Ammany Company Judgment Final

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA GEITA SUB-REGISTRY AT GEITA LAND APPEAL No. 5495 OF 2024 (Arising from Misc. Civil Application No.105011/2024 in the Resident Magistrate Court of Geita, originating from Civil Cause No. 20 of 2020 in the District Court of Geita at Geita). 1. AMMANY CONSTRUCTION CO.LTD………………….…....1ST APPELLANT 2. AMANI EZEKIEL MABELA…………………………………... 2ND APPELLANT VERSUS GEOFREY ELIAS MSENYA…………………………………….... RESPONDENT JUDGMENT Date of last Order: 11/02/2025 Date of Judgment: 12/02/2025 MWAKAPEJE, J.: Aggrieved by the decision of the Resident Magistrate's Court of Geita in Misc. Civil Application No. 105011/2024, which lifted the 1st appellant's corporate veil on 11 October 2024, the appellants have filed this appeal before this Court. The underlying dispute originates from Civil Case No. 20/2020, wherein a consent judgment was issued against the 1st appellant (the judgment debtor), mandating the payment of Tshs. 142,000,000 to the respondent. However, since 2020, the respondent has only remitted Tshs. Page 1 of 17 8,000,000, resulting in an outstanding balance of Tshs. 134,000,000. To enforce the decree and recover the remaining sum, the respondent lodged Misc. Civil Application No. 105011/2024 before the aforementioned Resident Magistrate's Court, seeking an order to pierce the corporate veil of the 1st appellant to enable enforcement against its directors or shareholders. Subsequent to deliberation, the trial court granted the application, piercing the corporate veil of the 2nd appellant, thereby deeming him personally liable for the outstanding debt. Dissatisfied with the ruling, the appellants have lodged this appeal before this Court, citing the following five grounds of appeal. 1. That the Trial Court erred both in law and facts by lifting the veil of incorporation of the 1st appellant without proper examination and relying on the reason the company has no properties, which the respondent did not sufficiently prove it. 2. That the Trial Court erred both in law and facts by lifting the veil of incorporation of the 1st appellant against the 2nd appellant only while the company (the 1st appellant) has three Directors. 3. That the Trial Court erred both in law and facts by granting the application of the respondent without observing that it was not the appellants' duty to disclose properties owned by the company. 4. That the Trial Court erred both in law and facts by lifting the veil of incorporation of the 1st appellant by relying on the factor of Improper design, which was not sufficiently proved. Page 2 of 17 5. That the Trial Court erred both in law and facts by lifting the veil of incorporation of the 1st appellant without adhering to the factors to be considered by the Company law of Tanzania to lift the veil of a corporation. The appeal was argued through written submissions, which were filed by the parties according to this Court's scheduled order. The appellants were represented by Mr Bartholomew Musyangi, a learned advocate, while the respondent had the services of Ms Jesca Godson Materu, a learned advocate. On the first ground of appeal, Mr Musyangi argued that the trial court erred in lifting the corporate veil of the 1st appellant without reasonable justification or sufficient evidence, resulting in a miscarriage of justice. Citing Section 110(1) of the Evidence Act, CAP 6 R.E. 2022, he contended that the respondent failed to discharge the burden of proof, as no credible evidence was presented to establish the non-existence of the 1st appellant's assets. He further emphasised that, under company law, a company is a distinct legal entity separate from its shareholders and directors, as affirmed in Salomon v Salomon & Co. Ltd [1897] AC 22. On the second ground of appeal, Mr Musyangi submitted that the trial court wrongly lifted the corporate veil solely against the 2nd appellant, despite the company having three directors, as per its Page 3 of 17 Memorandum and Articles of Association. He argued that omitting the other directors constituted a material misdirection. Referring to Section 18(1) of the Companies Act, CAP 212, he maintained that all directors should have been considered, and failure to do so rendered the decision legally flawed and unfairly prejudicial to the 2nd appellant. Regarding the third ground of appeal, he contended that the trial court erred in granting the respondent's application without ensuring a proper search for the 1st appellant's assets. He asserted that the respondent failed to follow due process in identifying the company's properties and improperly shifted the burden of proof onto the Appellants. Citing Maulid Seif Ngaola (Administrator of the Estate of the Late Seif Ngaola) v Nuru Omari Makunja & Another, Land Appeal No. 37 of 2023, he reiterated that the burden of proof rests on the party asserting an affirmative claim, which the respondent failed to meet. On the fourth ground of appeal, he submitted that the trial court misdirected itself by lifting the corporate veil based on the unsubstantiated ground of improper design, which is not a recognised basis for disregarding corporate personality. He outlined the established grounds for piercing the corporate veil, including fraud, sham companies, alter ego, concealment, and evasion, as recognised in Morgan Air & Page 4 of 17 Seafreight Logistics Kenya Ltd v Serengeti Fresh