UNDERSTANDING LOCUS STANDI, THE RIGHT TO SEEK

RENDITION OF ACCOUNTS, AND THE CONCEPT OF

DERIVATIVE ACTIONS IN LAW.
Insights from the case of Chen Jianwen & 2 Ors Vs. Bang Cheng
Investment Co. Ltd & 3 Ors Miscellaneous Application No. 0530 Of 2023
(Arising from Civil Suit No. 0033 of 2022)
By Waboga David

ABSTRACT.
This article examines the legal concepts of locus standi, rendition
of accounts, and derivative actions, based on the recent case of
Chen Jianwen & 2 Ors vs. Bang Cheng Investment Co. Ltd & 3
Ors (Miscellaneous Application No. 0530 of 2023) (Arising from
Civil Suit No. 0033 of 2022).
The case concerns a dispute in a Ugandan company where the
applicants, who were promised a large stake, faced allegations of
mismanagement and were arrested. Justice Stephen Mubiru
analyzed the importance of locus standi, the right of a party to
appear in court, especially in matters of sufficient interest and
urgency.
The article also explores the right to seek rendition of accounts,
which arises from specific relationships, such as principal-agent or
partner-trustee, not from convenience or hardship. Justice
Mubiru’s findings emphasize the need for a fiduciary relationship
for such a suit to be valid.
Additionally, the article explains the concept of derivative actions,
which are suits brought by shareholders on behalf of the company
against those who breach their duties. The article outlines the
requirements for a derivative suit, such as maintaining shareholder
status and representing the interests of other shareholders.
This abstract gives a comprehensive overview of the legal issues in
the case, highlighting the complex connections of locus standi,
rendition of accounts, and derivative actions in corporate law.
INTRODUCTION
Corporate law is a complex and dynamic field that regulates the
rights and obligations of various stakeholders in a company. One
of the challenges that corporate law faces is how to balance the
interests of the company as a whole and the interests of individual
shareholders who may have different views and expectations.
This challenge becomes more acute when there is a conflict or
dispute within the company, involving allegations of
mismanagement, breach of duty, or fraud by the directors, officers,
or other shareholders. In such situations, the question arises as to
who has the right to sue on behalf of the company and seek redress
for the harm caused to the company.
This article examines three legal concepts that are relevant to this
question: locus standi, rendition of accounts, and derivative
actions. Locus standi is the ability of a party to demonstrate to the
court sufficient connection to and harm from the law or action
challenged to support that party’s participation in the case1. In the
instant case, Justice Mubiru defines Locus standi as a term locus
which literally means a place of standing. It means a right to appear in
court, and, conversely, to say that a person has no locus standi means that
he has no right to appear or be heard in a specified proceeding (see Njau
and others v. City Council of Nairobi [1976–1985] 1 EA 397 at 407).
Whereas the Rendition of Accounts is the claim for an account that
is recognised in law where a person suing has a right to receive an
account from the defendant, based on a special relationship, such
as principal-agent or partner-trustee, not from convenience or
hardship. In the instant case, Justice Mubiru defines rendition to
mean The claim for an account is recognised in law where a person suing
has a right to receive an account from the defendant.
Lastly, Derivative actions are suits brought by shareholders on
behalf of the company against those who breach their duties. In

1
Oxford Constitutional Law: Standing (Locus Standi) (ouplaw.com) accessed at 12/14/2023 3:48 AM
Hamadziripi F, Osode PC2 he observes in the words of Griggs, that
derivative litigation acts as a form of “corporate watchdog, to pursue
an action against a wrongdoer, when the board refuses to act” 3. He
further notes that Derivative actions can also be viewed as a
practical and tangible expression of the checks and balances
invoked by shareholders to monitor directors’ conduct4. The article
notes further, that derivative litigation plays a critical role in
securing compensation for corporate losses or injuries 5. The
remedy protects the interests of the company for the benefit of all
shareholders6.
The article draws insights from the recent case of Chen Jianwen &
2 Ors vs. Bang Cheng Investment Co. Ltd & 3 Ors (Miscellaneous
Application No. 0530 of 2023) (Arising from Civil Suit No. 0033
of 2022), which involved a dispute within a Ugandan company
where the applicants, who were promised a large stake, faced
allegations of mismanagement and were arrested. Justice Stephen
Mubiru analyzed the importance of locus standi, the right of a
party to appear in court, especially in matters of sufficient interest
and urgency. The article also explores the right to seek rendition of
accounts, which arises from specific relationships, such as
principal-agent or partner-trustee, not from convenience or
hardship. Justice Mubiru’s findings emphasize the need for a
fiduciary relationship for such a suit to be valid. Additionally, the

