FINEZZA CAPITAL LTD AND FINEZZA MANAGEMENT SOLUTION LTD VS JOSEPH OGERO NYAKUNDI AND INKALIFE LIMITED FINEZZA CAPITAL LTD AND FINEZZA MANAGEMENT SOLUTION LTD VS JOSEPH OGERO NYAKUNDI AND INKALIFE LIMITED

The Appellant is a judgment debtor in Nairobi SCCCOM 883 of 2021. They were ordered to pay a sum of Kshs. 1,000,000/= costs and interest on 17/11/2021. They danced around the payment of the decree until the Respondents herein moved to lift the corporate veil.
The directors were enjoined to settle the decree. A Preliminary Objection was raised on 25/10/2022 which was dismissed in limine as the court allowed the application. This is the basis of the Appeal before the appellant filed an appeal from the said decision and set forth 7 grounds of Appeal. They are camouflaged as 2 grounds. They are as follows: -
That the Learned Adjudicator erred in law and in fact by granting the orders sought in the 1^st and 2^nd Respondent’s application to lift the Appellant’s’ corporate veil and the Directors of the companies be held liable jointly to the extent of their shareholding in the companies on the basis that the Appellants did not have a satisfactory explanation on the accounts which on the contrary, the learned Adjudicator had completely misapprehended and failed to properly evaluate the established law and the principles thereunder, the failed pleadings, exchanged written submission and unchallenged evidence on record, which had established that:_
The appellant are limited liability companies with capacity to sue and be sued in their own name and whose liabilities are separate from those of its subscribers and/or directors and as such the liabilities of the Appellants should not extend to its directors and/or shareholders.
Pursuant to international case lass on separation between the corporation and its member’s, the company is at law a different person altogether from its subscribers and though it may be that after incorporation the business is precisely the same as it was before, and the same person are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers, as member’s liable, in any shape or form, except to the extent and in the manner provided by the act.
Piercing the corporate veil is an equitable remedy and the burden rest on the party asserting such a claim to demonstrate and the Respondents herein have not provided any evidence to either demonstrate the special circumstances need by the court to pierce the corporate veil of the Appellants or show that the Appellants herein have indeed collapsed or are under insolvency.
The Appellants’ their shareholders or directors have never acted in a fairly egregious manner, neither is there an instance of fraud nor serious misconduct in the companies to warrant the grant of an order pierce the corporate veil of the Appellants.
Some of the Appellants’ Directors had individually injected capital Is not the companies which was also lost as a result of default of repayment of the short term loans offered.
The ground of Appeal is on points of fact. The only discernable question of law is whether a control can lift the corporate veil. This being an Appeal from the small claims court, the duty of the court is circumscribed under 38 of the Small Claims Court Act which provides as doth: -

(1) A person aggrieved by the decision or an order Appeals. of the Court may appeal against that decision or order to the High Court on matters of law.

(2) An appeal from any decision or order referred to in subsection (1) shall be final.

The duty of the court is to defer to the findings of fact of the adjudicator and analyse the matter for issues of law. The issues of law are either due to the subject matter or the finding of law by the court. In the case of Mbogo and Another vs. Shah [1968] EA 93, the court of Appeal stated as doth:

“…that this Court will not interfere with the exercise of judicial discretion by an inferior court unless it is satisfied that its decision is clearly wrong, because it has misdirected itself or because it has acted on matters on which is should not have acted or because it failed to take into consideration matters which it should have taken into consideration and in doing so arrived at a wrong conclusion.”

However, an Appeal of this nature is on points of law. It can be pure points of law or mixed points of law but points of law it is. An appeal on points of law is akin to a second appeal to the court of Appeal. The duty of a second Appeal was set out in the case of Otieno, Ragot & Company Advocates v National Bank of Kenya Limited [2020] Eklr stated as follows: -

“This is a second appeal. I am alive to my duty as a second appellate court to determine matters of law only unless it is shown that the courts below-considered matters they should not have considered or failed to consider matters they should have considered or looking at the entire decision, it is perverse. (See Stanley N. Muriithi & Another versus Bernard Munene Ithiga (2016) eKLR).”