Ltd & 2 Others, Misc. Civil Application No. 10 of 2021, and Saguda Magawa Salum & 3 Others v NAM Company Ltd & Another, Misc. Civil Application No. 34 of 2021 (CAT) (Unreported). On the final ground of appeal, he argued that the trial court's decision undermined the fundamental doctrine of corporate personality, as established in Salomon v Salomon & Co. Ltd [1897] AC 22 and Prest v Petrodel Resources Ltd [2013] UKSC 34. He submitted that the trial court failed to apply these principles, resulting in a legally unsound decision that disregarded fundamental company law doctrines. Accordingly, he prayed for this Court to allow the appeal with costs, quash and set aside the ruling and orders of the trial court in Misc—Civil Application No. 105011 of 2024. In reply, Ms Materu, counsel for the respondent, argued the first ground of appeal that reasonable efforts were made to ascertain whether the 1st appellant owned any assets, including inquiries to the Tanzania Revenue Authority (TRA), which yielded no relevant information. She contended that the 2nd appellant, despite the 1st appellant being declared a judgment debtor, failed to disclose any company assets at any stage of the proceedings. She relied on Hotel Continental Limited v Lamada Page 5 of 17 Limited, Misc. Land Appeal No. 466 of 2021, to support her position that the trial court was justified in lifting the corporate veil. Addressing the second and fifth grounds collectively, Ms Materu asserted that the appellants' counsel conceded that lifting the veil was justified. She argued that if the 2nd appellant believed the remaining directors should be included, he should have pursued legal avenues to join them rather than challenge the trial court's decision to hold the 2nd appellant personally liable. She noted that the 2nd appellant had signed the contract and settlement deed on behalf of the 1st appellant and was, therefore, correctly held accountable by the trial court. She cited Saguda Magawa Salum & 3 Others v NAM Company Limited & Another, Misc. Civil Application No. 34 of 2021, to reinforce her argument. On the fourth ground of appeal, Ms. Materu maintained that when company directors fail to satisfy a court's decree, it constitutes improper design, justifying lifting the corporate veil. She relied on Hotel Continental Limited v Lamada Limited (supra) to argue that the trial court's decision was well-grounded. In conclusion, she submitted that the appeal lacked merit and prayed for its dismissal with costs. Page 6 of 17 Having meticulously examined the contrasting submissions of the parties in this appeal, the central issue for determination by this Court pertains to the merit of the appeal. Before delving into the grounds for appeal, I must state that the court's decrees are to be satisfied to the fullest. According to Order XXI Rule 10 of the Civil Procedure Code, Cap 33 R.E 2022, where the Court has decreed, it has the duty to facilitate the satisfaction of its decrees in favour of the decree holders against the judgment debtors. See the case of Mussa Shaibu Msangi vs Sumry High-Class Limited & Another (Misc. Commercial Cause No. 20 of 2012) [2015] TZHCComD 15 (30 October 2015). The respondent alleged in the trial court that the decree in his favour was not satisfied by the 1st appellant, and for him to realise this, he had to apply for the lifting of the 1st appellant's corporate veil and hold the 2nd appellant liable. This, therefore, compels this Court to note from the onset that it is a well-established principle of law that upon its incorporation, a corporation assumes a distinct legal identity separate from its shareholders and directors. Page 7 of 17 It follows, therefore, that a corporation possesses its own legal persona, rights, and obligations independent of its stakeholders, and any legal proceedings pertaining to a corporation's rights must be initiated by the corporation itself, not by individual shareholders. This doctrine was established in the landmark case of Salomon v A Salomon & Co Ltd [1897] AC 22 (HL) and reproduced under section 18(1) of the Tanzania Companies Act, Cap 212 R.E. 2022. This foundational doctrine ensures generally that the liabilities of a corporation are confined to the corporate entity itself and do not typically extend to its shareholders or directors. However, this limitation is not absolute. Where there are extraordinary circumstances that the company serves merely as a facade designed specifically to evade its legal obligations, or in cases where there is clear evidence of fraudulent conduct, intentional misrepresentation of the company's true intentions, or intentional use of the company to impede the enforcement of decrees, the courts may penetrate the corporate veil and hold the shareholders or directors accountable. See the cases of Gilford Motor Co Ltd v Horne [1933] Ch 935, Jones v Lipman [1962] 1 WLR 832), Prest v. Petrodel Resources Ltd [2013] UKSC 34). Similarly, in Tanzania, the courts have recognised that the corporate veil may be lifted where there is evidence Page 8 of 17 of the above-mentioned extraordinary conditions. See the cases of Yusuph Manji vs Edward Masanja and Another [2006] TLR 127, Tanzidia Assurance Co. Ltd vs Rabco (T) Ltd (Commercial Case No. 37 of 2006) [2007] TZHCComD 54 (13 November 2007), and Bank of India T. Ltd vs Fomcom International Ltd & Others (Commercial Case No. 19 of 2018) [2019] TZHCComD 