Background
1. This ruling determines the Motion application dated 11th January 2023, brought under Order 22 Rule 35, Order 5 Rule 17 of the Civil Procedure Rules, 2010, Section 1A, 1 B, 3A, 38 and 63(e) of the Civil Procedure Act Cap 21 of the Laws of Kenya.
2. The application seeks to compel AZIM NATHOO (AZIM) and TAJDIN NATHOO (TAJDIN), directors of the defendant company, to provide the plaintiff with information and relevant records concerning the company's status from January 2014 to date and appear in court for oral examination regarding the company's assets and liabilities. Additionally, it seeks an order holding these directors personally liable for the outstanding decretal sum of USD $604,590.60, plus interest and costs.
3. The genesis of this application is a decree emanating from an interlocutory judgment and a Certificate of Taxation both issued in this suit on 19th October 2017 and 24th February 2017 respectively. The plaintiff regrets being unable to execute the decree due to the unknown physical address of the defendant, the cessation of the defendant's operations, and the inability to trace its assets despite the plaintiff's diligent efforts.
4. The plaintiff argues that the company VANOIL KENYA LIMITED is a subsidiary of the defendant company and that according to the official records at the Registrar of Companies, AZIM and TAJDIN the known directors of VANOIL KENYA LIMITED.
5. The plaintiff asks this Court to find that despite the fact that the judgment debtor VANOIL LIMITED and VANOIL KENYA LIMITED were incorporated as separate entities, the reality was that VANOIL KENYA LIMITED was controlled by VANOIL ENERGY LIMITED and that VANOIL KENYA LIMITED was incorporated by the directors of VANOIL ENERGY LIMITED to mask the activities of the latter. For these reasons the plaintiff argues that the Court is entirely within its right to order execution against the two directors, AZIM and TAJDIN.
6. The application is opposed vide a replying affidavit sworn by AZIM on 31st March 2023 in which he denies any connection between the directors to the defendant. The directors specifically aver that they are not and have never been shareholders or directors of the defendant company. They assert that their company, VANOIL KENYA LIMITED is not a party to the present suit and that the defendant company is registered in the Province of British Columbia, Canada.
7. On 30th May 2022 this Court allowed prayers 1 and 2 of the application, and ordered the cross examination of the two alleged directors on 6th December 2023 by the plaintiff. The other prayers in the application were suspended to allow for determination after the oral examination, hence this ruling.
Analysis and determination
8. I have carefully considered the pleadings, submissions, authorities and evidence presented by the parties herein. The issue that this Court must determine is whether a case has been made out by the plaintiff for piercing the veil and making the two directors personally liable for the outstanding decretal sum herein, particularly after the oral examination.
9. The essence of an order sought under Order 22 rule 35 of the Civil Procedure Rules is to assist with discovery. This observation was made by Ringera J, in HCCC No. 1287 of 2000 Ultimate Laboratories V Tasha Bioservice Limited where the Learned Judge emphasized thus:
“The objective of an examination of a company’s director or officer under Order XX1 Rule 36 is to obtain discovery, for the purpose of execution of a decree against the company, 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.”
10. The plaintiff must now prove to this Court that there are sufficient grounds and reasons from the discovery to lift the veil of incorporation and permit execution against AZIM and TAJDIN. Numerous judicial decisions have discussed the circumstances for lifting the veil of incorporation.
11. The general principle, as discussed in Halsbury’s Laws of England, 4th Edition at paragraph 90, is that the court will pierce the corporate veil to do justice by treating the company as identical with the person or persons who control it. This can occur not only in cases of fraud or improper conduct but also when the company's character or the nature of its controllers is relevant.
12. An excerpt of this text provides 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 purpose 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 a 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…The corporate persona of a company will be dispensed with in cases where it is apparent that the company is being used as ‘a creature of [the controlling director], a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity … in order to enable it to do justice by treating a particular company, for the purpose of the litigation before it, as identical with the person or persons who control that company.” (emphasis mine)
13. Fraud, as defined by the Court of Appeal in Athi Highway Developers Ltd V West End Butchery Limited & Others, involves some deceitful practice or willful device intended to deprive another of their right or cause them injury. It includes all acts, omissions, and concealments that involve a breach of legal or equitable duty, trust, or confidence justly reposed, and are injurious to another.
14. The plaintiff argues that the defendant and the directors of its subsidiary and agent in Kenya have conducted themselves dishonestly, improperly and in bad faith in an attempt to evade their responsibility towards the plaintiff. A CR12 produced by the plaintiff confirms the testimony by AZIM that he and TADJIN are directors and shareholders of VANOIL KENYA LIMITED.
15. During oral examination the directors did not produce any books of accounts or documents relating to the defendant save for an application for registration and a Certificate of Incorporation. The reason for this, as was stated during cross examination is that the 2 directors were not involved in any way in the day to day running or management of the defendant and would therefore not be in the possession of any such information. When pressed further AZIM confirmed that he was only a consultant working on assignments for the defendant.
16. A closer look at the overall evidence presents a different picture. My curiosity was drawn to a letter written by AZIM to the Commissioner of the Kenya Revenue Authority (KRA), which raises questions about both directors' roles and responsibilities within the defendant company and its dealings in Kenya.
17. The letter first of all confirms to the Commissioner about the existence of the defendant company, as a result of a name change from VANGOLD LIMITED. Secondly, the letter signals the connection between the defendant company and VANOIL KENYA LIMITED, in the following words:
“This is to confirm Vanoil Resources Ltd operating in Kenya as Vangold Resources Limited has changed its name to Vanoil Energy Ltd and as a result registered a branch in Kenya …” (emphasis mine).
18. Finally, the letter confirms that there had been a successful transfer of assets within the transaction. It appears from this letter that AZIM was involved in significant decisions and had knowledge of the company's operations, contrary to his earlier claims. A letter such as the one written to the Commissioner would not be written by an outsider consultant.
19. From a cursory look at the evidence it is also clear that VANOIL KENYA LIMITED was actively involved in negotiating of the contract between the plaintiff and defendant, by dint of the email correspondence produced by the plaintiff. Even if I were to agree with the submission by the directors that the emails are irrelevant to the issues before this Court (which I disagree), it is also clear that the contract was executed on behalf of the defendant by an agent of VANOIL KENYA LIMITED.
20. These circumstances have not been explained. The plaintiff's argument that the directors of VANOIL ENERGY LIMITED used VANOIL (KENYA) LIMITED to mask their activities gains credibility in light of the totality of this evidence. The inference that I draw under the circumstances is that the refusal by the directors to disclose the financial status of the defendant company was deliberate as any such information would be detrimental to them.
21. I am therefore satisfied that it is proper for the ends of justice that the corporate veil of the defendant company be lifted and the said directors AZIM NATHOO and TAJDIN NATHOO be held personally liable to satisfy the decree of the court in full.
Disposition
22. Accordingly, the application dated 11th January 2023 is successful. The plaintiff shall have the costs of the application.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 5TH DAY OF JULY 2024.
F. MUGAMBI
JUDGE