2
Hamadziripi F, Osode PC. A Critical Assessment of Pertinent Locus Standi Features of the Derivative Remedy
under Zimbabwe's New Companies and Other Business Entities Act. Journal of African Law. 2022;66(2):315-338.
doi:10.1017/S0021855321000516
3
Ibid
4
Ibid
5
Ibid
6
Ibid
article explains the concept of derivative actions, which are suits
brought by shareholders on behalf of the company against those
who breach their duties. The article outlines the requirements for a
derivative suit, such as maintaining shareholder status and
representing the interests of other shareholders.
The article aims to provide a comprehensive overview of the legal
issues in the case, highlighting the complex connections of locus
standi, rendition of accounts, and derivative actions in corporate
law.
BACKGROUND OF THE CASE
The case concerns a Ugandan company, incorporated in 2015,
where the applicants expected a 71% stake through their sister, Ms.
Chen Jian Fang. In 2019, the applicants and the 3rd respondent
signed an investment agreement to fund the company, which
operated in mining and stone quarry. However, in 2021, the
applicants faced access denial and arrest for trespassing.
The applicants accused the 3rd respondent, the main manager, and
the 2nd respondent of mismanagement. They alleged further no
returns on their investment since 2019 and fraud, including share
transfer without consent. The applicants requested a court order
for the 4th respondent to manage the company until the case is
settled, claiming financial losses and incompetence by the 2nd and
3rd respondents.
DETERMINATION BY COURT.
Before delving into the matter at hand, the court observed that as
per Order 15 rule 3 of The Civil Procedure Rules, the court has
the authority to formulate issues based on sworn allegations,
statements in pleadings or answers to interrogatories, and the
contents of presented documents. Additionally, the court can amend
or introduce issues before passing a decree. In addressing the matter at
hand, the court considers several key issues:
(i) the locus standi of the applicants in the dispute,
(ii) the subject matter jurisdiction of the court over the
dispute,
(iii) the legal mandate of the 4th respondent to manage the
1st respondent during ongoing litigation, and
(iv) the feasibility of granting the orders requested by the
applicants. The court will scrutinize these issues to
determine their relevance in resolving the dispute
between the parties.
Whether the applicants have locus standi in respect of the subject
of dispute
THE COURT’S OBSERVATION ON LOCUS STANDI
The court emphasized that the matter of locus standi is a legal
concept, where examination involves scrutinizing pleadings and
relevant records. (see Mukisa Biscuit v. West End Distributors
[1969] EA 696 and Omondi v. National Bank of Kenya Ltd and
others, [2001] 1 EA 177).
The court further determined, Locus standi, meaning the right to
appear in court, implies the entitlement to be heard in a
proceeding. Denying someone locus standi implies they lack the
right to present their case.
To establish locus standi, a person must possess a "sufficient
interest" in the subject matter, characterized by adequacy,
proximity, actuality, and currency. This safeguard is crucial to
prevent frivolous or baseless litigation.
The court observed that,
“…The interest must be actual, not abstract or academic;
and the interest must be current, 5 not hypothetical. The
requirement of sufficient interest is an important safe-
guard to prevent having “busy-bodies” in litigation,
with misguided or trivial complaints. If the requirement
did not exist, the courts would be flooded and persons
harassed by irresponsible suits…”
The court clarified that sufficient interest requires an immediate,
direct, and substantial connection to the subject matter. Being
aggrieved involves having a direct and pecuniary interest in the
proceedings, surpassing the common citizen's interest in law
compliance.
A substantial interest is one that goes beyond the general public
concern. For an interest to be considered "direct," there must be a
clear causal link between the issue at hand and the alleged harm.
Lastly, an interest is "immediate" when the causal connection is
close and not remote or speculative. The court highlighted these
criteria to ascertain whether a party is the appropriate entity to
seek relief in legal proceedings.
The court observed that, The dispute centered around the capital
contributions made by the applicants, totaling ¥ 57,919,927, to the
business operations of the 1st respondent. The contributions were
made under a nominee shareholding agreement in 2015 and an
investment agreement in 2019.
Seeking legal intervention, the applicants aim to secure orders for
inspecting the 1st respondent's books of account, reviewing its
operations, withdrawing their contributions, recovering returns on
investment, and enforcing the terms outlined in the investment
agreement. The crux of the matter involves the examination and
validation of the financial transactions and obligations between
the parties.