152 (11 September 2019) to mention a few. Now, returning to this appeal, and in order to comprehensively address the issue at hand, I will analyse each ground of appeal, beginning with the fifth ground of appeal, as I address the first and third grounds collectively as they are interconnected. In his affidavit before the trial court, specifically in paragraphs 3 and 6, the respondent sought to establish grounds for lifting the corporate veil of the 1st appellant. He contended that, out of the decreed amount of Tshs. 142,000,000, the 1st appellant had only paid Tshs. 8,000,000, leaving an outstanding balance of Tshs. 132,000,000, which has remained unpaid since October 2020. The respondent further alleged that his search was unsuccessful despite his efforts to trace the 1st appellant's properties through the Tanzania Revenue Authority (TRA). Page 9 of 17 Considering the observations made above, I should emphasise that lifting the corporate veil is an exceptional remedy that should not be exercised lightly, considering its separate legal personality distinct from its shareholders and directors. Therefore, the courts will only pierce or disregard this separate personality in limited and well-defined circumstances where it is demonstrated that the corporate structure is being misused to perpetrate fraud, evade legal obligations, or engage in conduct that undermines the principles of justice and fairness. See also the case of Salute Finance Ltd And Rex Energy Ltd & 2 Others (Misc. Commercial Application No. 2023 of 2023) [2024] TZHCComD 45 (12 April 2024). It is trite law, and as stipulated under sections 110(1) and 112 of the Tanzania Evidence Act, Cap. 6 R.E. 2019, a party wishing the court to lift the corporate veil has the burden of proof satisfying the court as to the existence of the extraordinary circumstances that justify the court's intervention. The said sections read as follows: “110(1) legal right or liability dependent on the existence of facts which he who asserts must prove that those facts exist. 112. The burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence unless it is provided by law that the proof of that fact shall lie on any other person." Page 10 of 17 These provisions have been reinforced in a number of decisions in this land. For instance, in the case of Martin Fredrick Rajab vs Ilemela Municipal Council & Another (Civil Appeal No. 197 of 2019) [2022] TZCA 434 (18 July 2022), it was explicitly provided that: "in civil proceedings, a party who alleges anything in his/her favour also bears the evidential burden, and the standard of proof is on the balance of probabilities, which means that the Court will sustain and uphold such evidence which is more credible compared to the other on a particular fact to be proved." [Emphasis supplied] Also, in the case of Paulina Samson Ndawanya vs Theresia Thomas Madaha (Civil Appeal No. 45 of 2017) [2018] TZCA 218 (12 October 2018), it was stated that "It is again trite that the burden of proof never shifts to the adverse party until the party on whom onus lies discharges his and that the burden of proof is not diluted on account of the weakness of the opposite party's case." [Emphasis supplied] The respondent, therefore, bore the responsibility of demonstrating instances of fraud, sham transactions, improper use of corporate personality, or where the company is being used as a mere alter ego to shield individuals from personal liability. Only upon satisfying this stringent threshold and the related circumstances can the court invoke its powers Page 11 of 17 to disregard the corporate entity and hold those behind it personally accountable. Starting with the first aspect of the 1st appellant's lack of property, in paragraph 6 of his affidavit to the trial court, the respondent stated that in searching for the properties of the 1st appellant, his letter to the TRA (annexure "Elly 2") was not responded to, yet he concluded and convinced the trial court that the 1st appellant had no assets. I must state here that the mere lack of response from the TRA did and could not, in itself, establish that the 1st appellant had no properties. Since there was no proof that the 1st appellant concealed the assets and identity of the company, (see the case of Yusuph Manji vs Edward Masanja and Another (supra), it was incumbent upon the respondent, as the party seeking to lift the corporate veil, to conduct further inquiries through other relevant institutions, such as the Registrar of Companies, Registrar of Title in the Land Registry, and or financial institutions, to substantiate his claim that the 1st appellant lacked attachable assets. I should also point out that it is not the primary duty of the judgment debtor to disclose their assets. Rather, the burden rests squarely upon the decree-holder to identify the judgment debtor's properties that may be Page 12 of 17 subject to attachment and sale in order to satisfy the decree. See the cases of Harel Mallac (Tanzania) Ltd vs JUNACO (T) Limited & Another (Execution Application No. 159 of 2014) [2022] TZHCComD 207 (16 February 2022) and Mbeya City Council V. Janeth Massaburi & 10 Others (Misc. Civil Application No. 8 of 2019) [2020] TZHC 9833 (12 August 2020). Secondly, although the respondent's affidavit in the trial court highlighted the longstanding unsatisfied decree since 2020, this delay alone does not justify lifting the corporate