Roltex International Forex Bureau Ltd v Haba Group (U) Ltd and Others (Miscellaneous Application No. 964 of 2022) [2025] UGCommC 166 (9 May 2025)

# 5 **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA COMMERCIAL DIVISION MISCELLANEOUS APPLICATION NO. 964 OF 2022 [ARISING FROM CIVIL SUIT NO. 219 OF 2012]** 10 **ROLTEX INTERNATIONAL FOREX BUREAU LTD ] APPLICANT VERSUS** 15 **1. HABA GROUP (U) LTD ] 2. HASSAN BASSAJJABALABA ] RESPONDENTS 3. MUZAMIR BASAJA ]**

**Before: Hon. Justice Ocaya Thomas O. R**

# **RULING**

# **Introduction:**

This is an application under Section 20 of the Companies Act 2012, Order 40 Rules 5-8 of the CPR

- 25 and Section 98 of the Civil Procedure Act. The Application seeks the following the orders: - (a) An order to the lift the veil of incorporation be issued against the 2nd and 3rd Respondents to attach the properties of the 2nd and 3rd Respondents. - (b) Costs of this application be provided for.

# 30 **Background:**

The background to the present proceedings according to the Applicant is that the Applicant is the judgment debtor in HCCS 219 of 2012 having obtained judgment against judgment in its favour on the 17th day of September 2016. In the said judgment, orders were made for the payment of UGX 188,484,785, general damages of UGX 10,000,000 and interest at a rate of 19%

35 per annum from the date of the cause of action as well as costs of UGX 8,705,545. Presently the amount of UGX 546,136,216 remains outstanding.


- In execution of the decree, the Applicant applied to court in HCMA 517/2017 to garnishee the 1st 5 Respondent's accounts at Orient Bank (U) Ltd Kampala Road Branch. A decree nisi was obtained on 6 June 2017 but the garnishee was not satisfied. - The Appointed Bailiffs M/s Kibstar Auctioneers & Court Bailiffs have equally searched 10 everywhere in Uganda and cannot find any property of the 1st Respondent company. The only know property being City Centre Complex on Luwum Street was quickly sold by the 2nd and 3rd Respondents as directors of the 1st Respondent in a calculated act of fraud to defeat claims of the Applicant. The Applicants then instructed their lawyers to conduct a company search on the 1st Respondent and they discovered that the directors of the 1st Respondent were the 2nd and 3rd Respondents, that the company had no assets and the company had never filed returns since 30th 15 - November 2010.

That the 2nd and 3rd Respondents own shares at Kampala International University, Haks Express at industrial area, other personal properties including cars among others (sic). Accordingly, the Applicant brought this application to attach the properties of the 2nd 20 and 3rd Respondents.

# **Response to The Application**

The Application was opposed by the 2nd Respondent who contended that;

- 1. The Application is incompetent; the same having been caught up by the doctrine of laches. - 25 2. The 2nd Respondent is not a shareholder in the 1st Respondent and an application to lift the corporate veil and hold the 2nd Respondent liable is incompetent. - 3. The 2nd Respondent was engaged as a director and in execution of that mandate, was not engaged in any fraudulent dealings which would deprive the Applicant of an opportunity to recover the fruits of its judgment. - 30 4. The 3rd Respondent was one of the shareholders but passed on in November 2024 and accordingly, this application as against the 3rd Respondent is a non-starter. Additionally, that the 2nd Respondent is not aware that he 3rd Respondent ever tried to hide property of the 1st Respondent while he was still alive. - 5. Although the 1st Respondent is still registered as a going concern, the 2nd Respondent has 35 ceased acting as a director. The 2nd Respondent does not hold property on behalf of the 1st Respondent and does not own property jointly with the 1st respondent.


- 5 6. The Applicant has not demonstrated any diligent steps to recover the fruits of its judgment by recourse to all available means of execution and should be disentitled to the remedies sought. - 7. The impugned transaction was between the Applicant and 1st Respondent, and not with the 2nd Respondent either as a co-party or guarantor thereof and accordingly, rendering 10 the remedies sought against the Applicant are redundant and untenable. Additionally, - that the 2nd Respondent has never been approached by anyone in respect of HCCS 219 of 2012 and allegations to this effect by the Applicant are false. - 8. Additionally, Annexures "A" and "B" to the Affidavit in support are clear that judgment was obtained in 2015 and not 2016 and therefore the contentions in paragraph 2 of the 15 affidavit in support are false. - 9. The decree and/or the application for execution were never served on him and neither was he approached requesting to heed to the orders therein. During the time when the garnishee proceedings in HCMA 517 of 2017 were commenced, the 1st Respondent was a going concern that had money on its accounts to ensure the smooth running of its 20 operations and therefore the allegations that M/s Kibstar Auctioneers & Court Bailiffs conducted diligent searches for assets of the 1st Respondent for purposes of attachment are not evidentially supported. - 10. The 2nd Respondent was never involved in any acts aimed at enabling the 1st Respondent to escape liability under the said judgment. With regard to the said company property 25 City Centre Complex, there was no fraud in the sale of the same as the sale was conducted on a willing buyer willing seller basis. - 11. The non-failure to file returns by the 1st Respondent cannot be imputed on the 2nd Respondent who is not a shareholder, but it could be attributed to the 3rd respondent's long illness which led to his death. - 30 12. The property of the 2nd Respondent is separate from that of the 1st Respondent company and the Applicant did not carry out any due diligence to satisfy non-existence of assets in the names of the 1st Respondent that could be attached to satisfy the decree in HCCS 219 of 2012. - 35 On the basis of the above, the 2nd Respondent contended that this application has no merit and that it would be unjust for this court to grant orders of lifting the veil of incorporation on


5 unproven allegations that the 2nd Applicant was fraudulent or dishonest in any way and without fully satisfying court that indeed the Applicant carried out its due diligence and discovered that the 1st Applicant had no assets.

