant of leave for commencement and continuance of a derivative suit.
4. Pursuant to the directions of this Court, the application was canvassed by way of written submissions. The Applicant, through the law firm of Litoro & Omwebu Advocates, filed her submissions dated 16th May 2025, whilst the 1st and 2nd Defendant filed their joint submissions dated 15th July 2025.
The Applicant’s Submissions
5. The Applicant submitted that she seeks leave to institute a derivative action on behalf of the company against its directors, alleging acts of mismanagement, diversion of company assets, and breach of fiduciary duties. It was her case that she was a bona fide shareholder of the company and that the alleged wrongs were committed by those in control of the company, thereby rendering it impossible for the company itself to take action.
6. Counsel for the Applicant submitted that under Section 238 of the Companies Act, 2015, a member may, with leave of the court, institute proceedings on behalf of a company where the directors have failed to do so. He argued that the instant application meets the threshold for grant of leave since the pleadings disclosed a prima facie case of wrongdoing by the directors, and that her action of bring the instant proceedings was in good faith, and that the relief sought would benefit the company rather than the Applicant personally.
7. Reliance was placed on, among others, the decision in Udali Group Limited v Umberto Rtccardo Dellavale & 3 Others, [2017] eKLR, where the Court cited with approval the decision in Ghelani Metals Limited & 3 Others v Elesh Ghelani Natwarlal & Another [2017] eKLR, for the proposition that derivative actions exist to prevent abuse of power by directors and that courts should grant leave where the applicant demonstrates that the company itself cannot act.
8. The Applicant maintained that the allegations raised, relating to misappropriation of funds and self-dealing, fell squarely within the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461, since they involved breaches of duty by those controlling the company. He urged that refusal of leave would perpetuate injustice and shield wrongful conduct from scrutiny.
The Respondents’ Submissions
9. The Respondents, on the other hand, opposed the application, contending that the Applicant had not satisfied the statutory prerequisites for the grant of leave under Sections 238–241 of the Companies Act. Counsel submitted that the Applicant had not demonstrated that the proposed action was brought in good faith or that it was in the best interests of the company.
10. Relying on the Court of Appeal decisions in Sultan Hasham Lalji & 2 others vs Ahmed Hasham Lalji & 4 others [20141 KECA440 (KLR), and Amin Akberali Manji & 2 others v Altaf Abdulrasul Dadani & another [20151 KECA 356 (KLR), the Respondents asserted that the Applicant, being the majority shareholder, could not, in law, bring and sustain a derivative action claim.
11. The Respondent submitted that contrary to the express provisions of Section 241 of the Companies Act, the Applicant has in the instant application, failed to demonstrate that the company’s directors have made any efforts but failed to institute the suit in the name of the company; that any attempts have been made to convene a shareholders’ or directors’ meeting for the purposes of obtaining a resolution to initiate the legal proceedings; or that the company has decided not pursue the claim.
12. The Respondents maintained that the Applicant had not first sought internal remedies within the company, such as convening a general meeting or requisitioning for investigation, before resorting to court. They contended that the allegations of mismanagement were vague and unsupported by evidence, and that the application was premature and misconceived.
13. The Respondent’s Counsel argued that the matters raised were, in substance, personal grievances between shareholders rather than wrongs done to the company. The Respondents submitted that, contrary to the express provisions of Section 238 (1) of the Companies Act, the Applicant was motivated by personal differences with the board and that the application was a misuse of the derivative procedure to advance a private agenda.
14. Referring to paragraphs 13, 17, and 20 of the Plaint, the Respondent asserted that the 2nd Plaintiff’s claim herein was personal rather than for the benefit of the company. Citing the case of Joseph Munyoki Nzioka v Raindrops Limited & 3 others [20191 KEHC 9387 (KLR), the Respondent submitted that the instant suit cannot be sustained as a derivative action within the meaning of Section 238 of the Companies Act.
15. Finally, it was the Respondents’ case that the Applicant failed to prove a prima facie case to warrant issuance of leave to commence a derivative action. Relying on the case of Njenga & 2 others v Ecobank (K) Limited & another (Civil Suit E484 of 2022) [20231 KEHC 17448 (KLR), the Respondents submitted that the first hurdle, which the Applicant has failed to surmount in the present case, is for an applicant to demonstrate a prima facie case.
