[2025] UGCommC 40

# THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

### CIVIL SUIT NO. 0545 OF 2023

## AUTOMAN INTERNATIONAL (U) LTD :::::::::::::::::::::::::::::::::::

#### **VERSUS**

#### 1. DAHABLE LTD

2. OMAR S. MOHAMED ::::::::::::::::::::::::::::::::::::

## (Before: Hon. Lady Justice Patricia Mutesi)

#### **JUDGMENT**

#### **Background**

- The Plaintiff's claim against the Defendants is for recovery of USD 31,135.88 $1.$ being the outstanding payment for equipment it supplied to the Defendants, interest at commercial rate from the payment due date until full payment, general damages and costs of the suit. - The brief facts of this case are that, sometime in 2021, the 2^nd Defendant $2.$ went to the Plaintiff and agreed to purchase equipment to be used at the 2^nd Defendant's petrol station at Kawempe Kagoma. The 2^nd Defendant asked that the quotations and supplies be made in the name of the 1^st Defendant in which he is the majority shareholder and a director. The Plaintiff obliged and issued a proforma invoice to the $1^st$ Defendant for the equipment. The Defendants then made a purchase order for the equipment worth a total of USD 55,150. The Plaintiff supplied and delivered the equipment. - On 2^nd June 2022, the parties formalized their transaction and agreed to a 3. payment plan in which the price for the equipment would be paid in various installments up to January 2023. It was further agreed that property in the supplied equipment would only pass upon full payment of the price. To the Plaintiff's disappointment, to this day, the Defendants have only paid a total of USD 24,014.12 thereby leaving a balance of USD 31,135.88. The Plaintiff

reached out to the Defendants to pay the balance but all in vain. The Plaintiff later learnt that the Defendants sold off the petrol station plus the supplied equipment to a 3^rd party without fully clearing the outstanding amount.

$4.$ Summons to file a defence were issued and served on the Defendants. The Defendants, however, did not file any defence to the suit. On the Plaintiff's application, the Court entered an interlocutory judgment for recovery of the liquidated claim of USD 31,135.88 along with interest thereon at the rate of 18% p.a. from 31^st January 2023 until full payment. The suit was then set down for formal proof of the general damages prayed for in the plaint and of the Plaintiff's claim that the 1^st Defendant's veil of incorporation should be pierced/lifted to render the 2^nd Defendant liable for the judgment debt.

## Representation and hearing

- 5. At the hearing, the Plaintiff was represented by Mr. Musinguzi Mark holding brief for Mr. Ali Sebagala of M/S MSM Advocates. The hearing proceeded ex parte and the Plaintiff brought one witness, Mr. Lwebuga Ivan Matthew, its Sales Manager who testified as PW1. PW1 confirmed that sometime in 2021, the 2^nd Defendant went to the Plaintiff and agreed to purchase equipment to be used at the 2^nd Defendant's petrol station at Kawempe Kagoma. The 2^nd Defendant asked for the respective quotations and supplies to be issued to the 1^st Defendant in which he is the majority shareholder and a director. The Plaintiff agreed and issued a proforma invoice to the 1^st Defendant. - PW1 testified that the Defendants made a purchase order for the required 6. equipment. The Plaintiff then supplied the equipment which comprised of 3 Phoenix fuel dispensers with 4 nozzles, 2 FE Petro Blue jacket submersibles, turbine pumps, one Cummins power generator 40kva, five heavy duty fibre manhole covers, one Digital air gauge, one water air separator, three Voltage stabilisers 2000 va, an Air compressor 5.5HP-300-4KW and eight LED canopy lights 120W. The equipment was worth a total of USD 55,1250. - He said that the Defendants paid a total of USD 14,600 by 28^th February 2022. 7. On 2^nd June 2022, the Plaintiff and the 1^st Defendant (represented by the 2^nd Defendant) signed an Equipment Sales Agreement to formalize the

transaction and set out a clear payment plan in which the outstanding USD 40,550 was to be fully paid by January 2023. It was further agreed in the said agreement that property in the supplied equipment would only pass upon full payment of the outstanding amount. PW1 revealed that the Defendants made further payments totalling to USD 9,414.12 leaving a balance of USD 31,135.88. Despite the Plaintiff's efforts to remind the Defendants to pay the balance, the same remains unpaid to this day.