Then what constitutes a point of law. In Twaher Abdulkarim Mohamed v Independent Electoral and Boundaries Commission (IEBC) & 2 others, (2014) eKLR, the court stated as doth: -

“4. Although the phrase ‘a matter of law’ has not been defined by the Elections Act, it has been held in Timamy Issa Abdalla Vs Swaleh Salim Swaleh Imu & 3 Others, Malindi Civil Appeal No. 39 Of 2013 (Court Of Appeal), (Okwengu, Makhandia & Sichale, JJA) of 13.01.2014 that a decision is erroneous in law if it is one to which no court could reasonably come to, citing Bracegirdle vs Oxney (1947) 1 All ER 126. See also Khatib Abdalla Mwashetani Vs Gedion Mwangangi Wambua & 3 Others, Malindi Civil Appeal No. 39 Of 2013 (Court Of Appeal), (Okwengu, M'inoti & Sichale, JJA) of 23.01.2014 following AG vs David Marakaru (1960) EA 484.”

In Peter Gichuki King'ara Vs Iebc & 2 Others, Nyeri Civil Appeal No. 31 Of 2013 (Court Of Appeal) (Visram, Koome & Odek, JJA) Of 13.02.2014, the court of Appeal held as follows: -

“it was held that it is trite law that the exercise of judicial discretion is a point of law and that the trial court in denying a prayer of scrutiny is exercising judicial discretion. The Court concluded that it would not be feasible for the Court of Appeal to order for a recount and scrutiny as this would involve matters of fact that were within the jurisdiction of the trial court. The court further held that the question of whether the trial judge properly considered and evaluated the evidence and arrived at a correct determination that is supported by law and evidence – with the caveat that the appeal court did not see the witness demeanor – is an issue of law.”analysis ss

The main issue for determination in this case is there is a point of law in this Appeal. A point of law is similar to a preliminary point of law but has a broader meaning. Justice prof J.B. Ojwang J (as he then was) succinctly addressed the issue of preliminary objection in the case of Oraro vs Mbaja [2005] eKLR:

“I think the principle is abundantly clear. A preliminary objection as correctly understood is now well settled. It is identified as, and declared to be the point of law which must not be blurred with factual details liable to be contested and in any event, to be proved through the processes of evidence. Any assertion which claims to be a preliminary objection, and yet it bears factual aspects calling for proof, or seeks to adduce evidence for its authentication, is not, as a matter of legal principle, a true preliminary objection which the court should allow to proceed. I am in agreement that where a court needs to investigate facts, a matter cannot be raised as a preliminary point.

There appears to be a misapprehension that the Appellants are entitled to file a consulate appeal on facts and laid to this court. The nature of an Appeals to this court is basically a review for legality of the decision of the Small Claims Court.
The Court is not involved in the finding of fact as the suit was heard on a preliminary objection. In hearing a preliminary objection, this court and the court below have the same jurisdiction. They proceed on an understanding that what is pleaded in the plaint is true. It is what the English common law used to call a demurrer. The locus classicus case of Mukisa Biscuit Manufacturing Co. Ltd V. West End Distributors Ltd [1969] E.A. 696, made this pertinent observation. It said: -

"The first matter relates to the increasing practice of raising points, which should be argued in the normal manner, quite improperly by way preliminary objection. The improper raising of points of preliminary objection does nothing but unnecessarily increases costs and, on occasion, confuses issues. This improper practice should stop".

In a Tanzanian case of Hammers Incorporation Co. Ltd Versus The Board of Trustees of The Cashewnut Industry Development Trust Fund, where the Court of Appeal, (Rutakangwa, N. P. Kimaro and S. S. Kadage JJA), sitting in Dar Es Salaam in their decision given on 17/9/2015 regretted that the practice of raising preliminary objection that was frowned upon by the court of appeal in kampala in the Mukisa biscuit case(Supra) still persists. They stated as doth: -

“It was hoping against hope. We believe that had that Court survived to this day it would have issued a sterner warning. This is because the "improper practice" never stopped. Neither did it ebb away. On the contrary, it is on the increase. This forced the Full Bench of this Court in Karata Ernest & Others V The Attorney General, Civil Revision No. 10 of 2010 (unreported) to mildly urge all parties in judicial proceedings to pay heed to what was aptly pronounced in the MUKISA BISCUIT case (supra). The late call appears to be falling on deaf ears as this ruling will demonstrate.”

