sarchem international tanzaina limited vs lakairo industries group company limited 2 others 2023 tzhccomd 150 2 june 2023

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA (COMMERCIAL DIVISION) AT MWANZA MISC. COMMERCIAL APPLICATION NO. 05 OF 2023 BETWEEN SARCHEM INERNATIONAL TANZANIA LIMITED................. APPLICANT VERSUS LAKAIRO INDUSTRIES GROUP COMPANY LIMITED ..................................... 1st RESPONDENT DAVID LAMECK AIRO........... ......... 2nd RESPONDENT ROSE LAMECK AIRO..................... .3rd RESPONDENT RULING Date of Last order: 24/05/2023 Date of ruling: 02/06/2023 AGATHO, J.: This ruling is in respect of the applicant's application to lift the corporate veil of the 1st respondent. The application was preferred under the provisions of section 38(1) and Section 95 of the Civil Procedure Code [Cap 33 R.E. 2019]. It was supported by the affidavit sworn by Ms. Leila Hawkins, the applicant's counsel. The respondents on their side they contested the application by filing a counter affidavit deponed by their advocate, Kulwa Samson Ndulila. i The parties to the application also enjoyed services of learned counsel. Whereas Ms. Hawkins represented the applicant, Mr Kulwa Samson Ndulila stood for the respondents. And the matter was disposed by written submissions. To determine this application the court examined the affidavits filed in court, the submissions made by the learned counsel for the parties and the law. The matter at hand requires the court to decide whether to lift or not to lift the corporate veil of the 1st: respondent so that the execution of the decree may proceed against the 2nd and 3rd respondents who are the directors of the 1st respondent. But before doing so, it is worthwhile to sketch the background of this application albeit briefly. It is common ground that there was Commercial Case No. 1 of 2021 HCCD at Mwanza before Hon. Magoiga J. That case ended in favour the decree holder/the applicant. The basis of the suit was that the judgment debtor (1st respondent) was in breach of her duties and obligations in a supply contract of commercial significance for failure to pay for the materials supplied to her by the applicant/decree holder. The case was therefore decided in decree holder's favour. The 1st respondent was thus required to pay decretal sum of USD 90,809. 68, where USD 69,268.05 was principal sum and USD 21,541.63 was an accumulated interest. Before the decree was 2 executed the parties entered into settlement agreement and hence settlement deed was signed and filed in court and became consent judgment and decree. As per the payment schedule there were six instalments to be made. The judgment debtor (1st respondent) paid only four instalments. Two instalments with total sum of USD 17, 395.64 remains outstanding until to date. The applicant alleges that despite constant follow ups the judgment debtor has neglected to pay the said sum. Moreover, and as per the affidavit of Ms. Hawkins the applicant has done due diligence to search for the 1st respondent's assets or properties without any success. That forced the applicant to seek lifting of the corporate veil so that the 2nd and 3rd respondents may be held liable to pay the said sum. It is apparent in the counter affidavit that the respondents are disputing what has been averred in the affidavit in support of the application. I will not restate the learned counsel's submissions. But where necessary I will refer them. To begin with, I should remark on respondents' counsel submission that there is no evidence to support lifting of corporate veil. This allegation failed to appreciate the fact that the affidavit is a way of adducing evidence. Perhaps the counsel wanted some documents, to be annexed to the said affidavit or as rightly seen in the counter affidavit and in his submission that further explanation was 3 needed to attest whether there was fraud, sham or the 1st respondent was hiding her assets/properties. The affidavit in support of application is a sworn statement and hence evidence. But it is true that what has been averred in the affidavit have been disputed. Again, as rightly held in Saguda Magawa Salum and 3 Others v NAM Company and Another, Misc. Civil Application No. 34 of 2021, HCT Dodoma District Registry (unreported) at page 7 for the veil of incorporation of a company to be lifted there must be concrete evidence showing that the company is a sham, and that its directors are hiding behind the veil of incorporation to avoid liability or to do conduct business in contravention of the law. That is similar to the principle in Salomon v Salomon and Company Ltd (1897) AC 22 that the doctrine of legal personality is not absolute. There are instances where the directors may be held liable for the wrongs committed by the company. To do so the corporate veil may be lifted. That was reiterated in Mussa Shaibu Msangi v Sumry High Class Limited and Another [2016] TLS LR 430 at 438. I agree with the respondents' counsel that looking at the affidavit deponed by advocate Leila Hawkins for the applicant one can hardly find evidence point to the above mischief. 