16. It was therefore the Respondents'' submissions that the application be dismissed with costs in their favour.
Analysis and Determination
17. Having considered the Application dated 5th August 2021, the Grounds of Opposition dated 24th April 2025, the rival submissions by Counsel, and the authorities cited, the following issues arise for determination:
i. Whether the 2nd Plaintiff/Applicant has the requisite locus standi to institute or continue a derivative suit;
ii. Whether the Applicant has satisfied the threshold for the grant of leave under Section 241 of the Companies Act, 2015;
iii. Whether the cause of action as pleaded is one vested in the company and seeking relief on its behalf; and
iv. Whether the Applicant has established a prima facie case warranting the grant of leave.
Whether the 2nd Plaintiff has the requisite locus standi
18. In applications of this nature, the starting point is the principle in Foss v Harbottle (1843) 2 Hare 461, which establishes that a company, being a distinct legal person, is the proper plaintiff in respect of wrongs done to it, and that the will of the majority of shareholders generally prevails in matters of internal management.
19. Derivative actions constitute an exception to the rule in Foss v Harbottle (1843) 2 Hare 461, allowing a shareholder to sue on behalf of the company in limited circumstances where those controlling the company are themselves the wrongdoers, and it is impractical for the company to bring a lawsuit.
20. The jurisprudence in this area is settled. The Court of Appeal in Sultan Hasham Lalji & 2 others v Ahmed Hasham Lalji & 4 others [2014] KECA 440 (KLR) held that the protection afforded by derivative actions is designed for minority shareholders who cannot cause the company to take action against errant directors. The Court stated that:
“In any case, we have observed that it is common ground that the appellants are the majority shareholders of the company. It is the minority, not the majority shareholders that are availed the protection by the exceptions since generally majority shareholders exercise powers of the company and control its affairs.”
21. Similarly, in Titus Musyoki Nzioka v John Kimathi Maingi & another [2013] KECA 32 (KLR), the Court of Appeal observed that derivative suits are available to minority shareholders seeking redress for wrongs done to the company by those in control. The Court further stated that neither a majority shareholder nor an equal shareholder can purport to act derivatively where they possess the voting power to direct corporate action. The Court expressed itself thus:
“A derivative suit, simply put, is a suit filed by a minority shareholder of a limited liability company to seek remedy for wrongs done to the company by the majority shareholders or directors. In this case, it is not disputed that the applicant and the 1st respondent hold equal shares in the 2nd respondent. Indeed, they are both directors of the company. Neither of them can in law purport to file a suit on behalf of the company to seek redress against the co-director. We are not persuaded that the suit before the High court is a derivative suit.”
22. Further in Amin Akberali Manji & 2 others v Altaf Abdulrasul Dadani & another [2015] KECA 356 (KLR), the Court of Appeal reaffirmed that a majority shareholder cannot invoke the derivative remedy because he can simply use his voting strength to cause the company to act, or even replace non-performing directors.
23. In the present case, it is not in dispute that the 2nd Plaintiff, Ms. Suzanne Jane Belcher, holds 510 out of 1000 shares in the company and is one of its directors. She therefore exercises majority control over the company. No evidence has been placed before this Court to show that her powers as a majority shareholder have been neutralized or usurped such that she is unable to act through the company’s organs.
24. Accordingly, the Court is persuaded that a majority shareholder capable of directing the company’s affairs does not ordinarily have locus standi to bring or continue a derivative action.
Whether the threshold for grant of leave under Section 241 of the Companies Act has been met
25. Even assuming that locus standi were not an impediment, the Applicant must still satisfy the requirements for judicial approval under Section 241 of the Companies Act, 2015.
26. Section 241 of the Companies Act, 2015 provides as follows: -
“Application for permission to continue claim as a derivative action
(1) If a member of a company applies for permission under section 239 or 240, the Court shall refuse permission if satisfied—
(a) that a person acting in accordance with section 144 would not seek to continue the claim;
(b) if the cause of action arises from an act or omission that is yet to occur–that the act or omission has been authorised by the company; or
(c) if the cause of action arises from an act or omission that has already occurred — that the act or omission—
(i) was authorised by the company before it occurred; or
(ii) has been ratified by the company since it occurred.
