Transport and Allied Workers Union v Kenya Bus Services Limited [2023] KEELRC 2902 (KLR)

Transport and Allied Workers Union v Kenya Bus Services Limited (Cause 68 of 2006) [2023] KEELRC 2902 (KLR) (10 November 2023) (Ruling)

Neutral citation: [2023] KEELRC 2902 (KLR)

Republic of Kenya

In the Employment and Labour Relations Court at Nairobi

Cause 68 of 2006

NJ Abuodha, J

November 10, 2023

Between

Transport and Allied Workers Union

Claimant

and

Kenya Bus Services Limited

Respondent

Ruling

1. By an application dated February 7, 2023 the applicant moved the Court seeking orders among other that:i.Pending the hearing and determination of the application herein this honourable Court be pleased to stay any further proceedings herein and in particular the Notice to Show Cause Application scheduled for hearing on February 8, 2023ii.That this honourable court be pleased to review and or set aside the order issued on September 17, 2019 and all consequential orders thereto

2. The application was brought on the grounds among others that:i.The applicants, were never ever served with the application dated March 13, 2014, nor the hearing notices issued subsequent thereto.ii.The applicants learnt of the existence of the order the subject matter hereof for the very first time on January 17, 2023, when they were informed of the requirement to attend court on February 8, 2023 to show cause why they should not be held personally liable to pay for the defendants liability in these proceedings which is Ksh 526, 326, 840 + costs and interest.iii.Upon checking with the 1st respondents advocates on record, the advocates were surprisingly unaware of the application dated March 13, 2014 which apparently was heard ex-parte and allowed on July 17, 2019. iv.All efforts to locate the court proceedings for July 17, 2019 have failed suggesting that therefore that there is a deliberate attempt to hide the same from Applicants herein.v.The hearing of a matter without proper service upon the party to be condemned is against rules of natural justice which, form the bedrock of article 50 of the Constitution of Kenya, 2010 .vi.It is only fair and just that the order issued on July 17, 2019 be set aside in order to pave way for the hearing and just determination hereof.vii.The delay in filing of this application is explained by the fact that none of the directors was aware of the order issued on July 17, 2019 until January 17, 2023.

3. The application was further supported by the Affidavit of Edwin Mukabanah who deponed among others that:a.That I am an adult female person of sound mind and the Managing Director of the Respondent, duly authorised by the other Directors to swear this affidavit on their behalf.b.That I am fully versed with the facts and circumstances of this case from its inception up to date.c.That the very first time that as directors of the respondent, we become aware of the- order issued by the honourable Court to lift the corporate veil was on Tuesday January 17, 2023, when we were informed by Mr. James Singh Advocate of the Notices To Show Cause (NTSC) issued against the Directors which was apparently done way back on July 17, 2019. d.That upon further inquiry, the said James Singh Advocate, informed us that the orders were issued ex-parte since his firm had not been served with the application and nor the hearing notice for the said date.e.That this turn of events caught each of the directors by surprise because of the following reasonsi)None of us was personally served with the application to lift the corporate veil as is the practice in such cases; The late Mr. Karanja Kabage a director of the respondent died on July 5, 2019. He certainly was and could not have been served with any court process in this matter if orders were issued on July 17, 2019. A copy of the death certificate of Mr. Karanja Kabage is annexed hereto as the Exhibit marked "WK 2";ii)The Town clerk, Nairobi City Council, who is one of the directors of the Respondent, could not have been served either, since that office no longer exists and no steps have been taken by the Defendant to rectify the said anomaly. A copy of the CR 12 for the Defendant is annexed hereto as the Exhibit "WK 3".f.That, we immediately engaged M/s Kyalo & Associates Advocates to act on behalf of the Directors of the Defendant to try and locate the vol.l of the court file, but to date, the said file is missing from the strong room of the ELRC Registry.g.That we have, been advised by our advocates on record and verily believe this to be true that the loss of a strong room file suggests that there is some underhand business going on at the Registry.h.That I am advised further by our advocates on record which advice I verily believe to be true that what is stated above is adequate to demonstrate to the honourable court thati.As directors, we are being condemned to. carry the defendants liability without a formal hearing;ii.Our inalienable right to fair hearing under art 50 of the constitution of Kenya has been nullified by virtue of the order issue done July 17, 2019. , A copy of the draft order is annexed hereto as the Exhibit marked "WK 4"i.That in light of the foregoing, we have been advised by our advocates on record, which advice we verily believe to be true, that a court of law should not condemn a party without a hearing no matter the circumstances of the case.j.That further we have been advised by our advocates on record and verily believe this to be true that the delay in filing of this application cannot and should not be held against us since none of the directors has even been served either with the application dated March 13, 2014 nor with the order issued on July 17, 2019. k.That it is for the foregoing reasons that we apply to this Honourable Court to set aside the order issued on July 17, 2019 and all orders consequential hereto, in order that we are given an opportunity to defend ourselves.l.That as the managing director of the respondent, I know for a fact that none of the directors has conducted the affairs of the respondent in a fraudulent and/or reckless manner as to warrant or justify the draconian orders issued on July 17, 2019.

