Wakilii

Joel Odong Amen & Anor v DrOcero andrew & Anor (HCT-00-CC-CS 602 of 2004)

High Court · [2006] UGCOMMC 51 · 2006 Preliminary Objection Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Preliminary point of law raised by defendants before opening their defence
Decision
Preliminary objection dismissed; matter to proceed to trial on the merits

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that where shareholders sell their shares in a company pursuant to a share sale agreement, their claim to the proceeds of that sale is a personal right, not a corporate right. The rule in Foss v Harbottle requiring the company to be the proper plaintiff does not apply because the plaintiffs are suing for their entitlement to proceeds from the sale of their own shares, not to vindicate a wrong done to the company. A cause of action in the shareholders' own right is disclosed. Preliminary objection overruled.

Outcome

Preliminary objection dismissed; matter to proceed to trial on the merits

Facts

The plaintiffs and defendants were the only four shareholders in Rhino Communication Company Ltd, holding 40% and 60% respectively. All four entered into an agreement to sell the company to third parties for UGX 50,000,000. The plaintiffs alleged that upon receipt of the sale proceeds, the defendants refused to hand over the plaintiffs' 40% share of the proceeds and account balances. The plaintiffs sued for recovery of their share. After the plaintiffs closed their case, the defendants raised a preliminary objection that the proper plaintiff should be the company, not the shareholders, citing the rule in Foss v Harbottle. The defendants argued that any wrongs were committed against the company and only the company could sue.

Issues

  1. Whether minority shareholders have a cause of action to sue majority shareholders in their own names for breach of trust in relation to proceeds from the sale of their shares.
  2. Whether the rule in Foss v Harbottle requiring the company to be the proper plaintiff applies where shareholders are suing in respect of proceeds from the sale of their own shares.
  3. Whether the exceptions to the rule in Foss v Harbottle permit minority shareholders to sue where the majority control the company and have allegedly committed fraud on the minority.
  4. Whether the company must be joined as a nominal defendant in a derivative action.
  5. Whether the plaintiffs' claim is based on corporate rights or personal shareholder rights.

Orders

  • Preliminary point of law overruled.
  • Costs to be in the cause.

Rules and key headnotes

Company Law — Derivative Actions — Rule in Foss v Harbottle — Proper Plaintiff — Distinction Between Corporate and Personal Rights
The rule in Foss v Harbottle that the company is the proper plaintiff to redress a wrong done to it does not apply where shareholders are suing to enforce personal rights arising from the sale of their own shares. A claim to proceeds from the sale of shares pursuant to a share sale agreement is a personal right of the shareholder, not a corporate right, and may be enforced by the shareholder in their own name.
Company Law — Derivative Actions — Exceptions to Foss v Harbottle — Fraud on the Minority
A minority shareholder may sue in their own name, notwithstanding the rule in Foss v Harbottle, where the majority shareholders who control the company are alleged to have perpetrated a fraud on the minority by expropriating company funds or the minority's share of proceeds, and it would be impossible for the company to pass a resolution to sue the majority.
Civil Procedure — Parties — Non-Joinder — Effect of Non-Joinder of Company as Defendant in Derivative Action
The failure to join the company as a nominal defendant in a derivative action does not defeat the suit. The court may invoke Order 1 rule 9 of the Civil Procedure Rules, which provides that no suit shall be defeated by reason of non-joinder of parties, and may deal with the matter as regards the rights of the parties actually before it. The court may also, in exercise of its inherent powers under section 98 of the Civil Procedure Act, order the company to be added as a defendant to promote the ends of justice.
Company Law — Derivative Actions — Requirements for Derivative Action — Pleading Fraud
In derivative actions, the requirement to plead fraud is not so strict that technical language must be used. Fraudulent dealing can be regarded as synonymous with wrongdoing. Where the pleadings disclose wrongdoing by the majority shareholders, including expropriation of funds and breach of trust, this suffices to bring the case within the exceptions to the rule in Foss v Harbottle.
Civil Procedure — Cause of Action — Essential Elements — Violation of Personal Right
A cause of action consists of three essential elements: the plaintiff enjoyed a right; the right has been violated; and the defendant is liable. Where shareholders have sold their shares and have a right to their proportionate share of the proceeds, and that right has been violated by the defendants' refusal to hand over the proceeds, a cause of action in the shareholders' own right is disclosed.

Legislation cited (4)

Cases cited (9)

  • Foss v Harbottle (1843) 2 Hare 461
  • Allied Bank International Ltd v Sadru Kara & Anor (HCT-00-CC-CS-0191-2002)
  • Salim Jamal & Others v Uganda Oxygen Ltd & Anor (SC Civil Appeal No. 64 of 1995)
  • National Enterprises Corporation v Nile Bank (Civil Appeal No. 17 of 1994)
  • Fam International & Anor v Ahamed Halid el Fathi (Civil Appeal No. 6 of 1993)
  • Spokes v Grosvenor Hotel [1897] 2 QB 124
  • Clarkson v Davies [1923] AC 100
  • Auto Garage & Ors v Motokov (No 3) [1971] EA 515
  • Moir v Waller Steiner [1975] All ER 849

Full judgment

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Joel Odong Amen & Anor v DrOcero andrew & Anor (HCT-00-CC-CS 602 of 2004) [2006] UGCommC 51 (30 November 2006)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.