(2) In considering whether to give permission, the Court shall take into account the following considerations:
(a) whether the member is acting in good faith in seeking to continue the claim;
(b) the importance that a person acting in accordance with section 143 would attach to continuing it;
(c) if the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be—
(i) authorised by the company before it occurs; or
(ii) ratified by the company after it occurs;
(d) if the cause of action arises from an act or omission that has already occurred—whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company;
(e) whether the company has decided not to pursue the claim;
(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in the member''s own right rather than on behalf of the company.
(3) In deciding whether to give permission, the Court shall have particular regard to any evidence before it as to the views of members of the company who have no personal interest (direct or indirect) in the matter.”
27. It is clear from the above provision of the law that in considering whether to grant permission to continue a derivative claim, the court must take into account factors including—
i. whether the company has decided not to pursue the claim;
ii. whether the act or omission gives rise to a cause of action that the member could pursue in their own right;
iii. whether the applicant is acting in good faith; and
iv. whether it is in the best interests of the company for the action to proceed.
28. As was correctly observed in Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another [2017] eKLR, the judicial approval process is a gatekeeping mechanism intended to filter out frivolous or vexatious claims and ensure that only bona fide derivative actions proceed.
29. The Court of Appeal in Lalji v Trio Holdings Limited & 2 others [2023] KECA 853 (KLR) underscored the need for an applicant to plead and demonstrate the “true nature of the facts and the impossibility of getting the resolution of the company” before resorting to a derivative suit.
30. Likewise, in Waweru v Karoki; County to County Choma Grill Limited (Interested Party) [2024] KEHC 5358 (KLR), the Court (Justice Freda Mugambi) reiterated that the essence of judicial approval is to screen out unmeritorious claims, and that the applicant must show efforts to have the company act and that the company declined to do so.
31. In the present case, the Applicant has not shown any attempt to convene a general meeting, to raise the matter before the board, or to pass a resolution authorizing the institution of proceedings in the company’s name. No evidence was presented that the company was requested to act but failed or refused.
32. Being both a director and majority shareholder, the 2nd Plaintiff – the Applicant herein, had the capacity to cause the company to take action without recourse to a derivative suit. Her failure to demonstrate such effort offends the express statutory requirement under Section 241(2)(e) of the Act.
33. Consequently, it is this Court’s finding that the Applicant has not satisfied the mandatory threshold for the grant of leave.
Whether the cause of action is vested in the Company
34. A derivative claim must, by definition under Section 238(1) of the Act, be in respect of a cause of action vested in the company and seek relief on behalf of the company. A perusal of the Plaint dated 5th August 2021 in this case, however, reveals that the claim is premised upon alleged breaches of trust, fraud, and oppressive conduct against the minority shareholder. The pleadings further claim monetary sums payable to the 2nd Plaintiff personally.
35. A perusal of paragraphs 13, 17, and 20 of the Plaint indicates that the reliefs sought are to an extent personal to the 2nd Plaintiff and not entirely for the benefit of the company. In the aforementioned paragraphs, it is pleaded that: -
“17. The Plaintiff avers that the 2nd Defendant, jointly with the 1st Defendant and severally, is culpable of breach of trust; breach of fiduciary duty; a nd have engaged in unfair/prejudicial/oppressive conduct against the 2nd Plaintiff.
20. The Plaintiffs jointly claim a sum of USD 1,126,827 , being the said USD 225,000 and USD 901,827 against the Defendants jointly and severally."
36. This is inconsistent with the essence of a derivative claim as defined under Section 238 (1) to mean “proceedings by a member of the Company; - (a) In respect of a cause of action vested in the Company; and (b) Seeking relief on behalf of the Company.”
37. This Court (Njoki Mwangi J) in Joseph Munyoki Nzioka v Raindrops Limited & 3 others [2019] KEHC 9387 (KLR) held that for a derivative suit to lie, both the cause of action and the relief must be vested in and sought on behalf of the company. Where the relief sought is personal, the suit ceases to be derivative.
38. The Court therefore finds that the cause of action, as pleaded, is not one that is vested in the company or brought for its benefit, and consequently does not satisfy the definitional parameters of a derivative claim under Section 238(1).