THE COURT’S OBSERVATION ON THE RENDITION OF

ACCOUNTS
The court observed,
“The right to seek rendition of accounts cannot be claimed as a
matter of convenience or on the ground of hardship or on the
ground that the person suing does not know the exact amount due
to him, as that will open the floodgate for converting several types
of money claims into suits for accounts, or to avoid payment of
Court fees at the time of institution. The claim for an account is
recognised in law where a person suing has a right to receive an
account from the defendant.
Justice Steven Mubiru further noted that,
Such a right can either be
(a) created or recognised under a statute; or
(b) based on the fiduciary relationship between the parties as in
the case of a beneficiary and a trustee, or
(c) claimed in equity when the relationship is such that rendition
of accounts is the only relief which will enable the person seeking
account to satisfactorily assert his legal right, such as in suits for
administration of any property, suits by a partner of a firm for
dissolution of the partnership firm and accounts, suits by
beneficiary against trustee(s), suits by a co-sharer against other
co-sharer(s) who has/have received the profits of a common
property, suits by principal against an agent, and suits by a minor
against a person who has received the funds of the minor.

NATURE OF SUIT FOR RENDITION OF ACCOUNTS:

The court observed that a suit for rendition of accounts is
permissible only under specific circumstances, notably when a
special relationship, such as principal and agent, bailor and bailee,
guardian and ward, partner, or trustee/receiver, exists between the
parties. The essential condition for maintaining such a suit is the
presence of a fiduciary relationship between the plaintiff and
defendant, with the latter being obligated to provide an account.
This relief is not applicable solely based on a contractual
relationship, even if accounts need examination during a suit.
In the context of the current suit, the component seeking rendition
of accounts is intricately linked to the attempt to secure the specific
performance of an investment agreement between the applicants
and the 3rd respondent.
Therefore, it is a suit arising from the alleged breach of the investment
contract dated 25th September 2019, where the applicants are named as
parties. The focus is on the contractual obligations and fiduciary aspects
governing the relationship between the parties involved.

DERIVATIVE ACTIONS AND MEMBERSHIP STATUS:

LEGAL PERSPECTIVE.
The court defined a derivative suit to mean one brought by a
shareholder or group of shareholders on behalf of and in the name
of the corporation against the corporation’s directors, officers, or
other third parties who breach their duties
To qualify as a plaintiff in a derivative suit, the individual must:
1. Be a shareholder at the time of the act or omission forming the
subject matter of the suit or become one by operation of law.
2. Maintain shareholder status throughout the proceedings.
3. Fairly and adequately represent the interests of similarly
situated shareholders.
 4. Make a written demand for suitable action from the
corporation before filing the suit, with exceptions allowing
early filing under specific circumstances.
Damages in derivative suits address wrongs against the
corporation, not individual shareholders, and are awarded to the
corporation itself.
The applicants must hold the status of shareholders or members of
the 1st respondent to maintain this aspect of the suit.

ACQUISITION OF MEMBERSHIP IN A COMPANY

The court observed further according to section 47 of The
Companies Act, 2012, that membership in a company can be
acquired in two ways:
1. by subscribing to the memorandum or
2. by agreeing to become a member and having one's name
entered in the register of members.
However, a person may subscribe or agree on behalf of another,
acting as a nominee shareholder.
A nominee shareholder is the registered owner of shares held
for the benefit of another (the beneficial owner).
The Companies Act defines a "beneficial owner" as a person
who ultimately owns or controls a company. While there is no
fixed threshold for determining effective control, 25%
ownership is commonly considered acceptable. As of January
11, 2023, companies are legally required to submit information
about their beneficial shareholders to the Uganda Registration
Services Bureau.

WHO IS A NOMINEE SHAREHOLDER?

