Directline boss faces costs over illegal suit

Directline Assurance Company CEO Evans Nyaga

Directline Assurance Company CEO Evans Nyaga.

Photo credit: File

The High Court has ordered Directline Assurance Company CEO Evans Nyaga to explain why he should not be ordered to pay the costs of a legal dispute over shareholding in the insurer.

Justice David Majanja found that Mr Nyaga authorised the filing of the suit without the permission of the company’s majority shareholders.

At stake in the longstanding dispute is the loss of businessman Samuel Kamau (SK) Macharia’s control and majority shareholding in the firm.

The case arose from the decision of an arbitrator to declare that Mr Macharia, Royal Media Services, Royal Credit and Purity Gathoni Macharia hold 9.66 percent of the firm’s ordinary shares.

This was equivalent to 1,499,592 ordinary shares in Directline.

The arbitrator also found that the majority shareholders were AKM Investments, Triad Networks, Stenney Investments PTY, Sureinvest Company and Janus, with 90.336 percent ordinary shares or 13,550,407 shares.

The insurer wanted the court to restrain Triad Networks, Stenney Investments PTY and Sureinvest and their agents or anyone acting on their behalf from disposing of or dealing with the shares.

It claimed that it had been seeking legal redress against the three companies since 2019, when it discovered that in 2011 they engaged in gigantic fraud and contravention of the Insurance Act.

But Justice David Majanja found that Directline had abused the court process as the dispute had been addressed by an arbitrator and an award issued and published on May 11 this year.

Mr Nyaga filed the case two months later, on July 4, challenging the legality and transfer of shares held by AKM Investments, Triad Networks, Stenney Investments PTY and Sureinvest.

Justice Majanja struck out the case, finding that Directline was seeking to re-litigate the issue after the arbitrator had made conclusive findings on the dispute.

Majority shareholders

In penalising Mr Nyaga, the judge noted that the suit was filed without the authority of Directline’s majority shareholders.

“The person who authorised the suit must bear the costs,” the judge said.

“In this case, Evans Nyaga, the chief executive officer, who swore the verifying affidavit in support of the Plaint, must be called upon to show cause why he should not bear the costs of the suit personally and on an indemnity basis.”

He added that the parties were bound by the arbitration decision.

Justice Majanja said the issues of share transfers and compliance with the Insurance Act had been addressed by the arbitrator.

He observed that Directline did not dispute that arbitration had taken place and an award had been issued, although it did not disclose this in its court papers.

In the arbitration proceedings, the four companies with majority shareholding in Directline and Janus had sued Royal Media Services, Royal Credit, SK Macharia and Ms Macharia.

The dispute centred on the shareholding of Directline and the right to control the company.

The arbitrator declared that Dr Macharia, his servants and agents unlawfully entered Directline’s business premises and that excluding the majority shareholders from the premises was unlawful and the act amounted to trespassing.

The exclusion violated the companies’ rights as shareholders, the arbitrator said.