Whether a Prima Facie Case has been Established
39. At the first stage of the inquiry under Ghelani Metals Limited (supra), the Court must be satisfied that the applicant has demonstrated a prima facie case showing a cause of action within the meaning of Section 238(3) of the Act—such as negligence, default, breach of duty, or breach of trust by a director.
40. The Applicant has not presented evidence to substantiate the alleged acts of fraud or breach of fiduciary duty by the Defendants. No specific transactions, resolutions, or documentary evidence of misconduct have been exhibited. The pleadings remain bare and conclusory.
41. As held in Njenga & 2 others v Ecobank (K) Limited & another [2023] KEHC 17448 (KLR), if the evidence adduced in support of an application “does not disclose a case for giving of permission,” the application must be dismissed at the threshold stage.
42. “In the first stage, the court must first satisfy itself that there is a prima facie case on any of the causes of action noted under s.238(3). S.239(2) of the Companies Act. However, the application for permission will be dismissed if the evidence adduced in support “do not disclose a case” for giving of permission.”
43. Having examined the record, the Court finds no factual or evidential basis to establish a prima facie case warranting the grant of leave.
Disposition
44. In the totality of the foregoing, the Court is satisfied that: -
i. The 2nd Plaintiff/Applicant, being a majority shareholder and director, lacks locus standi to institute or continue a derivative suit;
ii. The Applicant has not met the statutory threshold under Section 241 of the Companies Act, 2015;
iii. The cause of action pleaded is not one vested in or brought on behalf of the company; and
iv. No prima facie case has been established to justify the grant of leave
45. Accordingly, the Notice of Motion dated 5th August 2021 is hereby dismissed with costs to the Defendants.
46. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
23RD OCTOBER 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
…………..for the Plaintiffs/Applicants
……….... for the Defendants/Respondents
'
1. By a Notice of Motion dated 5th August 2021, the Plaintiffs seek the leave of this Court to continue with a derivative suit on behalf of Gossamer Crossing East Africa Limited (“the Company”) pursuant to Sections 238–241 of the Companies Act, 2015.
2. The Application is based on the grounds on the face of the application and the supporting affidavit of Suzanne Jane Belcher, the 2nd Plaintiff herein, who also describes herself as an employee, a director, and shareholder of the 1st Plaintiff Company.
3. The Defendants opposed the Application through Grounds of Opposition dated 24th April 2025, contending that the Applicants lack the requisite locus standi and have not satisfied the statutory threshold for the grant of leave for commencement and continuance of a derivative suit.
4. Pursuant to the directions of this Court, the application was canvassed by way of written submissions. The Applicant, through the law firm of Litoro & Omwebu Advocates, filed her submissions dated 16th May 2025, whilst the 1st and 2nd Defendant filed their joint submissions dated 15th July 2025.
The Applicant’s Submissions
5. The Applicant submitted that she seeks leave to institute a derivative action on behalf of the company against its directors, alleging acts of mismanagement, diversion of company assets, and breach of fiduciary duties. It was her case that she was a bona fide shareholder of the company and that the alleged wrongs were committed by those in control of the company, thereby rendering it impossible for the company itself to take action.
6. Counsel for the Applicant submitted that under Section 238 of the Companies Act, 2015, a member may, with leave of the court, institute proceedings on behalf of a company where the directors have failed to do so. He argued that the instant application meets the threshold for grant of leave since the pleadings disclosed a prima facie case of wrongdoing by the directors, and that her action of bring the instant proceedings was in good faith, and that the relief sought would benefit the company rather than the Applicant personally.
7. Reliance was placed on, among others, the decision in Udali Group Limited v Umberto Rtccardo Dellavale & 3 Others, [2017] eKLR, where the Court cited with approval the decision in Ghelani Metals Limited & 3 Others v Elesh Ghelani Natwarlal & Another [2017] eKLR, for the proposition that derivative actions exist to prevent abuse of power by directors and that courts should grant leave where the applicant demonstrates that the company itself cannot act.
8. The Applicant maintained that the allegations raised, relating to misappropriation of funds and self-dealing, fell squarely within the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461, since they involved breaches of duty by those controlling the company. He urged that refusal of leave would perpetuate injustice and shield wrongful conduct from scrutiny.