#### **Applicant's Rejoinder**

- 10 In Rejoinder, the Applicant contends that: - 1. The 1st Respondent has not filed returns since 2010 and not filed Company Form 1 and accordingly the 1st Respondent was struck off and is no longer a going concern. - 2. The 1st Respondent was always served with court documents through its previous lawyers' M/s Niwagaba Mwebesa & Co. Advocates and throughout the hearing (sic). 15 However, towards conclusion of the suit, the Respondents' lawyers rejected service of court process and attempts to serve the company were futile since the company through its directors had sold the company premises and relocated to an unknown place up to date (sic). - 3. The 2nd and 3rdDefendant's refusal to satisfy a decree in their knowledge despite evidence 20 that the company was in possession of sufficient funds and assets to honour the judgment debt is sufficient proof of fraud. Additionally, that the 2nd and 3rd Respondent's unlawful actions of disposing off of company assets and monies while abandoning company duties and obligations to pay company debts especially the Applicant's decretal sum amounts to fraud for which the veil should be lifted. - 25 4. The 1st Respondent is not a going concern whose assets are not known to the Applicant but rather the 1st Respondent as the current and/or previous director who at all times was and is involved in the secret affairs of the 1st Respondent.

# **Representation**

30 The Applicant was represented by M/s Omongole & Co. Advocates while the 2nd Respondent was represented by M/s Magna Advocates. The 1st and 3rd Respondents neither entered appearance and nor were they represented.

# **Evidence and Submissions**

35 The Applicant led evidence by way of an affidavit in support of the chamber summons deponed by Mohamed Aliof the Managing Director of the Applicant and Mugisha Andrew, a lawyer working with Omongole & Co. Advocates, the Applicant's retained counsel herein. The 2nd 5 Respondent led evidence by way of an affidavit in reply deponed by him. The 1st and 3rd Respondents did not lead evidence.

All parties made submissions, including submissions in rejoinder made by the Applicants. For 10 purposes of brevity, this court does not find it necessary to reiterate here the contents of the parties' submission, suffice to say that this court considered the same before arriving at the decision below.

#### **PART ONE: DECISION ON PRELIMINARY POINTS OF LAW**

- 15 Counsel for the 2nd Respondent raised two preliminary points of law: - (a) The present application is incompetent against the 3rd Respondent as it is brought against a dead person. - (b) The present application is incompetent as against the 2nd Respondent in so far as he was not a shareholder of the 1st Respondent. - 20

A preliminary objection raises a pure point of law which is usually on the assumption that all the facts pleaded by the other side are correct. It is thus based on a commonly accepted set of facts as pleaded by both parties. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. Preliminary objections relate to points of law, raised at the

25 outset of a case by the defence without going into the merits of the case. In any preliminary objection therefore, there is no room for ascertainment of facts through affidavit oral evidence. See **Yaya Farajallah v Obur Ronald & Ors HCCA 81/2016**

Matters that require evidence cannot be entertained as preliminary objections but must instead

30 be resolved in the main suit. See **Lweza Clays & Another vs Tropical Bank & Another, SCCA 31 of 2018 and Ssekabira Herbert v Ssuna Mulema & Anor HCMA 186/2022**

In determining a preliminary point of law, the court must consider the pleadings and assume the contents therein to be correct. See **Mukisa Biscuit Manufacturing Co v West End Distributors**

35 **[1969] EA 696, Rev George Lubega & Anor v Luwero Town Council & Anor HCCS 193/2009, Yutta Luda Musoke v Greenland Bank HCCS 506/2001.**

#### 5 Proceedings Against Dead Person

The 2nd Respondent led evidence that the 3rd Respondent passed on in November 2024. This evidence was not challenged by the Applicant.

The starting point is the note that under **Section 2(x)** of the Civil Procedure Act, an application

10 such as the present one is a suit. See **Japan Auto World v Magala & Ors HCCS 73/2016, DAPCB v Musa Balikoowa & Anor HCMA 61/2023, Rohi Investment Ltd v Fenghua Limited HCMA 2270/2023**

# **Order 25 Rule 4(1)** of the CPR provides:

- 15 "(1) Where one of two or more defendants dies and the cause of action does not survive or continue against the surviving defendant or defendants alone, or a sole defendant or sole surviving defendant dies and the cause of action survives or continues, the court, on an application made for that purpose, shall cause the legal representative of the deceased defendant to be made a party and shall proceed with the suit." - 20

Whereas Rule 4 makes mention of defendants, in my view, it applies also to Respondents since applications of this nature are also regulated by the CPR. The present application was filed in 2022, albeit endorsed. The implication of this is that the present suit was filed while the 3rd Respondent was still alive, but that the 3rd Respondent died during the pendency of the present

25 proceedings, before the application was fixed or heard.