veil. The mere passage of time is not sufficient for piercing the corporate veil without evidence of the company being used as a sham, engaging in fraudulent conduct, or obstructing the decree's execution. Upon reviewing the trial court's record and evidence, there was no indication that the 1st appellant operated as a shell entity, committed fraud, or intentionally impeded the execution of the decree. Consequently, the unsatisfied decree from 2020, lacking extraordinary circumstances, does not validate lifting the corporate veil. Therefore, the trial court's decision to lift the corporate veil was premature and legally unsound. Page 13 of 17 Accordingly, I find merit in the 1st, 3rd, and 5th grounds of appeal, as there was insufficient proof that the 1st appellant lacked assets or that its corporate structure was misused to avoid legal obligations. Therefore, the 1st, 3rd, and 5th grounds of appeal hold merit, as there was insufficient evidence to suggest that the 1st appellant lacked assets or that its corporate structure was misused to evade legal obligations. Consequently, as argued by Mr Musyangi, the grounds for lifting the corporate veil were not met. Subsequently, the findings on the 1st, 3rd, and 5th grounds of appeal also address the 4th ground of appeal, as no evidence was presented to indicate how the 1st appellant was abusing its corporate structure to impede the enforcement of a judgment, elude the execution of a decree, or conceal asset ownership to avoid legal liability; refer to the case of Yusuph Manji vs Edward Masanja and Another (supra). While improper design alone is inadequate, if coupled with deliberate efforts to circumvent judgment enforcement and other relevant factors, as extensively discussed herein, the veil may be lifted, a point which the respondent failed to establish in the trial court. Consequently, the trial court erred in interpreting improper design as an independent basis for lifting the corporate veil. Therefore, the 4th ground of appeal is upheld. Page 14 of 17 Regarding the second ground of appeal, Mr Musyangi contended that the trial court erred in lifting the corporate veil solely against the 2nd appellant, despite the presence of multiple directors in the 1st appellant. He argued that attributing liability exclusively to the 2nd appellant was unjustified, as other directors could have shared equal responsibility. Conversely, the respondent argued that the 2nd appellant personally endorsed the contract and the settlement agreement, thus holding him accountable. In addressing this issue, it is essential to consider the unique circumstances of this case. The records unequivocally establish that the 2nd appellant was not only a director but also a majority shareholder, holding an 80% stake in the Company. This dual role placed him in a position of significant authority over the company's operations and decision-making. As mentioned, the fundamental tenet in company law emphasises that a company possesses a distinct legal personality separate from its shareholders and directors. However, this distinction is not absolute, and courts reserve the right to lift or disregard the corporate veil in situations where the corporate structure is exploited to commit fraud, evade legal responsibilities, or engage in actions warranting personal liability. Page 15 of 17 In the present case, the 2nd appellant was the primary actor in all interactions with the respondent. He executed the pertinent agreements in his capacity as a director and was the principal individual conducting transactions on behalf of the Company. Given his predominant ownership stake and active managerial role, it is evident that his actions were not merely those of an independent director but rather those of an individual exercising substantial control and discretion over corporate affairs. Moreover, it is crucial to note that directors owe fiduciary duties not only to the company but also, in certain circumstances, to shareholders and creditors. When a director conducts themselves in a manner that blurs personal and corporate responsibilities, particularly in transactions where personal involvement is apparent, courts are justified in lifting or disregarding the corporate veil to prevent the exploitation of corporate structures to evade liability. Therefore, under these circumstances, considering the 2nd appellant's dual role as both a majority shareholder and director, his exclusive and continuous engagements with the respondent, and his direct participation in the disputed agreements, notwithstanding the 2nd appellant's failure to seek the inclusion of parties he deemed essential, this Court would have found no fault in the trial court's decision to lift the corporate veil and Page 16 of 17 impose liability on him, provided that the respondent had sufficiently substantiated the requisite grounds. Consequently, this ground of appeal lacks merit and is dismissed. That said and done, this Court finds merit in the appeal to the extent explained, and hence, it allows it with costs. The ruling and orders of the trial court in Misc. Civil Application No. 105011 of 2024 is hereby quashed and set aside. The respondent is advised to, among other things, conduct a comprehensive search for the 1st appellant's assets before reapplying for veil lifting. It is so ordered. DATED at GEITA this 12th day of February 2025. G.V. MWAKAPEJE JUDGE Page 17 of 17