The Respondents’ Submissions
9. The Respondents, on the other hand, opposed the application, contending that the Applicant had not satisfied the statutory prerequisites for the grant of leave under Sections 238–241 of the Companies Act. Counsel submitted that the Applicant had not demonstrated that the proposed action was brought in good faith or that it was in the best interests of the company.
10. Relying on the Court of Appeal decisions in Sultan Hasham Lalji & 2 others vs Ahmed Hasham Lalji & 4 others [20141 KECA440 (KLR), and Amin Akberali Manji & 2 others v Altaf Abdulrasul Dadani & another [20151 KECA 356 (KLR), the Respondents asserted that the Applicant, being the majority shareholder, could not, in law, bring and sustain a derivative action claim.
11. The Respondent submitted that contrary to the express provisions of Section 241 of the Companies Act, the Applicant has in the instant application, failed to demonstrate that the company’s directors have made any efforts but failed to institute the suit in the name of the company; that any attempts have been made to convene a shareholders’ or directors’ meeting for the purposes of obtaining a resolution to initiate the legal proceedings; or that the company has decided not pursue the claim.
12. The Respondents maintained that the Applicant had not first sought internal remedies within the company, such as convening a general meeting or requisitioning for investigation, before resorting to court. They contended that the allegations of mismanagement were vague and unsupported by evidence, and that the application was premature and misconceived.
13. The Respondent’s Counsel argued that the matters raised were, in substance, personal grievances between shareholders rather than wrongs done to the company. The Respondents submitted that, contrary to the express provisions of Section 238 (1) of the Companies Act, the Applicant was motivated by personal differences with the board and that the application was a misuse of the derivative procedure to advance a private agenda.
14. Referring to paragraphs 13, 17, and 20 of the Plaint, the Respondent asserted that the 2nd Plaintiff’s claim herein was personal rather than for the benefit of the company. Citing the case of Joseph Munyoki Nzioka v Raindrops Limited & 3 others [20191 KEHC 9387 (KLR), the Respondent submitted that the instant suit cannot be sustained as a derivative action within the meaning of Section 238 of the Companies Act.
15. Finally, it was the Respondents’ case that the Applicant failed to prove a prima facie case to warrant issuance of leave to commence a derivative action. Relying on the case of Njenga & 2 others v Ecobank (K) Limited & another (Civil Suit E484 of 2022) [20231 KEHC 17448 (KLR), the Respondents submitted that the first hurdle, which the Applicant has failed to surmount in the present case, is for an applicant to demonstrate a prima facie case.
16. It was therefore the Respondents'' submissions that the application be dismissed with costs in their favour.
Analysis and Determination
17. Having considered the Application dated 5th August 2021, the Grounds of Opposition dated 24th April 2025, the rival submissions by Counsel, and the authorities cited, the following issues arise for determination:
i. Whether the 2nd Plaintiff/Applicant has the requisite locus standi to institute or continue a derivative suit;
ii. Whether the Applicant has satisfied the threshold for the grant of leave under Section 241 of the Companies Act, 2015;
iii. Whether the cause of action as pleaded is one vested in the company and seeking relief on its behalf; and
iv. Whether the Applicant has established a prima facie case warranting the grant of leave.
Whether the 2nd Plaintiff has the requisite locus standi
18. In applications of this nature, the starting point is the principle in Foss v Harbottle (1843) 2 Hare 461, which establishes that a company, being a distinct legal person, is the proper plaintiff in respect of wrongs done to it, and that the will of the majority of shareholders generally prevails in matters of internal management.
19. Derivative actions constitute an exception to the rule in Foss v Harbottle (1843) 2 Hare 461, allowing a shareholder to sue on behalf of the company in limited circumstances where those controlling the company are themselves the wrongdoers, and it is impractical for the company to bring a lawsuit.
20. The jurisprudence in this area is settled. The Court of Appeal in Sultan Hasham Lalji & 2 others v Ahmed Hasham Lalji & 4 others [2014] KECA 440 (KLR) held that the protection afforded by derivative actions is designed for minority shareholders who cannot cause the company to take action against errant directors. The Court stated that:
“In any case, we have observed that it is common ground that the appellants are the majority shareholders of the company. It is the minority, not the majority shareholders that are availed the protection by the exceptions since generally majority shareholders exercise powers of the company and control its affairs.”