One cannot proceed against a deceased person since a deceased person cannot be heard from in defence of themselves. See **Nile Breweries Limited v Emmanuel Binyerere HCCA 59/2016**

# 30 In **Abdala Ramathan v Agony Swaib HCMA 67/2016**, the court held thus:

"Where the defendant dies during the pendency of the suit, any judgment rendered on hearing the suit, without bringing the legal representatives of the deceased defendant on record, will be a nullity. That principle though is not to be applied mechanically. It applies with full force where the suit is heard on merits in the absence of a legal representative of a deceased person.

35 In such cases, the suit should proceed only after the legal representatives of the deceased are brought on record."

- 5 In **Section 98** of the CPA, the inherent power of court is saved in the following terms; "Nothing in this Act shall be deemed to limit or otherwise affect the inherent power of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court." - 10 In **Vantange Mezzanine Fund II Partnership & Anor v Commissioner Land Registration HCMA 2484/2023** this court referencing Section 33 of the Judicature Act and Section 98 of the CPA held thus:

"These provisions vest the High Court with wide discretionary and inherent powers respectively to grant absolutely or on such terms and conditions as it thinks just, all such remedies as any of

15 the parties to a cause or matter is entitled to in respect of any legal or equitable claim properly brought before it."

See also **Kagumaho Musana v Rama and 3 Others HCMA 933 of 2019 and Tullow Uganda Limited & Anor v Jackson Wabyona & Ors HCMA 443/2017, Green Meadow Limited v Patrice Namisono HCMA 1368/2022**.

In **King's College Budo Staff Savings Scheme Limited v Zaverio Samula & Ors HCCS 26/2020,** the court defined abuse of court process thus:

"The term abuse of court process has the same meaning as abuse of judicial process. The employment of judicial process is regarded as an abuse when a party uses the judicial process 25 to the irritation and annoyance of his opponent and the efficient administration of justice. It is a term generally applied to a proceeding, which is wanting in bona fides and is frivolous, vexatious or oppressive. The term 10 abuse of process has an element of malice in it. The concept of abuse of judicial process is imprecise, it implies circumstances and situations of infinite variety and conditions." See also **Deox Tibeigana v Vijay Reddy HCMA 665/2019,**

30 **Uganda Land Commission and Another V James Mark Kamoga and Another, SCCA No. 8 of 15 2014, Rwenzori Cotton Ginners Company Limited v Jinda International Textiles Co. Ltd HCMA 3061/2023**

# **Section 17(2)(a)** of the Civil Procedure Act provides thus;

35 "With regard to its own procedures and those of the Magistrates' Courts, the High Court shall exercise its inherent powers—


5 (a)to prevent abuse of process of the court by curtailing delays, in trials and delivery of judgement including the power to limit and discontinue delayed prosecutions;"

**Section 17(2)(a)** empowers this court to employ it's to exercise its inherent powers to prevent abuse of court process. The continuation of proceedings against a dead person, without applying

10 to substitute parties, even after the same was raised by the 2nd Respondent in evidence, constitutes, in my view, abuse of court process. The court cannot allow proceedings to continue against a deceased party.

Accordingly, this ground of objection is upheld and the Application is struck out as against the 15 3rd Respondent.

# Competence of Application Against 2nd Respondent

Under this head, counsel contended that no action for lifting of the corporate veil could be brought against the 2nd Respondent who is not a shareholder of the 1st Respondent.

# **Section 20** of the Companies Act provides thus

"The High Court may, where a company or its directors are involved in acts including tax evasion, fraud or where, save for a single-member company, the membership of a company falls below the statutory minimum, lift the corporate veil."

# In **Absa Bank v Enjoy Uganda Limited HCMA 1243/2023**, this court ruled thus:

"Section 20 of The Companies Act, 1 of 2012 empowers courts to pierce the "corporate shield" or lift the "corporate veil." This will only be done when there is evidence to show that the corporate structure was used purposely to avoid or conceal liability (see Merchandise 30 Transport Ltd v. British Transport Commission [1962] 2 QB 173, at 206–207; Trustor v. Smallbone (No 2) [2001] WLR 1177; DHN Food Distributors Ltd v. Tower Hamlets London Borough Council [1976] 1 WLR 852 and Antonio Gramsci Shipping Corp and others v. Stepanovs [2011] 1 Lloyd's Rep 647). This may be done by showing that; (i) there was a fraudulent misuse of the company structure, and (ii) a wrongdoing was committed "dehors" 35 the company. 5 The personal liability of shareholders and directors arises only when the corporate veil is pierced where the applicant pleads and proves that the company did not operate as legal entity separate and apart from the officers, directors and shareholders such that the company was actually the alter ego of the shareholders, officers and directors and not a separate legal entity; where the corporation is just a shell designed to shield liability, a mere instrumentality of the shareholders.

Sometimes the principles of the corporate veil must yield to practical justice. This is because "…a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the 15 corporation, the very ego and centre of the personality of the corporation….." (see Lennard's Carrying Co Ltd v. Asiatic Petroleum Co. Ltd, [1915] AC 705). Therefore, where it is established that a company's director, officer or shareholder wields undue dominion and control over the corporation, such that the corporation is a device or sham used to disguise wrongs, obscure fraud, or conceal crime, the veil of incorporation will be pierced.