In the case of Martha Akinyi Migwambo v Susan Ongoro Ogenda [2022] eKLR, Justice Kiarie Waweru Kiarie, summarized the preliminary objection nicely as seen from two of the judges in Mukisa Biscuit Manufacturing Co. Ltd(supra): -

“A preliminary objection must be on a point of law. The Court of Appeal in the case of Mukisa Biscuit Manufacturing Co. Ltd vs West End Distributors Ltd [1969)EA 696 at page 700 paragraphs D-F Law JA as he then was had this to say:

....A Preliminary Objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the Jurisdiction of the court or a plea of limitation, or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration.

At page701 paragraph B-C Sir Charles Newbold, P. added the following:

A Preliminary Objection is in the nature of what used to be a demurrer. It raises a pure point of law which is usually on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion....”

A Tanzania Court of Appeal sitting in Dar es Salaam, in Karata Ernest & Others vs Attorney General (Civil Revision No. 10 of 2020) [2010] TZCA 30 (29 December 2010),( Luanda, J.A. , Ramadhani, C.J. , Rutakangwa, JJA), put the issue of preliminary objections in a more succinct manner: -

“At the outset we showed that it is trite law that a point of preliminary objection cannot be raised if any fact has to be ascertained in the course of deciding it. It only "consists o f a point of law which has been pleaded, or which arises by dear implication out of the pleading obvious examples include: objection to the jurisdiction of the court; a plea of limitation; when the court has been wrongly moved either by non-citation or wrong citation of the enabling provisions of the law; where an appeal is lodged when there is no right of appeal; where an appeal is instituted without a valid notice of appeal or without leave or a certificate where one is statutorily required; where the appeal is supported by a patently incurably defective copy of the decree appealed from; etc. All these are clear pure points of law. All the same, where a taken point of objection is premised on issues of mixed facts and law that point does not deserve consideration at all as a preliminary point of objection. It ought to be argued in the "normal manner" when deliberating on the merits or otherwise of the concerned legal proceedings.

Justice prof J.B. Ojwang J (as he then was) succinctly addressed the issue of preliminary objection in the case of Oraro vs Mbaja [2005] eKLR:

It is therefore my view that a preliminary objection must be based on current law, and be factual in its constitution. It cannot be based on disputed facts or fats requiring further enquiry. In determining a preliminary objection therefore only 3 documents are required in addition to the constitution. The impugned law, the plaint and preliminary objection. If you have to refer to the defence, then the preliminary objection is untenable.

Submission

The Appellant filed 7 page submissions. The bulk of which are on questions of fact on where the corporate veil should be lifted the relied on 8 authorities. They Stated that in Post Bank Credit Limited (In Liquidation) V Nyamangu Holdings Limited [2015] EKLR the decision to lift the corporate veil should not be taken lightly but rather sufficient causes must be proven to warrant the same as stated by the court as follows;

“However, despite the jurisdiction the court, the decision to lift the corporate veil should not be undertaken lightly as it opens the directors or members of the company to personal liability. There should be sufficient circumstances provided in statutory law or judicial precedents which allow the court to do so.”

They relied on the case of Kolaba Enterprises Ltd Vs. Shamsudin Hussein Varvani & Ano (2014) EKLR, where they indicated that the court held that;

“It should be appreciated that the separate corporate personality is the best legal innovation ever in company law. See the famous case of SALOMON & CO LTD v SALOMON [1897] A.C. 22 H.L that a company is different person altogether from its subscribers and directors. Although it is a fiction of the law, it still is as important for all purposes and intents in any proceedings where a company is involved. Needless to say, that separate legal personality of a company can never be departed from except in instances where the statute or the law provides for the lifting or piercing of the corporate veil, say when the directors or members of the company are using the company as a vehicle to commit fraud or other criminal activities”

They submitted that in the case of Riccatti Business College of East Africa Limited V Kyanzavi Farmers Company Limited [2016] eKLR cited with authority the case of Victor Mabachi & Anor & Nurtun Bates Limited [2013] eKLR, where the Court while dealing with the issue of the distinct legal entity of corporate bodies held that:

“[A company] as a body corporate, is persona jurisdica, with a separate independent identity in law, distinct from its shareholders, directors and agents unless there are factors warranting a lifting of the veil …

“The Court may lift the corporate veil in exercising its inherent jurisdiction to do justice and fairness for the ends of justice. This jurisdiction may be exercised only in special circumstances where the Court finds improper conduct, fraud or when a company is a sham, acting as an agent of the shareholders or evading tax revenues.”