4. In support of the application Mr. Kyalo Mbobu submitted that the judgment herein was delivered in 2007 and could not be enforced in view of section 4(4) of the Limitation of Actions Act. According to Counsel, a judgment more than twelve years which was the case with current judgment was not enforceable. On the right to be heard , it was submitted that under article 50 of the Constitution, the directors of the respondent were not accorded a chance to be heard before the orders lifting the corporate veil was made. According counsel, the lifting of the veil exposed the directors to the coercive force of execution. The directors therefore ought to have been personally served. If not served, they will have been condemned unheard. The directors were never served. They became aware of the proceedings on January 17, 2023 when they were with the NTSC.

5. Concerning the lifting of the veil, counsel submitted that the claimants were aware of the stay order issued in the Winding Up Petition 21 of 2005 and that on December 10, 2019 Lady Justice Wasilwa upon being informed of the stay orders in the Winding Up petition ordered a stay execution pending the hearing and determination of the petition. On May 21, 2021 the Winding Up Petition was withdrawn. In February, 2023 the claimant’s advocates sought to proceed with execution against the respondent’s directors. According to Mr. Mbobu, his clients were not aware of the lifting of the corporate veil and therefore instructed him to have the same set aside. Counsel further submitted that under order 51 rule 15, the court has an unfeterred jurisdiction to set aside ex parte orders. In setting aside the order the court will consider whether there were valid reasons to justify setting aside and there was an arguable case. In this regard Counsel relied on the case of Securicor Courier Kenya Ltd vs. Owino [1993] eKLR and Shah vs. Mbogo [1967] EA 116

6. Regarding order 22 rule 35, counsel submitted that it does not allow for execution. A look at the claimant’s application, showed it sought the lifting of the corporate veil and execution against the respondent’s directors. According to Counsel, the provisions of order 22 rule 35(b) were never intended to make directors of a company liable for its debts. In this regard counsel relied on the case of Michael Kyambati vs. Principal Magistrate, Milimani Commercial Court [2016] eKLR and Peter Ngoge t/a OP Ngoge & Associates vs. Ammu Investment Ltd [2012] eKLR. Counsel further relied on the famous case of Salmon vs. Salmon &anor [1962] 1 WLR 833. In concluding this point, counsel submitted that whereas corporate veil may, in appropriate circumstances be lifted, such remedy cannot be sought under order 22 rule 35 of the Civil Procedure Rules.

7. Based on the above submissions, counsel submitted that the applicants who did not oppose the application for lifting the corporate veil be granted an opportunity to file a response to the application owing to the importance of the matter.