Courts are willing to look behind the corporate veil as a matter of law so as to establish the directing officer behind the decisions and actions taken by the company. "Lifting the veil" is allowed only in certain exceptional circumstances. Ownership and control are not sufficient criteria to remove the corporate veil. The Court cannot remove the corporate veil only because

25 it is in the interests of justice. The corporate veil can be removed only if there is impropriety. Even then, impropriety itself is not enough. It should be associated with the use of the corporate structure to avoid or conceal liability see **Trustor v. Smallbone (No 2) [2001] WLR 1177; DHN Food Distributors Ltd v. Tower Hamlets London Borough Council [1976] 1 WLR 852 and Antonio Gramsci Shipping Corp and others v. Stepanovs [2011] 1 Lloyd's Rep 647).**

The court will then go behind the mere status of the company as a legal entity, and will consider the persons who as shareholders or even as agents, direct and control the activities of a company, which is incapable of doing anything without human assistance."

35 It must be recalled that, save for unlimited directors contemplated under Sections 230 and 231 of the Companies Act, the liability of directors is limited. This means that, barring certain

5 statutory and other exceptions, the company, and not directors is liable for the actions of directors undertaken in their capacity as directors. See **Section 52 of the Companies Act, 2012.**

This is because a company is an abstraction. It is a legal fiction in which a thing is conferred on legal personality akin to that which a natural person typically possesses. See **Halsbury's Laws**

10 **of England, 5 th Edition, Vol 14 P 137, Para 115 and P 342-343, Para 268, Lennard's Carrying Co. Lrd v Asiatic Petroleum Co. Ltd (1915) AC 705, and Stephen Kasako v Christ's Heart Church Limited HCMA 831/2023.**

Since a company is an abstraction, it does not have a natural being and body of its own. The 15 company therefore borrows the natural body of its directors and officers while those persons serve in those roles. It follows that, for actions undertaken in such roles, the company is the party liable for any harm occasioned or any claims proven and not its directors.

In my considered view, it follows that lifting the corporate veil can be undertaken against the 20 directors of the company, and not merely shareholders. I would therefore overrule this objection. See **Corporate Insurance Company Limited vs. Savemax Insurance Brokers Ltd [2002] 1 EA 41.**

Counsel for the Respondent relied on the decision in **Nipun Bhatia & Anor v Boutique Shazim**

25 **& 4 Ors HCMA 123/202**3 in support of his submissions. At page 10 of the said decision, my learned brother Justice Musa Ssekaana *(as he then was)* held thus:

"In the case of Corporate Insurance Company Limited vs. Savemax Insurance Brokers Ltd [2002] 1 EA 41, Ringera J held that the veil of incorporation can be lifted against the directors at the execution stage in appropriate cases. This court is in agreement with the above decision

- 30 but the person who seeks to lift the veil in execution must satisfy the court that every possible effort have been made to recover in execution, and that the directors or shareholders are frustrating the execution process through hiding the assets or selling them off or have dealt with the known assets fraudulently to defeat justice." - 35 From the above, the court was guided by the dicta in **Corporate Insurance Company Limited vs. Savemax Insurance Brokers Ltd [2002] 1 EA 41** relied on above, in which the Learned Judge returned the determination that the corporate veil could be lifted to attach liability to the


5 directors of a company. I therefore cannot, with the greatest respect, accept the submissions of Counsel for the Respondent. That objection is overruled.

## **PART II: DECISION ON THE MERITS OF THE APPLICATION**

Courts have a strong presumption against piercing the corporate veil, and will only do so if there 10 has been serious misconduct. As such courts acknowledge that their equitable authority to pierce the corporate veil is to be exercised "reluctantly" and "cautiously." Piercing is done by courts in order to remedy what appears to be fraudulent conduct. Corporate personality cannot be used as a cloak or mask for fraud. Where this is shown to be the case, the veil of the corporation may be lifted to ensure that justice is done and the court does not look helplessly in the face of such 15 fraud See **Salim Jamal and two others v. Uganda Oxygen Ltd and two others [1997] II KALR**

**38, Absa Bank v Enjoy Uganda Limited HCMA 1243/2023, Nipun Bhatia & Anor v Boutique Shazim & 4 Ors HCMA 123/202**3

The courts have in the rare circumstances ignored the corporate form and looked at the business 20 realities of the situation so as to prevent the deliberate evasion of contractual obligations, to prevent fraud or other criminal activities and in the interest of public policy and morality. In order to remove the corporate veil, it is necessary to prove the presence of control, and the presence of impropriety, that is, the use of the company as a "facade," "cloak" or "sham" to hide violation of law. This is proved by showing that; (i) there was a fraudulent misuse of the company 25 structure, and (ii) a wrongdoing was committed "dehors" the company. The court will treat receipt by a company as receipt by the individual who controls it if both conditions above are satisfied. It enables a claimant to enforce a contract against both the "puppet" company and the "puppeteer" who at all times was pulling the strings.