The court defined a nominee shareholder as a Nominee is the one
who covers anyone who votes or collects dividends on behalf of the
beneficial owner.
It also includes any natural person that has voting rights,
invested initial capital investment or provided funding, has a
right to annual profits or has the right to the assets of the legal
person can be registered as a beneficial owner.
In addition, any natural person who is entitled to appoint,
replace, or terminate members of the board of directors /
commissioners, or who is authorised or entitled to influence or
control the legal person without any prior authorisation from
any party, also qualifies as a beneficial owner, independently of
their direct or indirect ownership of shares, voting rights, or
capital.
DISTINGUISHING NOMINEE AND PROXY
SHAREHOLDERS IN THE LEGAL CONTEXT
The court distinguished Nominee shareholders and proxy
shareholders serve distinct roles in corporate structures.
Unlike proxy shareholders, who act on behalf of shareholders in
their absence with full voting powers, nominee shareholders
primarily function to safeguard the anonymity of the true owner
and maintain privacy in public records. This arrangement is
often chosen by overseas investors for simplicity and cost
reduction.
In a nominee shareholder setup, a confidential declaration of
trust is established between the nominee and the beneficial
owner. This legal document specifies that the nominee holds the
shares solely on behalf of the beneficial owner, who retains
exclusive rights and benefits associated with ownership.
Although the nominee's name appears on share certificates and
public registers, they are a shareholder only in name. The
beneficial owner retains the authority to dispose of shares,
receive dividends, exercise voting rights, and enjoy other
ownership benefits.
According to the facts
Ms. Chen Jian Fang, being a subscriber to the 1st respondent's
memorandum and articles of association, became a nominee
shareholder through an agreement with the applicants. In their
roles as signatories to the investment agreement and as the
beneficial owners of shares held by Ms. Chen Jian Fang, the
applicants possess locus standi.
This legal standing enables them to maintain a suit for breach of
contract, seek specific performance, and potentially commence
a derivative suit if the need arises.
 The court affirms that the applicants have the legal
standing (locus standi) concerning the subject of
dispute.

THE OTHER ISSUE AROSE AS TO WHETHER THIS

COURT HAD SUBJECT MATTER JURISDICTION OVER
THE DISPUTE.
SUBJECT MATTER JURISDICTION IN CORPORATE
DISPUTES
The court observed that
Subject matter jurisdiction, a crucial facet of legal
proceedings, is a question of law and cannot be presumed,
waived, or conferred by agreement. Its absence can be raised
at any time, even spontaneously by the court. The court must
have subject matter jurisdiction over the specific issue in
question to hear a case.

As per Section 15(c) of The Civil Procedure Act, a suit

should be filed within the local limits of the court's
jurisdiction where the cause of action, wholly or in
part, arose. In contract-related suits, the cause of
action arises where the contract was made, where it
was meant to be performed, or where any money
related to the suit was payable during contract
performance.
In the context of the dispute arising from the nominee
shareholding and investment agreements, though both were
made in China, they were intended to be performed in
Uganda, and all the alleged wrongs occurred there. Given
that the essence of the suit is a breach of the investment
agreement, with remedies sought such as specific
performance, rescission, and an account, the cause of action is
deemed to have arisen in Uganda.
Citing Article 139(1) of The Constitution of the Republic of
Uganda, 1995, and Section 14(1) of The Judicature Act, the
court asserts its unlimited original jurisdiction in all matters,
subject to constitutional provisions. Consequently, the court
affirms its subject matter jurisdiction over the dispute,
aligning with the nature of the controversy and the location
of the alleged breaches.