8. Mr. James Singh for the respondent informed the court that he supported Mr. Kyalo’s submissions. According to him, the respondent was subject to winding up proceedings which was commenced by Kenya Shell. According to Counsel, winding up proceedings operate as a stay. The stay was lifted on May 21, 2021 by Kenya Shell. Counsel denied being served with any order lifting the corporate veil and only became aware in February, 2023 when the directors were served with notice to show cause. Counsel submitted that Order 22 could not be used to proceed against the directors of the Company. It could only be used against a party to the suit. Further, it could only be invoked in cases of fraud and illegality

9. Mr. Nyamu for the claimant has however submitted that service was properly effected. According to Mr. Nyamu, on November 6, 2019 the parties appeared before Honourable Lady Justice Onyango for purposes of showing cause why the corporate veil should not be lifted. When the parties appeared before the DR on March 12, 2020, again the issue of NTSC for purposes of lifting the veil came up. The application was therefore brought in bad faith and an abuse of the court process as the company has participated in the proceedings before and after the corporate veil was lifted. Counsel further submitted that the argument that service ought to have been effected upon each director personally was misconceived. There was no requirement for the involvement of directors in their personal capacities until the veil of incorporation was lifted and or summons issued. Further, the argument that the directors are being condemned unheard was misleading in the sense that upon lifting the veil, there was requirement for the directors to personally appear in court and show cause why they should not personally pay the company’s debts as they are examined on the affairs of the company. The directors had not yet been condemned and it was not legally proper to move against a director personally until the veil was lifted, the application was therefore premature and an abuse of the Court process. The directors should therefore appear before the Court to show cause why they should not be condemned to pay the decretal sum personally.

10. On the issue that the judgment that the judgment is statute barred, Counsel submitted that this was misconceived. There had been various attempts to execute the judgment delivered on September 6, 2007 which have been thwarted by the respondent through its directors. Concerning orders made by Lady Justice Wasilwa, Counsel submitted that this Court could not question the Honourable judge’s decision as it was a court of concurrent jurisdiction. The only recourse available to the directors was to appeal.

11. Order 22 rule 35 provides that:“Where a decree is for the payment of money, the decree holder may apply to the Court for an order the:-a.the Judgment debtor’b.in the case of a corporation, any officer thereof; orc.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 production of any books or documents.

12. A plain reading of the above provision reveals that the Order relates to execution and its purpose is to seek from the persons named, information or material that would assist the judgment creditor to enforce the judgment. It does not seem to attach any personal liability for the debt on the person being examined. The assumption of liability is therefore a different process not within the contemplation of order 22 rule 35. Justice Odunga was therefore right when he stated in the case of Michael Kyambati vs. Principal Magistrate, Milimani Commercial [2016] eKLR that:“It is true that the above provision does not expressly provide for the lifting of corporate veil... the lifting of corporate veil is not the same thing as an application under Order 22 rule 35 of the Civil Procedure Rules. In the latter an officer is examined as an agent of the company while lifting the corporate veil, the mask of incorporation is lifted with the result that the shareholders are no longer agents of the company but are treated in their own rights and liability attaches to them not in their capacity as agents of the company but in their personal capacity.”

13. The legal distinction between a company and its members was set out in the celebrated case of Salmon vs. Salmon 1 WLR 833 where Lord Macnaghten affirmed the separation between the corporation and its members as follows:“The company is at law a different person altogether from its subscribers...and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers, as members, liable, in any shape or form, except to the extent and in the manner provided by the Act”.

14. The distinction may however in special cases, be overlooked and the company and its shareholders treated as one and the same. The Halsbury’s Laws of England, 4th edition at paragraph 90; outlines the circumstance in which the corporate veil may be lifted as follows:“Notwithstanding the effect of a company’s incorporation, in some cases the court will ‘pierce the corporate veil’ in order to enable it to do justice by treating a particular company, for the purposes of the litigation before it, as identical with the person or persons who control that company. This will be done not only where there is fraud or improper conduct but, in all cases, where the character of the company, or the nature of the persons who control it, is a relevant feature. In such case, the court will go behind the mere status of the company as a separate legal entity distinct from its shareholders or even as agents, directing and controlling the activities of the company. However, where this is not the position, even though an individual’s connection with a company may cause a transaction with that company to be subjected to strict scrutiny, the corporate veil will not be lifted”