- 30 As my learned brother Justice Mubiru held in **Absa Bank v Enjoy Uganda Limited HCMA 1243/2023** there are two suggested categories of cases in which it may be appropriate to pierce the corporate veil on account of fraud, including (i) cases in which the company was shown to be a facade or a sham; and (ii) cases where the company was involved in some impropriety associated with the use of the corporate structure to avoid or conceal liability See **Mugenyi &** - 35 **Company Advocate v. The Attorney General [1999] 2 EA 199; Merchandise Transport Ltd v. British Transport Commission [1962] 2 QB 173, at 206–207; and VTB Capital plc v. Nutritek International Corp [2013] 2 AC 337)**

5 Although public policy demands that court judgments, orders and decrees are not issued in futility, that of itself is not justification for lifting the corporate veil. See **Samuel Abbo v. Cimeel Engineering Ltd, H. C. Misc. Application No. 29 of 2013**

The scope of section 20 of *The Companies Act, 2012* though is not closed to cases of tax evasion, 10 fraud or where, save for a single member company, the membership of a company falls below the statutory minimum. These are given as examples, prefixed by the word "including." When a statute provides a list of specific items, that list is presumed to be exclusive; the statute applies only to the listed items and not to others. But if the list starts with a phrase like "at a minimum" or "including" or "such as" or ends with a general catch-all term, the court will interpret the list 15 as illustrating the types of things the statute applies to and not as an exclusive list.

- **See Absa Bank v Enjoy Uganda Limited HCMA 1243/2023, Nipun Bhatia & Anor v Boutique Shazim & 4 Ors HCMA 123/202**3 and **Corporate Insurance Company Limited vs. Savemax Insurance Brokers Ltd [2002] 1 EA 41** - 20 In **Beatrice Odongo and another v. Tamp Engineering Consultants Limited, CA. Civil Appeal No. 8 of 2020,** an appeal challenging the lifting of the veil of incorporation upon the respondent's failure to trace assets of the judgment debtor company in respect of which the applicants were the directors, for purposes of execution of a decree of Court issued in its favour, it was held that the provision covers "acts that include, but are not necessarily limited to tax evasion, fraud or - 25 membership [falling] below the statutory minimum." The Court observed that "flagrant injustice and improper conduct" would justify lifting of the veil. The Court considered closure of the business premises of the company in Uganda soon after commencement of litigation against it, and the directors' breaking contact with the defence counsel at the closure of the plaintiff's case, as sufficient evidence of using the corporate status as a buffer against legal responsibility for - 30 breach of contract and avoidance of execution of the resultant decree. Not to lift the corporate veil in the circumstance was considered to be a blatant mockery of justice.

As stated above, it is trite that if the statute lists certain things and the list begins with or ends with a general statement to include other things (a "catch-all"), the court will assume that the

35 general statement only includes things that are similar to the items listed and will interpret it *ejusdem generis* to include items of the same kind, class, or nature. Therefore, section 20 of *The Companies Act, 2012* includes conduct similar to tax evasion, fraud and membership of the 5 company falling below the statutory minimum. Applying that tenet of statutory interpretation, wrongful or fraudulent trading by the directors would fit within the definition, to the extent that it results in the deception and defrauding of the company' creditors since it constitutes "flagrant injustice and improper conduct." The expression includes conduct that has a fraudulent effect that is so shockingly noticeable, evident, or obvious, or conduct that is glaringly unjust.

Wrongful or fraudulent trading occurs when a company carries out business with the intent of purposefully deceiving and defrauding its creditors. Such will be the case when a company continues to trade as normal even though its directors are aware (or should have been aware) that the company was insolvent and has no realistic prospect of avoiding a formal insolvency 15 process (such as liquidation or administration). The key difference between fraudulent trading and wrongful trading is the intent (or lack of intent) involved. While fraudulent trading is a premeditated act, committed with the intention of defrauding creditors, wrongful trading occurs when the company continues to trade and run up debts when knowingly insolvent, however, there is no proven dishonesty or malicious intent involved.

Directors can be personally liable for the company debts if they continue to trade wrongfully. When a company continues to carry on its ordinary business after it has become unable to pay its debts as they fall due, past the point when the directors knew or should have known that there was no reasonable prospect of avoiding insolvency, the directors are guilty of wrongful trading.

25 Wrongful trading is not an intention to defraud creditors, but is a failure on the directors' part to carry out their duties and cease trading, either as a result of poor judgment or because of a belief that they can ride out the difficulties. If the directors knew that the company was insolvent but carried on trading with no intention to pay their debts, such as staff salaries or suppliers' invoices, they may be guilty of fraudulent trading.

Directors and shareholders can also be held personally responsible for debts and/or liabilities of the business if they engage in fraudulent transactions such as: paying dividends to shareholders when the company is insolvent, continuing to trade while having no intention of repaying company debts, taking payments from customers while knowing that goods or services

35 cannot be delivered in return, attempting to pay debts through fraudulent means, undervaluing company assets and selling them (to themselves or a third party) for less than their market value, making preferential payments to some creditors over others, engaging in fraudulent trading,


- 5 such as providing misleading or inaccurate information on finance applications, having overdrawn directors' loan accounts, and knowingly permitting the company to act unlawfully, such as breaching employees' contracts, disregarding health and safety or environmental legislation, or misusing sensitive data. **See Absa Bank v Enjoy Uganda Limited HCMA 1243/2023, Nipun Bhatia & Anor v Boutique Shazim & 4 Ors HCMA 123/202**3, - 10

In this regard, a judgment creditor who can demonstrate that the company is a sham, or that there was a misuse of the company's corporate structure to evade satisfaction of a judgment debt may be entitled to an order of lifting of the corporate veil of the company. See **Nile Bank Ltd Vs Gomba Machinery and General Equipment Ltd (1992) IKLR 67, Jones Vs Lipma (1962) I** 15 **WLR 832, W. E. Kiwalabye Vs Uganda Commercial Bank & Anor 1994 IV KALR 8, alim Jamal & 2 Others Vs Uganda Oxygen Ltd & 2 Others (1997) IIKALR 38, Eastern Builders & Engineers Ltd v Malva Construction(u)Ltd HCMA 563/2008**