- Additionally, PW1 told the Court that, without the Plaintiff's knowledge, the 8. Defendants mortgaged the petrol station at which the equipment had been affixed on the land comprised in Block 203 Plot 29, Maganjo to Stanbic Bank. The Defendants defaulted in their payments and the Bank advertised the said property for sale. Upon learning of this advertisement, the Plaintiff's officials met with the Bank on many occasions to try and salvage the equipment but they were informed that that was not possible. The Plaintiff tried, on several occasions, to get the 2^nd Defendant to salvage the situation but, all the time, his phone numbers were off. When the Plaintiff's officials went for a follow up meeting at the Bank, they were informed that the Bank had sold off the petrol station to a 3^rd party and they were advised to pursue the Defendants. They tried, on 2 occasions, to access the equipment at the petrol station but they were stopped by the security guards at the station. - Finally, PW1 testified that the 2^nd Defendant holds 70% of the shares of the 9. 1^st Defendant and the other 30% shares are held by minors believed to be his children. He said that the $2^{nd}$ Defendant is behind all the actions of the $1^{st}$ Defendant and that the corporate veil of the 1^st Defendant should be lifted to make the $2^{nd}$ Defendant personally liable for the $1^{st}$ Defendant's debts. - The Plaintiff adduced eight documentary exhibits which were admitted into 10. evidence and consecutively exhibited as P. Ex.1 - P. Ex.8. I have fully read and considered all the materials on record in reaching this decision.

#### **Issue arising**

The following issues have arisen for the Court's determination: 11.

- 1. Whether the Plaintiff is entitled to general damages as sought. - 2. Whether the 2^nd Defendant is personally liable to pay the judgment debt.

### **Resolution of Issues**

- Section 101(1) of the Evidence Act requires whoever desires a court to give 12. judgment as to any legal right or liability dependent on the existence of facts which he or she asserts to prove that those facts exist. Additionally, Section 103 of the Evidence Act provides that the burden of proof as to any particular fact lies on the person who wishes court to believe in its existence, unless it is provided by any law that the proof of that fact lies on a particular person. - In all civil cases of this nature, the burden lies on the plaintiff to prove the 13. existence of his or her rights and the liability of the defendant for breach of those rights on a balance of probabilities. In Miller v Minister of Pensions [1947]2 All ER 372, Lord Denning expounded on the meaning of the phrase "balance of probabilities" when he stated that:

"... The degree is well settled. It must carry a reasonable degree of probability but not too high as is required in a criminal case. If evidence is such that the tribunal can say, we think it more probable than not, the burden of proof is discharged, but if the probabilities are equal, it is not." Emphasis mine.

I cite these laws and principles with approval and I will be guided by them in 14. evaluating the evidence adduced in this case.

# Issue 1: Whether the Plaintiff is entitled to general damages as sought.

The overriding principle governing the assessment of damages by courts of 15. law is that the injured party should be restored, as far as money can do it, to the correct position he or she would have been in had the injury or damage not occurred. The decision to award or not to award damages, and the quantum of the damages to be awarded, are at the discretion of the court, but this discretion ought to be exercised judiciously. Since damages are meant to be compensatory in nature, they should neither be used to punish the defendant nor to confer a windfall on the claimant. Damages should be awarded to repair the actual loss caused to the injured party and nothing more. (See Nasif Mujib & Anor v Attorney General, HCCS No. 160 of 2014).

- General damages are the losses which flow naturally from the defendant's 16. breach. They are what the law presumes to be the direct, natural or probable result of the defendant's breach (See Opia Moses v Chukia Lumago Roselyn & 5 Ors, HCCS No. 0022 of 2013). General damages are what the law implies and presumes to have accrued from the wrong complained of. They are also said to be the immediate, direct and proximate result, or the necessary result, of the wrong complained of. - In assessing general damages, a court should be guided by the value of the 17. subject matter, the economic inconvenience that the plaintiff may have been put through and the nature and extent of the injury suffered. (See Uganda Commercial Bank v Kigozi [2002]1 EA 305). The Court should look into the future and forecast what would have been likely to happen if the contract had not been entered into or breached by the defendant. (See Bank of Uganda v Fred William Masaba & 5 Ors, SCCA No. 3 of 1998). - 18. PW1's testimony and P. Ex.3 (the Equipment Sales Agreement) proved that the Plaintiff was supposed to be fully paid for the equipment by the end of January 2023. It is now evident that, while the Plaintiff delivered equipment to the 1^st Defendant, the purchase price has never been paid in full to this day, nearly two years after it ought to have been paid. - Furthermore, the Plaintiff's evidence proved that the Defendants mortgaged 19. the petrol station on which the equipment had been affixed. The Defendants failed to repay the loan and the mortgagee sold the petrol station, and all fixtures thereat including the impugned equipment, to a third party. Thus, the Plaintiff has not only been unable to get the full price for the equipment but it cannot also recover the equipment anymore. - There is no doubt in my mind that the 1^st Defendant has caused financial loss, 20. inconvenience and hardship to the Plaintiff by failing and, or, refusing to pay the price for the equipment in full. The natural and probable consequence of the 1^st Defendant's conduct is that the Plaintiff has suffered tremendously

over the last few years as a result of being kept out of its money for business operations. By now, this money could already have been ploughed back into profit-generating activities for the Plaintiff's business hence increasing the Plaintiff's profits.

