East African Cables Limited v Central Cables Limited [2022] KEHC 16579 (KLR)

East African Cables Limited v Central Cables Limited (Civil Case 144 of 2016) [2022] KEHC 16579 (KLR) (Commercial and Tax) (8 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16579 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Case 144 of 2016

WA Okwany, J

December 8, 2022

Between

East African Cables Limited

Plaintiff

and

Central Cables Limited

Defendant

Ruling

1. The plaintiff instituted this suit against the defendant through the plaint dated April 27, 2016. Summary judgment was entered against the defendant on January 28, 2016. The defendant sought to set aside the said judgment through an application dated July 3, 2019 which application was dismissed through a ruling delivered December 5, 2019.

2. On July 27, 2017, the court allowed the plaintiff’s application to cross examine the defendant’s directors. Consequently, the directors appeared in court on September 29, 2021 when the plaintiff elected to cross examine only one of the directors, Mr Githinji.

3. During cross examination, the said director admitted that the defendant company is indebted to the plaintiff and that the average yearly expenses in 2015 was 3. 5 million. He testified that he did not have the schedule of sales made by the company and that the debt of 32 million had accrued overtime since 2009. It was his testimony that since 2009, some of the debtors did not pay the defendant company but that the defendant did not sue them as they did not have written agreements with them. He stated that their shop was taken over by an independent dealer known as crystal cables.

4. Both parties filed written submissions which I have considered. While the plaintiff seeks the lifting of the corporate veil so that the defendant’s directors can be held personally liable for the company’s debt, the defendant, on the other hand, argued that the plaintiff ought to have filed a substantive application for the lifting the corporate veil.

5. Order 22 Rule 35 of the Civil Procedure Rules states as follows:-Where a decree is for the payment of money, the decree- holder may apply to the court for an order that—(a)the judgment-debtor;(b)in the case of a corporation, any officer thereof; or(c)any other person, be orally examined as to whether any or what debts are owing to the judgment-debtor, and whether the judgment-debtor has any and what property or means of satisfying the decree, and the court may make an order for the attendance and examination of such judgment-debtor or officer, or other person, and for the production of any books or documents.

6. In NBI HCCC No 1287 of 2000Ultimate Laboratories vs Tasha Bio Service Limited (Supra) the Court observed as follows: -a.“Two things emerge from the above proposition. One, the power of the court to summon a person to attend and be examined under Order 22 Rule 35 is circumscribed within the purpose set out in the Rule. That is;b.as to whether any or what debts are owing to the judgment debtor, and whether the judgment debtor has any and what property or means of satisfying the decree.c.I therefore, take the view that, as long as the applicant has shown that the respondent is in a position to provide information in the nature of discovery….as to whether any or what debts are owing to the judgment debtor, and whether the judgment debtor has any and what property or means of satisfying the decree, the court should summon the person to attend and be examined in relation to the purpose stated in the Rule.”

7. It was not disputed that the defendant is indebted to the plaintiff. In its orders of July 27, 2017, this court allowed the plaintiff to cross examine the directors of the defendant company. The defendant’s directors appeared before the court for cross examination and also produced their company’s books of accounts.

8. The plaintiff seeks the lifting of the corporate veil so as hold the defendant’s directors personally liable for the debt. The law on lifting of the corporate veil was settled through the decision inSalomon v Salomon & Co Ltd (1897) AC 22 HL to the effect that the veil of incorporation will only be lifted where there is proof of fraud or some other misconduct of equal gravity.

9. In Corporate Insurance Co Ltd v Savemax Insurance Brokers Ltd & another (HCCC No 125 of 2002) Ringera J (as he then was) stated the following:-“The veil of incorporation is not to be lifted merely because the company has not assets or it is unable to pay its debts and is thus insolvent. In such a situation, the law provides for remedies other than the directors of the company being saddled with the debts of the company.

10. Further in Kolaba Enterprise Ltd v Shamsudin Hussein Varvani & Another[2014] eKLR Gikonyo J rendered himself thus:-“….[the] separate legal personality of a company can never be departed from except in instances where the statute of the law provides for the lifting or piercing of the corporate veil, say when the directors or members of the company are using the company as a vehicle to commit fraud or other criminal activities.”

11. In Michael Kyambati v Principal Magistrate, Milimani Commercial Courts, Nairobi & another [2016] eKLR Odunga J restated this principle in the following terms:-“…the decision to lift the corporate veil will not be lightly undertaken. In the present case there is no allegation that the applicant has attempted to execute against the defendant company and such attempts have failed. The only allegation made is that the applicant is not aware of the assets of the respondent. Whereas that may be a ground for invoking Order 22 rule 35…..that does not necessarily satisfy the conditions stipulated for the lifting of the corporate veil of corporation.”

12. From the above cited cases, it is not in doubt that a company is a separate juristic person and an order for lifting of the corporate veil should be granted sparingly, only in the presence of special circumstances such as misconduct and fraudulent dealings.

13. I have perused the record and from the cross examination of Mr Githinji, I find that there is no evidence of fraud. The plaintiff has not demonstrated the conduct of the directors was so grave that it warrants the piercing the veil of incorporation. I also note that the plaintiff had not filed a substantive application for the orders sought.

14. I find that that the plaintiff has not made out a case for lifting a corporate veil so as to hold the directors personally liable for the debts of the company. The cross examination was for purposes of questioning the judgment debtor for the realization of the decree.

I make no orders as to costs.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 8TH DAY OF DECEMBER 2022. W. A. OKWANYJUDGEIn the presence of: -Ms Inima Boke for plaintiff.No appearance for defendant.Court Assistant- Sylvia