15. This matter has unfortunately had a long and chequered journey having been filed way back in 2006 long before the Court in its current status had been constituted. It presents to me a very sad and painful scenario particularly for the claimants most whom are now of advanced years and others may have even died before enjoying the fruits of the judgment. Kilroy J. Oldster an accomplished American trial attorney, arbitrator, and mediator in his book “Dead Toad Scrolls remarked:“Courtrooms are battlegrounds where society’s bullies and the oppressed clash, where the victims of abusers seek recompense, and where parties cheated by scalawags seek retribution. Because of the high stakes involved, the parties are not always honest, and justice depends upon an array of factors including the prevailing case precedent, the skills of the legal advocates, and the merits of each party’s claims and counterclaims.”

16. Considering the length of time, it has taken to conclude this matter, I am tempted to believe that there are high stakes involved and it is no longer a question of what is just in the circumstances but the maneuvering skills of the parties and their advocates. The parallels are astounding when compared to the proverbial Indian lawyer who scolded his son for closing an old file in the law firm which astonishingly provided legal fees that saw the young man through school and eventually becoming an attorney.

17. That having been said, it is not disputed that the claimants herein filed a claim against the respondent, successfully prosecuted the same and obtained a judgment for Kshs. 562,326,840/-. The respondent never appealed the judgment. Several attempts have therefore been made to execute the judgment but without success. A number of bottlenecks have been met by the decree holder including objector and winding up proceedings. Unable to make any progress with the execution, the decree holder filed a Notice of Motion dated 13th March, 2014 in which they sought the lifting of the corporate veil and enforcement of the decree against the respondent’s directors. This application was granted by Wasilwa J on 13th March, 2014 but later stayed in the light of the fact that there was pending in the High Court (before Muigai J) a Winding Up Petition brought by Kenya Shell against the respondent. The Winding Up Petition was withdrawn on 21st May, 2021. Upon the withdrawal, the decree holders advocate sought to proceed against the directors personally as was ordered by Wasilwa J. This prompted the present application.

18. Mr. Kyalo Mbobu has informed the Court that his client’s the Directors herein were never served with the application yet adverse orders were made against them. According to counsel therefore, his clients were condemned unheard. Counsel therefore urged the Court to stay the hearing of the Notice to Show Cause and review the orders issued by Wasilwa J on September 17, 2019. Rule 33 of the Court rules provides:33. (1)A person who is aggrieved by a decree or an order from which an appeal is allowed but from which no appeal is preferred or from which no appeal is allowed, may within reasonable time, apply for a review of the judgment or ruling—(a)if there is discovery of new and important matter or evidence which, after the exercise of due diligence, was not within the knowledge of that person or could not be produced by that person at the time when the decree was passed or the order made;(b)on account of some mistake or error apparent on the face of the record;(c)if the judgment or ruling requires clarification; or(d)for any other sufficient reason.

19. The applicant has stated that they were not served hence were never heard over the Motion datedMarch 13, 2014. Further the Court has considered the parameters and scope of Order 22 rule 35 vis-à-vis the principles and the process of lifting the corporate veil. Sufficient reason has been demonstrated by the applicant for the Court to review its order made with the regard to the Motion dated March 13, 2014 to enable the applicants respond to the same as contemplated under order 22 rule 35. The applicant’s are hereby directed to file their responses to the Motion dated March 13, 2014 within 14 days from the date of this ruling. The respondent/decree holder shall be at liberty to file a further affidavit, if necessary, within a similar period after service. The matter set for mention on January 29, 2024 for directions on hearing and disposal of the Motion dated March 13, 2014.

20. It is so ordered.

DATED AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2023DELIVERED VIRTUALLY THIS 10TH DAY OF NOVEMBER, 2023Abuodha Nelson JorumJudge