The Defendants' bad faith has been exacerbated by their continued refusal 21. to respond to the Plaintiff's demands for payment. PW1's testimony was that the Plaintiff reached out to the Defendants to pay the debt but all in vain. This is corroborated by the letter dated 15^th May 2023 (P. Ex.5) authored by the Plaintiff's lawyers and addressed to the 1^st Defendant demanding for payment of the balance. PW1 testified that the Defendants ignored that letter and that the 2^nd Defendant was always unreachable on phone. In Tour and Travel Centre Ltd v Kizza Kenneth, HCCS No. 1040 of 2022, I held that:

> "I firmly believe that, when a person takes goods or services from another person on credit, it is very important to keep the communication channels open. He or she should endeavor to remain in touch with his or her creditor at all times. Financial hardship is now a notorious reality in business, especially in the wake of the devastating effects of the COVID-19 pandemic on our economy. However, even if a debtor does not yet have all the money to repay his or her debt as agreed, he or she should at least communicate with his or her creditor and say so. He or she should not just keep quiet and go into hiding or hibernation." Emphasis mine.

22. I cite this dictum with strong approval. One who takes another's goods or services on credit should not choose to go incommunicado if he is unable to pay the credit as agreed. A creditor should not suffer the non-payment or delayed payment of his/her money and then also suffer the frustration and emotional torment of dealing with a debtor who does not want to pick his/her calls? The civil and decent course of action would be for that debtor to come clean and continue engaging his or her creditor to reorganise the credit terms. In this case, it is evident that the 1^st Defendant abused the Plaintiff's trust and good faith when it refused to effectively and efficiently communicate its challenges in paying off the balance of the purchase price of the equipment.

Having considered all the circumstances of this case, the Court deems it fair 23. and just to award the Plaintiff general damages of UGX 40,000,000 for the disillusionment, frustration and great financial hardship and inconvenience it has endured as a result of the 1^st Defendant's conduct.

## Issue 2: Whether the 2^nd Defendant is personally liable to pay the judgment debt.

- Paragraph 6 of the plaint avers that the 2^nd Defendant is a director and the 24. majority shareholder in the 1^st Defendant holding 70% of the shares. It states that the remaining 30% of the shares are held by minors who are believed to be the 2^nd Defendant's children and that the 2^nd Defendant is the actual mind behind the 1^st Defendant. It is thus averred that, due to those facts, the 1^st Defendant's veil of incorporation should be lifted. - 25. At the trial of the suit, PW1 repeated the averments on the 1^st Defendant's shareholding. The Plaintiff adduced the 1^st Defendant's Memorandum and Articles of Association (P. Ex.7) and Company Form 20 (P. Ex.8). P. Ex.8 showed that the $2^nd$ Defendant is a director and the secretary of the $1^st$ Defendant. P. Ex.7 showed that the $2^{nd}$ Defendant is a shareholder in the $1^{st}$ Defendant but the shareholding proportions are not set out in the copy filed on record. - 26. The Plaintiff insists that the 1^st Defendant's veil of incorporation should be lifted to re-assign the 1^st Defendant's responsibility to pay the judgment debt to the 2^nd Defendant. Lifting the corporate veil of a company is governed by **Section 20** of the **Companies Act Cap 106** which provides that:

"20. Lifting the corporate veil

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."* (Emphasis mine.)

The term "including", as used in Section 20 of the Companies Act appears to 27. me to be clear and ambiguous and it should be given its natural, ordinary and dictionary meaning. The term "including" is the present continuous tense of the word "include". According to the Black's Law Dictionary, 9^th Edition at page 831, the word "include" is defined to mean:

> "to contain as part of something. The participle "including" typically *indicates a partial list ..."* Emphasis mine.

From this definition, it is evident that the proper construction of the word "including" as used in Section 20 of the Companies Act is that the list of allowable grounds for lifting the corporate veil expressly prescribed therein is only partial. This implies that the High Court is afforded a wide discretion by that Section to consider many other grounds which could justify the lifting of the corporate veil on a case-by-case basis.

