OYSTERLEY INVESTMENT LTD VS DEZO CIVIL CONTRACTORS CO

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA (COMMERCIAL DIVISION) AT PAR ES SALAAM MISC COMMERCIAL APPLICATION NO. 12188 OF 2024 OYSTERLEY INVESTMENT LIMITED............................................. APPLICANT VERSUS DEZO CIVIL CONTRACTORS CO. LIMITED.................................................. 1stRESPONDENT SHEIKH MOHAMED BAWAZIR.................................................................... 2ndRESPONDENT ABDALLAH MOHAMED BAWAZIR................................................................3rdRESPONDENT JAYANT1LAL RAVJI LAUI PINDORIA....................... ..........4th RESPONDENT PREMJI REVJI PINDORIA...........................................................................5thRESPONDENT RULING Date oflast order:25/07/2024 Date ofruling: 30/08/2024 AGATHO. J,: The Applicant Oysterley Investment Limited, is moving this court to lift the veil of incorporation of the first respondent Dezo Civil Contractors Co. Limited, so that its Directors (the 2nd, 3rd, 4th and 5th Respondents) may be personally liable to satisfy the decree issued against the 1st respondent. The application was brought after the applicant had secured ah award against the 1st respondent on 2nd October 2021 which was i subsequently registered as a decree of this court in Commercial Cause No 72 of 2021, dated 14th December 2022. In the award, the first respondent was adjudged to pay USD 5,321,668.24 to the applicant for a breach of contract. It can be gathered from the affidavit in support of this application sworn by Nehemia Nkoko, applicant's advocate that the applicant filed execution proceedings in this court where he prayed to attach by way of garnishee order, a bank account of the first Respondent, account number 0026878002 (USD) Of DEZO CIVIL CONTRACTORS CO. LIMITED of Diamond Trust Bank. The application for execution was granted but to the dismay of the applicant, the bank reported vide a letter dated 28th June 2023 addressed to the Deputy Registrar that the said account is not in operation since 30th June 2023. According to the applicant, all this while, the respondents were fully aware of the execution proceedings as they were summoned several times to show cause but never reacted to the payment order nor showed up in court. The applicant deponed also that all efforts to make sure that the 1st respondent satisfies the decree has proved futile and has yielded no fruits as the 1st respondent has been tactically concealing company assets. He 2 added that the offices of the 1st respondent are in a rental facility and she owns no other property be it movable or immovable. It is upon this discovery that the applicant has approached this court with the current application for lifting the veil of incorporation so that the 2nd to 5th respondents may be ordered to satisfy the decree passed against the 1st respondent. In their joint counter affidavit sworn by all the respondents, they agreed that they are Directors and Shareholders of the first respondent. The respondents in sum disputed having knowledge about the application for execution in court and they also disputed knowing about the garnishee order. Further they disputed to have purposely concealed company assets so as to obstruct justice. At paragraph 5 of the joint counter affidavit, the respondents deponed that closure of their account was automatic and that they never applied for it to be closed. The hearing of this matter was conducted by written submissions. However, despite being present on the date of scheduling orders for filing submissions, the respondents opted not to file their submissions. The applicants counsel, in his written submission mostly echoed what he advanced in his affidavit. It is for this reason I do not find it desirable to restate it. 3 Now in determination of the matter at hand, I will base on the issue whether the applicant has advanced sufficient reasons for the court to exercise its powers to lift the veil of incorporation of the 1st respondent. This is because under normal circumstances, once a company is incorporated it acquires a separate legal personality apart from its members. In the case of Tanzania Cigarrete Co Ltd vs P.G. Associates Limited & Another, Commercial Case No 81 of 2005 reported in Tanzania Commercial Court Manual Reports (2006) at page 120, the court stressed that there is a veil between the company and its members. This is the general rule extracted from the renowned House of Lords case of Salomon vs Salomon [1897] AC 22. Nevertheless, this veil can be lifted under certain circumstances. This court is called upon to find whether the circumstances of the case at hand are fit for the court to dispense from the general rule of companies' legal personality. In the present case, there is no dispute that the Applicant is holding a valid decree against the first Respondent. Equally, there is no dispute that the second to fifth Respondents are the Directors and shareholders of the 1st Respondent company. This can be readily captured from the very first paragraph of their joint counter affidavit. Lastly there is no dispute that the decree is yet to be satisfied. 