21. Similarly, in Titus Musyoki Nzioka v John Kimathi Maingi & another [2013] KECA 32 (KLR), the Court of Appeal observed that derivative suits are available to minority shareholders seeking redress for wrongs done to the company by those in control. The Court further stated that neither a majority shareholder nor an equal shareholder can purport to act derivatively where they possess the voting power to direct corporate action. The Court expressed itself thus:
“A derivative suit, simply put, is a suit filed by a minority shareholder of a limited liability company to seek remedy for wrongs done to the company by the majority shareholders or directors. In this case, it is not disputed that the applicant and the 1st respondent hold equal shares in the 2nd respondent. Indeed, they are both directors of the company. Neither of them can in law purport to file a suit on behalf of the company to seek redress against the co-director. We are not persuaded that the suit before the High court is a derivative suit.”
22. Further in Amin Akberali Manji & 2 others v Altaf Abdulrasul Dadani & another [2015] KECA 356 (KLR), the Court of Appeal reaffirmed that a majority shareholder cannot invoke the derivative remedy because he can simply use his voting strength to cause the company to act, or even replace non-performing directors.
23. In the present case, it is not in dispute that the 2nd Plaintiff, Ms. Suzanne Jane Belcher, holds 510 out of 1000 shares in the company and is one of its directors. She therefore exercises majority control over the company. No evidence has been placed before this Court to show that her powers as a majority shareholder have been neutralized or usurped such that she is unable to act through the company’s organs.
24. Accordingly, the Court is persuaded that a majority shareholder capable of directing the company’s affairs does not ordinarily have locus standi to bring or continue a derivative action.
Whether the threshold for grant of leave under Section 241 of the Companies Act has been met
25. Even assuming that locus standi were not an impediment, the Applicant must still satisfy the requirements for judicial approval under Section 241 of the Companies Act, 2015.
26. Section 241 of the Companies Act, 2015 provides as follows: -
“Application for permission to continue claim as a derivative action
(1) If a member of a company applies for permission under section 239 or 240, the Court shall refuse permission if satisfied—
(a) that a person acting in accordance with section 144 would not seek to continue the claim;
(b) if the cause of action arises from an act or omission that is yet to occur–that the act or omission has been authorised by the company; or
(c) if the cause of action arises from an act or omission that has already occurred — that the act or omission—
(i) was authorised by the company before it occurred; or
(ii) has been ratified by the company since it occurred.
(2) In considering whether to give permission, the Court shall take into account the following considerations:
(a) whether the member is acting in good faith in seeking to continue the claim;
(b) the importance that a person acting in accordance with section 143 would attach to continuing it;
(c) if the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be—
(i) authorised by the company before it occurs; or
(ii) ratified by the company after it occurs;
(d) if the cause of action arises from an act or omission that has already occurred—whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company;
(e) whether the company has decided not to pursue the claim;
(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in the member''s own right rather than on behalf of the company.
(3) In deciding whether to give permission, the Court shall have particular regard to any evidence before it as to the views of members of the company who have no personal interest (direct or indirect) in the matter.”
27. It is clear from the above provision of the law that in considering whether to grant permission to continue a derivative claim, the court must take into account factors including—
i. whether the company has decided not to pursue the claim;
ii. whether the act or omission gives rise to a cause of action that the member could pursue in their own right;
iii. whether the applicant is acting in good faith; and
iv. whether it is in the best interests of the company for the action to proceed.
28. As was correctly observed in Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another [2017] eKLR, the judicial approval process is a gatekeeping mechanism intended to filter out frivolous or vexatious claims and ensure that only bona fide derivative actions proceed.
29. The Court of Appeal in Lalji v Trio Holdings Limited & 2 others [2023] KECA 853 (KLR) underscored the need for an applicant to plead and demonstrate the “true nature of the facts and the impossibility of getting the resolution of the company” before resorting to a derivative suit.
30. Likewise, in Waweru v Karoki; County to County Choma Grill Limited (Interested Party) [2024] KEHC 5358 (KLR), the Court (Justice Freda Mugambi) reiterated that the essence of judicial approval is to screen out unmeritorious claims, and that the applicant must show efforts to have the company act and that the company declined to do so.