- 28. I have also found guidance on the matter in the 2013 landmark decision of the UK Supreme Court in Prest v Petrodel Resources Ltd & Ors [2013] UKSC **34.** This was a highly contentious divorce case involving an extremely affluent London couple, Mr. and Mrs. Prest, who had married 20 years earlier in 1993. The husband, Mr. Prest, had used a complex web of private companies which he controlled to own and hold a number of valuable properties. During the proceedings, the wife, Mrs. Prest, had sought to have the properties included in the couple's matrimonial property so that they are divided between the couple, notwithstanding their formal ownership. The UK Supreme Court had a lot to say about the circumstances in which the corporate veil of a company can be pierced or lifted. - 29. Firstly, the Court clarified that piercing the veil of incorporation should be a measure of last resort and should not be taken lightly. The Court explained that the mere control of a company by a wrongdoer is not enough to justify piercing the veil. There must be evidence of impropriety in the use of the company structure to avoid or conceal liability. The Court then propounded two principles which, singly or jointly, underlie any and all the grounds that

could ever justify the lifting of a company's corporate veil. At page 17 of his lead judgment in the case, Lord Sumption, J. S. C. had this to say:

"... I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse. I also think that provided the limits are recognised and respected, it is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law.

The difficulty is to identify what is a relevant wrongdoing. References to a "façade" or "sham" beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases, the court is not disregarding the "façade", but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical ..."

In the end, the Supreme Court declined to pierce the corporate veil of Mr. 30. Prest's companies, but instead decided that, in equity, it could look behind that veil and find that Mr. Prest was the beneficial owner of the properties as they had been bought with his own personal funds. Since the properties were held by the companies in trust for him, they were, thus included in the properties distributed in the couple's divorce.

- In this case, paragraph 6 of the Plaint and PW1's testimony merely described 31. the $2^{nd}$ Defendant as the majority shareholder and controlling mind of the $1^{st}$ Defendant before alleging that the other shareholders in the 1^st Defendant are minors. There is no indication in the plaint or in the Plaintiff's evidence that the 2^nd Defendant is using the 1^st Defendant to conceal the true identity of the parties who were involved in the impugned equipment purchase or to obscure the true nature of that transaction. There is also no indication in the plaint or the Plaintiff's evidence that the 2^nd Defendant has used/is using the 1^st Defendant to evade an existing legal obligation arising independently of the 1^st Defendant's involvement. - As clarified in the landmark case of Prest v Petrodel Resources Ltd (supra), 32. the mere "apparent control" of the 1^st Defendant is not adequate to justify lifting the 1^st Defendant's veil of incorporation. The Plaintiff ought to have pleaded and proved more, in line with concealment and evasion principles. For the veil of incorporation to be lifted, it is not enough for one to simply be the majority shareholder of a company. It must be pleaded and proved that the said majority shareholder is guilty of wrongdoing of some sort and that he is using the company to conceal or avoid the repercussions of that wrongdoing. Without such pleadings and evidence, the Court remains apprehensive of the Plaintiff's request to pierce or lift the 1^st Defendant's veil of incorporation. - Additionally, the beneficial ownership doctrine that was the basis of the ratio 33. decidendi in Prest v Petrodel Resources Ltd (supra) is also inapplicable in the circumstances of this case. Unlike Mr. Prest's companies in which he was the sole beneficial owner thereof, the 1^st Defendant has 4 different shareholders, 2 of whom are not even minors as claimed by the Plaintiff. As such, it cannot be argued, even in equity, that the 2^nd Defendant was the sole beneficial owner of the impugned equipment so as to make him liable for the judgment debt in this case.

In the circumstances, it is clear that the 2^nd Defendant is not personally liable 34. to pay the judgment debt since he is a separate legal person from the 1^st Defendant and cannot be held accountable for the 1^st Defendant's debts.

## **Reliefs**

- Consequently, judgment is entered in favour of the Plaintiff against the 1^st 35. Defendant and the terms of the earlier interlocutory judgment hereby merge with the terms of this judgment. It is hence decreed as follows: - The 1^st Defendant shall pay USD 31,135.88 being the unpaid balance on $\mathbf{i}$ the purchase price for equipment sold and supplied to the 1^st Defendant by the Plaintiff. - The 1^st Defendant shall pay interest to the Plaintiff on the sum in (i) above ii. at the rate of 18% p.a. from 31^st January 2023 until full payment. - The 1^st Defendant shall pay general damages of UGX 40,000,000 to the iii. Plaintiff. - iv. Costs of the suit are awarded to the Plaintiff.

readenten

Patricia Mutesi

**JUDGE**

$(28/03/2025)$