WHETHER THE 4TH RESPONDENT HAS THE LEGAL

MANDATE TO UNDERTAKE MANAGEMENT OF THE 1ST
RESPONDENT, PENDING THE ONGOING LITIGATION
BETWEEN THE PARTIES;
STATUTORY AUTHORITY OF THE 4TH RESPONDENT IN
CORPORATE MANAGEMENT
The court observed that
The relief sought, involving the 4th respondent as a statutory body,
assumes significance in understanding the limitations of statutory
bodies' functions and powers. It is a fundamental legal principle
that a statutory corporation, created by an act of parliament, can
only act within the confines of its establishing legislation. The
functions and powers of such bodies must align with their
statutory purposes and objectives.
Court observed that
It must, therefore, be now considered as a well-settled
doctrine that a Company incorporated by Act of
Parliament for a special purpose, cannot devote any
part of its funds to objects unauthorised by the terms
of its incorporation, however desirable such an
application may appear (see Eastern Counties Ry Co v
Hawkes (1855) 5 HLC 331)
In this context, the 4th respondent, governed by The Uganda
Registration Services Bureau Act, is entrusted with specific objects
and functions. These include administering and giving effect to
relevant laws, providing registration services, collecting and
accounting for revenue, and advising the government on
registration-related matters. The Act explicitly outlines the
functions, limiting the 4th respondent to activities directly linked
to the enforcement of relevant laws and the collection of revenue.
The applicants argued that the 4th respondent is mandated by law
to manage and administer companies for the benefit of members
and the protection of business assets and revenue to the Ugandan
government. However, a closer examination of the statutory
provisions reveals that the 4th respondent's functions are
primarily focused on registration services and revenue
collection, not on the ongoing management of companies.
Additionally, the powers conferred upon the
Registrar of Companies, including the authority to
investigate, report, and take specified actions, are
limited to matters within the scope of company
registration and compliance with relevant laws. The
legislative intent, as expressed in the long title of the
Act, emphasizes the establishment of an agency for
miscellaneous registrations and revenue collection,
without extending its reach to the management and
administration of companies as going concerns.
The court concluded that the 4th respondent lacked the legal
mandate to undertake the management of the 1st respondent
during the ongoing litigation between the parties. The statutory
authority of the 4th respondent, as per the Uganda Registration
Services Bureau Act and The Companies Act, is circumscribed by
specific functions related to registration and revenue collection,
excluding the broader role of managing companies as ongoing
concerns.
KEY TAKEAWAYS:
1. Locus Standi:
 Locus standi is the right of a party to appear in court.
  The party must have a sufficient interest in the subject
matter, demonstrating adequacy, proximity, actuality,
and currency.
 Frivolous or baseless litigation is prevented by requiring
an immediate, direct, and substantial connection to the
issue.
2. Rendition of Accounts:
 The right to seek rendition of accounts arises from
specific relationships, such as principal-agent or partner-
trustee.
 It cannot be claimed based on convenience or hardship;
there must be a recognized right to receive an account.
 Fiduciary relationships are crucial for a rendition of
accounts to be valid.
3. Derivative Actions:
 Derivative actions are suits brought by shareholders on
behalf of the company against those who breach their
duties.
 Shareholders must maintain their status throughout the
proceedings and fairly represent the interests of others.
 Damages in derivative suits address wrongs against the
corporation, not individual shareholders.
4. Membership in a Company:
  Membership in a company can be acquired by
subscribing to the memorandum or agreeing to become
a member.
 Nominee shareholders act on behalf of beneficial
owners, maintaining privacy in public records.
 Effective control is often considered at 25% ownership.
5. Subject Matter Jurisdiction:
 Subject matter jurisdiction is a question of law and
cannot be presumed, waived, or conferred by
agreement.
 The court must have jurisdiction over the specific issue
in question to hear a case.
 The location where the cause of action arises is crucial
for determining jurisdiction.
6. Statutory Authority of the 4th Respondent:
 Statutory bodies can only act within the confines of their
establishing legislation.
 The functions and powers of statutory bodies must align
with their statutory purposes and objectives.
 The 4th respondent's functions are primarily focused on
registration services and revenue collection, not ongoing
management of companies.
General Conclusion:
The case of Chen Jianwen & 2 Ors vs. Bang Cheng Investment
Co. Ltd & 3 Ors provides valuable insights into the legal concepts
of locus standi, rendition of accounts, and derivative actions in the
context of a corporate dispute. The court's meticulous examination
of these concepts emphasizes the importance of legal standing,
recognized rights, and fiduciary relationships in seeking redress
for alleged wrongs in the corporate realm.
Furthermore, the court's determination on subject matter
jurisdiction and the statutory authority of the 4th respondent
underscores the necessity for legal actions to be grounded in law
and aligned with the specific functions outlined in legislation.
This case serves as a comprehensive exploration of the intricate
legal connections involved in corporate disputes, contributing to a
clearer understanding of the interplay between shareholders,
statutory bodies, and the court in matters of corporate governance
and legal remedies.

By Waboga David (PGDLP Candidate)

Disclaimer!!!
This article is provided for informational purposes only and should not be considered as legal
advice. It is important to consult with a qualified attorney for advice regarding your specific legal
situation. Laws and regulations may change, and this article may not reflect the most current legal
standards or interpretations. The information provided in this article is based on the knowledge
available as of the publication date of the decision (August 9th 2023), and it may not reflect
subsequent developments in the law