In *Yusuf Manji vs. Edward Masanja and Abdallah Juma [\[2005\] TZCA 83](https://ulii.org/akn/tz/judgment/tzca/2005/83)* the Court of Appeal of 20 Tanzania sitting in Dar es Salaam upheld the decision of the lower court lifting the corporate veil and directing execution proceedings against the directors of the Defendant company. Court held thus:

"in the circumstances, it is our view that the respondents would be left with an empty decree as it were, against the company, Metro Investments Ltd. Furthermore, it is apparent that the 25 company's managing director was at the time the appellant, who, as said before was alleged to be involved in concealing the assets of the company. For this reason, we think it will not serve the interests of justice in this case to shield the appellant behind the veil of incorporation. Therefore, having regard to the fact that the appellant was the managing director of the company, we do not accept Mr. Kamara's contention that evidence was required 30 to prove the appellant's relationship with the company or that he had shares in the company. The principle enunciated in Solomon (supra) would apply to the contrary once special and exceptional circumstance shown. Here, as just shown such circumstance is premised upon the fact that the appellant was the managing director of the company. The appellant was also alleged to be involved in concealing the identity and assets of the company. In that capacity, 35 and that's held by the learned judge, we agreed that the appellant was in a better position to know the trend of affairs regarding the alleged concealment of the company's assets.

- 5 In summary therefore, having regard to the relationship of the company at the time with the appellant as the managing director, the alleged concealing of the assets of the company by the appellant which was not denied by way of counter - affidavit, we are satisfied that this was a proper case in which to apply the principle of lifting the veil of incorporation. The learned judge cannot, in our view, be faulted in his decision to apply the principle." - 10 See also **Jimmy Mukasa vs. Tropical Investments Ltd, John Mary Mpagi, Joseph Mulindwa and Equator Technical Agencies Limited Civil Suit No. 232 of 2007, Wavenets Communication Ltd v Zimwe Enterprises Hard ware & Construction Ltd & 2 Ors (Civil Suit No. 48 of 2015**

## 15 *Does the application need a separate suit: can fraud be dealt with by affidavits?*

In such circumstances, a judgment debtor need not file a fresh suit to plead fraud. The allegations of fraud can be completely disposed off in an application for lifting the corporate veil subsequent to judgment. See **Guning v Naguru Tirupati Ltd & 5 Ors (Miscellaneous Application No. 232 of 2017**

## 20

There are a considerable number of precedents that hold that fraud cannot be proved by affidavit evidence. The reason advanced by the precedents for such a position is that, fraud is a serious allegation, and the court is required to look into all the particulars of the fraud, examine all the evidence and apply the strict rules of evidence. It has long been the settled practice of the Court

- 25 that the proper method of adducing evidence of fraud is by ordinary suit in which the particulars of fraud must be pleaded specifically and the allegation established by strict proof. Fraud may never be established by doubtful, vague, speculative, or inconclusive evidence. Affidavit evidence does not usually afford the parties the best opportunity to present their case fully. The party accused of such fraud should not only be given the opportunity to plead and advance their - 30 defence to such allegations. See **Yahaya Walusimbi v Nakalanzi Justine CACA 386/2018, Stephen Wandera v Goodman Agencies Limited HCMA 680/2021**

However, in **Semanda Godfrey & Anor v Lake Wamala Farm Limited & Ors HCMA 1/2021**, Hon Justice Dr. Flavian Zeija (PJ) *(as he then was)* held thus:

35 "It was contended by the Applicants that fraud cannot be proved by affidavit evidence. I am however of the considered view that it was never meant to be a rule of general application

5 that fraud cannot be proved by affidavit evidence. It is possible for an applicant to plead and prove fraud through affidavit evidence. Going by the provision of Order 19 Rule 2 of the CPR, such evidence can be tested by cross-examination and strict proof. As such, depending on the facts and circumstances of the particular case, it is possible to prove fraud by affidavit evidence. The mere fact that the evidence in an application was brought by way of affidavit 10 cannot be ground to defeat the application. It suffices if such affidavit evidence can be tested by cross examination."

In **Management Committee of Buwenda Primary School v Wanyama Peter & Ors HCMC 212/2021**, court held that an application for review of a Consent Judgment on grounds of fraud 15 can ably be brought and determined using the procedure under Order 46 which provides for

affidavit evidence.

In **Christine Hope Kayima v Mercentile Credit Bank & Anor HCMC85/2021** my learned brother Justice Mubiru held thus:

- 20 "The party accused of such fraud should not only be given the opportunity to plead and advance their defence to such allegations in pleadings, but also be allowed to challenge the allegations by cross examination of any witnesses. This cannot properly be done where evidence is by affidavit. However, where there is incontrovertible evidence of fraud, such as in this case, it may be determined based on affidavit evidence. Section 34 of The Mortgage Act - 25 No. 8 of 2009 envisages circumstances of incontrovertible evidence of fraud. Affidavits supporting applications under that section are treated as substantive evidence on issues of fraud." Emphasis mine.