4 Nevertheless, paragraph 8 of the said affidavit shows that the judgment debtor has failed to satisfy the decree. Even the deed of settlement has not been fully honoured. This fact is not disputed by the respondents. They have neither presented any evidence that they have satisfied the decree, nor is there averment that the 1st respondent has assets/properties capable of satisfying the decree. It is as if the respondent is playing the game of hide and seek. Intriguingly, the court is put to task with Ms. Hawkins averment in her affidavit that the applicant did due diligence to investigate or search for the judgment debtor's assets or properties without any success. There is no other evidence to support that averment. Consciously, the judgment debtor is using that shortfall and her veil of incorporation to shy away from liability imposed by the decree. As rightly held by learned brother Mambi, J in Saguda Magawa Salum's case (supra) that the veil of incorporation cannot be used as a shield or an insulator against legal liability. It is because of that principle I am prepared to lift the 1st respondent's corporate veil. Understandably, it is the rule of evidence under Section 110 of the Evidence Act [Cap 6 R.E. 2019] that he who alleges must prove. It is equally trite law as per section 3(2)(b) of the Evidence Act [Cap 6 R.E. 2019] that the standard of proof in civil proceedings is on the balance of 5 probabilities. In this application the Court is convinced that on the balance of probability that neither the decree has been satisfied nor the settlement decree has been fully implemented. The counsel for respondents cited the several cases to support his protesting of the application. He cited among others GM Dewji & Company Limited v Ayan Abdullah Ahmed and Another, Civil Revision No. 6 of 2021, HCT Dar es salaam District Registry. This case dealt with revision of the order for arrest and detention of applicant's directors alleging that the order was fraudulently obtained. Along that the counsel cited Harel Mallac (Tanzania) Ltd v JUNACO (T) Limited and Another, Execution in Commercial Case No. 159 of 2014, HCCD at Dar es salaam where there was no decree filed in the court for execution, the application as thus struck out. The respondents' counsel further referred the case of IAF (East Africa Limited) v Sahara Media Group Limited, Application No. 7 of 2022, HCT Arusha District Registry. This case is about execution of foreign judgment and the preliminary objection raised against lifting the corporate veil was overruled. Therefore, the cases cited by the counsel for the respondents are distinguished from the circumstance of the case at hand. 6 Moreover, what has become apparent upon reading the counter affidavit and the submission in support by the respondents' counsel is that the judgment debtor without remorse is using the veil of incorporation to insulate herself from the decree entered against her and in favour of the applicant. That in my respectful view is tantamount to mocking justice. For the foregoing reasons the veil of incorporation is lifted, and the 2nd and 3rd Respondents being directors of the 1st Respondent are held liable for failure or neglecting the execution of the decree in Commercial Case No. 1 of 2021. Undoubtedly, in the premises justice requires the court to lift the veil of incorporation. It is only by doing so that those who are using the corporate veil to deny or derail the execution of the decree are uncovered. Considering the nature of this application, each party shall bear its costs. Order accordingly. DATED at MWANZA this 2nd day of June, 2023. U. J.AGATHO JUDGE 02/06/2023 7 Date: 02/06/2023 Coram: Hon. U. J. Agatho, J. For Applicant: Absent For Respondents: Absent C/Clerk: Beatrice Court: Ruling delivered today, this 2nd June, 2023 in the absence of U. J. AGATHO JUDGE 02/06/2023 8