4 The Applicant beseeches that the veil of incorporation of the first respondent be lifted so that directors of the company (the 2nd 3rd 4th and 5th respondents) can be held liable to satisfy the decree hence attaining justice. In law, once registration of a company has fully and successfully been finalized, a new legal person separate from its members is born. Legal liability of such a company becomes completely distinct from legal liabilities of its individual members or directors. This principle was laid down in the case of Salomon V Salomon & Co. Ltd (Supra). Despite the existence of this principle which is still a good law, courts sometimes rips off the veil of incorporation and hold directors and/or members personally liable for the debts of the company. In the case of Yusuf Manji Versus Edward Masanja and Another Civil Appeal No 78 of 2002 (Unreported) the Court of Appeal held that it would serve the best interests of justice to lift the corporate veil and hold the directors of the company liable where it is apparent that the directors were concealing assets of the company in their own names. Lifting the veil of a company is an act of the court to disregard the corporate personality of a company and seek to reach out to the individual members or directors of that company. 5 In the present case, the applicant alleges that the 2nd to 5th Respondents have been obstructing justice by concealing the 1st respondent company assets and by stating that the company has got no properties sufficient to realise the decretal sum without giving an alternative option with which the decretal sum due to the company is going to be realised. Record has it in the applicant's affidavit as well as the written submission, that the applicant has tried every other means possible to recover the decretal sum from the 1st respondent to no avail. This court has in times without numbers resorted to order the veil of the company to be lifted in circumstances where it is vivid that all other ways to pay the decretal sum have failed. In one case of Saguda Magawa Salum & 4 others vs NAM Company Limited & Another, Misc Civil Application No 34 of 2012, HC at Dodoma when faced with an akin situation, the court had this to say at page 7 "Consequently, since the company act and transact its business through its directors and since the 2nd respondent was one of the directors responsible for the decree which has yet to be honoured, the court cannot permit the second respondent to use the shield and hide 6 under the corporation veil to avoid his legal obligation as a director who was responsible for the contract" From the above quoted excerpt of the case, it is clear that the mischief sought to be cured by the principle of lifting the veil of the company is to uncover the directors who were once hidden under the umbrella of company personality to bear the requisite responsibility on behalf of the corporations they lead. The 1st respondent owns no assets known to the applicant and has an inoperative bank account. This being the case, it is without doubt that the applicant is left with no other option than holding the company directors personally liable for settling the decretal sum. In the circumstances and for purposes of justice, I grant the application and order that the veil of incorporation of the first Respondent Dezo Civil Contractors Company Limited is hereby lifted. Consequently, Sheikh Mohamed Bawazir, Abdallah Mohamed Bawazir, Jayantilal Ravji Lalji Pindoria and Premji Revji Pindoria, Directors of the 1st Respondent are personally liable for the satisfaction of the decree passed against the first Respondent Company in Commercial Cause No 72 of 2021. Given the nature of this application, each party shall bear its costs. 7 Order accordingly. DATED at DAR ES SALAAM this 30th Day of August 2024. U.\3^AGATHO JUDGE 30/08/2024 Date: 30/08/2024 Coram: Hon. U. J. Agatho J. For Applicant: Nehemia Nkoko, Advocate For Respondents: Franco Mahena, Advocate C/Clerk: E. Mkwizu Court: Ruling delivered today this 30th August 2024 in the presence of Nehemia Nkoko counsel for the applicant, and Franco Mahena counsel for the respondent. U.aJAGATHO JUDGE 30/08/2024 8