If during the hearing it emerges that the facts relating to the fraud are in dispute and difficult of 30 ascertainment, the parties or court may invoke Order 19 rule 2 (i) of *The Civil Procedure Rules*, order the attendance for cross-examination of the deponent. There should be special circumstances and adequate material before the court to show that in the interest of justice it is fair and just to order for the cross examination. The Court considers; the importance of the issue, whether cross examination will unduly delay the proceedings, and whether the cross

35 examination is likely to elucidate the relevant issues in controversy (see *Lt. Gen. (Rtd) Henry Tumukunde v. Attorney General and Grace Akullo, H. C. Misc. Application No. 489 of 2020*). In the instant case, the cross-examination of deponents was unnecessary since the 2nd Respondent did

 5 not deny the fact that he presented to the 1st Respondent, an impostor he claimed to be his wife, who in signing the spousal consent, used the name of and signed as the applicant. This was a representation of a false existing fact, the 2nd Respondent knew to be false and intended that it be acted upon, and the 1st applicant indeed acted upon it. The 2nd respondent engaged in deceit, misrepresentation and fraud."

In **Epimac Kagoro v Samalien Properties Limited & Ors HCMA 90/2020**, my Learned brother, Justice Boniface Wamala had the opportunity of pronouncing himself on this question, and after considering the decision of the Court of Appeal in Yahaya Walusimbi *(supra)*

"In the context of the above passage by the Court of Appeal, I do not understand that holding 15 as intended to form a general rule of law that "fraud can never be proved by affidavit evidence." All the Court stated was that in that case, fraud had not been proved and could not be proved by affidavit evidence. That finding was based on the facts and circumstances of that particular case which the court laboured to lay out before reaching that conclusion. It cannot be the case that the Court of Appeal intended to make a rule of general application that fraud 20 can never be proved by affidavit evidence; it stated and meant to say that in the circumstances before the Court, "fraud has not and cannot be proved". This is clear to me given the fact that the Court found that such a finding could only be arrived at after the party has applied to adduce fresh evidence before the High Court and not in the Court of Appeal. That is why the Court held that fraud could not be proved before it by affidavit evidence. In my view, if the 25 Court is to accept the construction assigned by the Respondents' Counsel to the above decision, it would mean that the ground of fraud provided for under Section 20 of the Companies Act can never be relied upon by a party to secure lifting of the corporate veil. As submitted by the Applicant's Counsel, the known procedure for lifting of the corporate veil is by way of an application by Notice of Motion. I do not agree to the suggestion that the above 30 said decision of the Court of Appeal was meant to affect that procedure. To my understanding, it is possible for an applicant to plead and prove fraud through affidavit evidence. Going by the provision of Order 19 Rule 2 of the CPR, such evidence can be tested through cross examination and strict proof. As such, depending on the nature of the cause, the facts and circumstances of a particular case, it is possible to prove fraud through affidavit evidence. The 35 mere fact that the evidence in the application was brought by way of affidavit cannot be a ground to defeat this application. Section 20 of the Companies Act specifically allows a party

5 to rely on fraud to seek lifting of the corporate veil and there is no suggestion that such an action must be brought by way of a plaint."

In my view, the position of the law is not that fraud cannot be proved by affidavit evidence, but that fraud cannot be proved by affidavit evidence only except where (a) the procedure provided

- 10 for commencement and conduct of the proceedings where fraud may be raised (such as lifting the corporate veil) provides for use of affidavits or (b) there incontrovertible evidence of fraud. It is not the position of the law however that allegations of fraud can never be handled by way of affidavit evidence. See **Nan Ya Plastic Corporation v Uganda Revenue Authority HCMC 57/2024** - 15

## *Evidence Warranting Lifting of The Veil*

The Applicant's evidence was briefly to the effect that:

- (a) The 2nd Respondent was involved in the directorship of the 1st Respondent. - (b) By default, of the 1st Respondent, the company did not file returns and was struck off. - 20 (c) 1st Respondent, aware of the judgment of the court, removed the assets of the 1st Respondent that can satisfy the judgment of the court.

A review of the evidence leads me to conclude that this application cannot be sustained. First, the role of the 2nd Respondent in the operations of the 1st Respondent, especially in so far as 25 they deal with the alleged removal of assets is not clear. The 2nd Respondent led evidence that he served as director of the said company until he eventually relinquished that role. Whereas the search report adduced by the Applicant shows him as still a director, in my view that is not sufficient evidence of his involvement. A search report merely shows the most up to date status of the company but does not mean that the contents of such report provide an irrebutable

30 presumption of accuracy. No statutory provision creates an irrebutable presumption of accuracy of the register of companies.

Secondly, the role of the 2nd Applicant in fraudulently removing the assets of the company available to meet judgment was not made out to the satisfaction of the court. Fraud is a serious

35 allegation requiring proof beyond a balance of probabilities, but not as high as without reasonable doubt. See **Fredrick Zaabwe v Orient Bank SCCA 4/2006**

- 5 For instance, there was nothing to show that the sale of City Centre Complex was purely motivated by the need to evade judgment. Equally so, there was no evidence of removal of a vast majority of company assets, such as money or other assets, in a manner that was neither typical or made business sense, which would have lent credence to the allegations of the Applicant. The Applicant did not adduce any evidence from the conduct of the 2nd Respondent or any other - 10 person lending credence to the assertion that the 2nd Respondent was orchestrating a fraudulent scheme to evade meeting the decree.