31. In the present case, the Applicant has not shown any attempt to convene a general meeting, to raise the matter before the board, or to pass a resolution authorizing the institution of proceedings in the company’s name. No evidence was presented that the company was requested to act but failed or refused.
32. Being both a director and majority shareholder, the 2nd Plaintiff – the Applicant herein, had the capacity to cause the company to take action without recourse to a derivative suit. Her failure to demonstrate such effort offends the express statutory requirement under Section 241(2)(e) of the Act.
33. Consequently, it is this Court’s finding that the Applicant has not satisfied the mandatory threshold for the grant of leave.
Whether the cause of action is vested in the Company
34. A derivative claim must, by definition under Section 238(1) of the Act, be in respect of a cause of action vested in the company and seek relief on behalf of the company. A perusal of the Plaint dated 5th August 2021 in this case, however, reveals that the claim is premised upon alleged breaches of trust, fraud, and oppressive conduct against the minority shareholder. The pleadings further claim monetary sums payable to the 2nd Plaintiff personally.
35. A perusal of paragraphs 13, 17, and 20 of the Plaint indicates that the reliefs sought are to an extent personal to the 2nd Plaintiff and not entirely for the benefit of the company. In the aforementioned paragraphs, it is pleaded that: -
“17. The Plaintiff avers that the 2nd Defendant, jointly with the 1st Defendant and severally, is culpable of breach of trust; breach of fiduciary duty; a nd have engaged in unfair/prejudicial/oppressive conduct against the 2nd Plaintiff.
20. The Plaintiffs jointly claim a sum of USD 1,126,827 , being the said USD 225,000 and USD 901,827 against the Defendants jointly and severally."
36. This is inconsistent with the essence of a derivative claim as defined under Section 238 (1) to mean “proceedings by a member of the Company; - (a) In respect of a cause of action vested in the Company; and (b) Seeking relief on behalf of the Company.”
37. This Court (Njoki Mwangi J) in Joseph Munyoki Nzioka v Raindrops Limited & 3 others [2019] KEHC 9387 (KLR) held that for a derivative suit to lie, both the cause of action and the relief must be vested in and sought on behalf of the company. Where the relief sought is personal, the suit ceases to be derivative.
38. The Court therefore finds that the cause of action, as pleaded, is not one that is vested in the company or brought for its benefit, and consequently does not satisfy the definitional parameters of a derivative claim under Section 238(1).
Whether a Prima Facie Case has been Established
39. At the first stage of the inquiry under Ghelani Metals Limited (supra), the Court must be satisfied that the applicant has demonstrated a prima facie case showing a cause of action within the meaning of Section 238(3) of the Act—such as negligence, default, breach of duty, or breach of trust by a director.
40. The Applicant has not presented evidence to substantiate the alleged acts of fraud or breach of fiduciary duty by the Defendants. No specific transactions, resolutions, or documentary evidence of misconduct have been exhibited. The pleadings remain bare and conclusory.
41. As held in Njenga & 2 others v Ecobank (K) Limited & another [2023] KEHC 17448 (KLR), if the evidence adduced in support of an application “does not disclose a case for giving of permission,” the application must be dismissed at the threshold stage.
42. “In the first stage, the court must first satisfy itself that there is a prima facie case on any of the causes of action noted under s.238(3). S.239(2) of the Companies Act. However, the application for permission will be dismissed if the evidence adduced in support “do not disclose a case” for giving of permission.”
43. Having examined the record, the Court finds no factual or evidential basis to establish a prima facie case warranting the grant of leave.
Disposition
44. In the totality of the foregoing, the Court is satisfied that: -
i. The 2nd Plaintiff/Applicant, being a majority shareholder and director, lacks locus standi to institute or continue a derivative suit;
ii. The Applicant has not met the statutory threshold under Section 241 of the Companies Act, 2015;
iii. The cause of action pleaded is not one vested in or brought on behalf of the company; and
iv. No prima facie case has been established to justify the grant of leave
45. Accordingly, the Notice of Motion dated 5th August 2021 is hereby dismissed with costs to the Defendants.
46. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
23RD OCTOBER 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
…………..for the Plaintiffs/Applicants
……….... for the Defendants/Respondents
'