In the absence of cogent evidence directly linking the 2nd Respondent to any deliberate scheme to defeat the ends of justice or obstruct the satisfaction of the judgment, the court is not 15 persuaded to exercise its discretion to pierce the corporate veil or invoke equitable remedies such as lifting the veil of incorporation. Such remedies are only granted in the clearest of cases, particularly where it is shown that the company is being used as a mere façade to conceal the true facts or perpetrate injustice.

20 Whereas the Applicant led evidence of non-filing of returns, the same is without more, merely a regulatory infraction to be handled by the registrar of companies, rather than a basis for exercise of powers to lift the corporate veil. In my view, this evidence should have been married with evidence to show that the company was being run as extension of the 2nd Respondent or other persons, and not as an ordinary commercial vehicle for which the law places protections such as 25 the corporate veil.

It is imperative to bear in mind that judgment creditors, unless secured by specific legal instruments or statutory entitlements, remain unsecured creditors. The law provides a clear hierarchy in the treatment of creditors, and courts must exercise caution not to disrupt this

- 30 hierarchy by creating alternative or exceptional avenues for enforcement that are not grounded in legal principle or statutory authority. Granting remedies such as attachment before judgment or extending liability to directors or shareholders without sufficient legal basis risks distorting the foundational principles of corporate and creditor law. The mere fact of a judgment debt, in the absence of demonstrable fraud, asset dissipation, or other exceptional circumstances, cannot - 35 by itself justify recourse to extraordinary enforcement mechanisms.

- 5 As was held in **Zobsen SMC Limited v Jade E Services Limited HCMA No. 946 of 2024**, the court must refrain from elevating unsecured claims into quasi-secured positions through equitable interventions that effectively sidestep the investment safeguards, key of which is the doctrine of separate corporate personality provided for in the Companies Act. Any such departure must be supported by clear evidence of abuse of the corporate form or other - 10 misconduct that justifies the lifting of the corporate veil or invocation of the court's equitable jurisdiction.

Whereas the Applicant contended that the company's physical address was contained at the building sold and no known address exists, the mere fact that the company had closed its 15 business offices is not evidence of fraud on the part of the judgment debtor's directors. **Eastern**

# **Builders & Engineers Ltd v Malva Construction(u)Ltd HCMA 563/2008**

It was not shown that the 2nd Respondent only used the name of the company as a mere front to perpetuate the fraud, on top of failing to prove to my satisfaction that the defendant committed 20 fraudulent acts against the respondent. The applicant also did not show court how the Director used the company as a mere facade to conceal some truths affecting the recovery of the judgment debt. See **Abbo v Cimeel Engineering Ltd HCMA 29/2013**

This court has not been shown sufficient proof that (i) there was a fraudulent misuse of the 25 company structure, or (ii) a wrongdoing was committed "dehors" the company warranting lifting of the corporate veil or (iii) that there is impropriety with the objective of evading or concealing liability.

It is not enough to claim that the 2nd Respondent, alone or together with others, was a director 30 or shareholder and as such the corporate veil should be lifted. Serving or having served as an officer of a company, without more is not sufficient to lift the corporate veil. See **Damas Mulagwe v Lanex Forex Bureau Ltd & 4 Ors HCCS 358/2006**

#### Limitation

35 Counsel for the Respondent contended that this application is not maintainable since the judgment sought to be enforced is barred by limitation. The copy of the judgment in the main 5 suit was attached as Annexure "A" to the affidavit in support. The judgment is dated 17 September 2015. The same date of delivery is referenced in the decree.

#### **Section 3(3)** of the Limitation Act provides:

"An action shall not be brought upon any judgment after the expiration of twelve years from 10 the date on which the judgment became enforceable, and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due."

It is common ground that this judgment has never been satisfied in part and therefore the 15 provision on arrears does not arise or apply. I plain reading of the above provision renders the interpretation that the Applicant is still within time. It should also be noted that the limitation on enforcement of a judgment debt maybe frozen on account of fraud under Section 25 of the Limitation Act.

20 I would thus overrule the contention by the Respondent's counsel that this application is effectively moot.

#### **Costs**

As a rule of law, costs ordinarily follow the event and a successful litigant receives his or her 25 costs in the absence of special circumstances justifying some other order. Where the successful party has been guilty of some misconduct, an order of costs may not be granted. See **Section 27(2) Civil Procedure Act, Harry Ssempa v Kambagambire David HCCS 408/2014, Iyamuleme David vs. AG SCCA NO.4 of 2013, Anglo-Cyprian Trade Agencies Ltd v. Paphos Wine Industries Ltd, [1951] 1 All ER 873.**

While the Applicant's Application did not succeed, they are nonetheless left with a valid but unenforceable judgment debt. To saddle the Applicant with a costs order in addition to this predicament would be unduly punitive and serve no compensatory or deterrent purpose. The judgment remains effectively unexecuted, and the Applicant bears the consequence of its own

35 failed application. In these circumstances, and in the interests of proportionality and fairness, each party shall bear its own costs.

# HCT-00-CC-MA-0964-2022

### 5 **Conclusion**

In the circumstances, this application is dismissed with no orders as to costs.

I so Order

10 **Dated** this\_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_2025, delivered electronically and uploaded on **ECCMIS** 9th May


15 **Judge 9th May, 2025**