It was the Appellant’s case that, the Court elaborated on the said circumstances that would warrant lifting of the corporate veil by stating: -

“A useful discussion on circumstances where a court will be entitled to lift the corporate veil appears at paragraph 402 of Halsbury’s Laws of England 4^th Edition Vol. 7(1) where the learned authors say:

“……or where the court will ‘pierce (or lift) the corporate veil’, not because it considers it just to do so but because special circumstances exist indicating that it is a mere façade concealing the true facts. In identifying what is a mere façade, the motive of those behind the company will be relevant. The court will go behind the status of the company as a separate legal entity distinct from its shareholders, and will consider who are the persons, as shareholders or even as agents, directing and controlling the activities of the company. The device of a corporate structure will often have been used to evade limitations imposed on conduct by law and rights of relief which third parties already possess against a defendant, so justifying the court’s ‘piercing’ (or ‘lifting’) the veil.

Where, however, this is not the position, even though an individual’s connection with a company may cause a transaction with that company to be subjected to strict scrutiny, the corporate veil will not be pierced. Nor is the court entitled to lift the veil as against a company which is a member of a corporate group merely because the corporate structure has been used so as to ensure that the legal liability (if any) in respect of particular future activities of the company will fall on another member of the group rather than the defendant company.

It may be that liabilities or obligations will arise without piercing the corporate veil because there is an agency relationship between a parent company and subsidiary, or between a company and its shareholders, but this may not be inferred merely from control of the company or ownership of its shares or from the level of paid up capital. It will depend on an investigation of all aspects of the relationship between the parties and there is no presumption of such agency.”

They relied on the case of Mugenyi & Company Advocates Vs. The Attorney General [1999] 2 EA 199 following Palmers Company Law Vol. 1 (22 ed) gave a list of 10 instances in which the veil of corporate personality may be lifted and these are:-
1. Where companies are in the relationship of holding and subsidiary companies.
2. Where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors on the ground that business continued after the membership had dropped below the legal minimum, to the knowledge of the shareholder: -
3. In certain matters relating to taxation;
4. In the law relating to exchange control;
5. In the law relating to trading with the enemy;
6. In the law of merger control in the United Kingdom;
7. In competition of the European Economic Community;
8. In abuse of law in certain circumstances;
9. Where the device of incorporation is used for some illegal or improper purpose; and
10. Where the private company is founded on personal relationship between the members.
Your Lordship from the foregoing, it is evident that the Respondents have not sufficiently established or demonstrated any grounds to warrant piercing the corporate veil. They have not demonstrated any instances where the Appellants were used for some illegal or improper purpose or rather any fraud or improper conduct by the latter.
They stated that the Respondents have made baseless accusations that the Appellants are attempting to evade settling the decretal sum which couldn’t be further from the truth. It was their case that, it is an undisputed fact that the Appellants had already cleared part of their debt before facing challenges on the advent of COVID-19 which heavily affected many business including that of the Appellants.
It was their case that from the directors of the appellants that they called all their creditors so as to settle their debts and all those who proved their claims were paid. They stated that the Respondents actions vindicate the appellants of any accusation by the respondents of having ill motives such as scheming to evade the decretal sum.
They submitted that the Respondents had not presented any evidence of improper conduct, fraud by the directors of the Appellants or any other ground or circumstance provided for in legal precedent and in statute to warrant the piercing of the corporate veil. They stated that these sentiments were echoed by the learned Judge Ringera, J (as he then was) in Ultimate Laboratories Vs. Tasha Bioservice Limited Nairobi H.C.C.C NO. 1287 OF 2000, who stated on lifting of the corporate veil that;

“However, that fundamental principle of incorporation may be disregarded, lifted, or pierced in exceptional circumstances both under express statutory provisions (of which Section 323 of the Companies Act is but one example only) and under judicial interpretation or intervention. As regards the latter, English authorities establish the broad principle that the corporate veil will be lifted by the courts if, among other situations, corporate personality is being used as a mask for fraud or improper conduct (See the cases of Gilford Motor Co. Vs. Horne [1933] Ch. 935 And Jones Vs. Hipman [1962] 1W.L.R. 832).”

They submitted that the Corporate the veil should not be pierced. It was their case that the court erred in law and in fact in piercing the corporate veil. The related on the cases of Jiang Nan Xiang V Cok Fas-St Company Limited [2018] Eklr the court stated as follows:-

“I find that the law on lifting the veil of incorporation is now settled. The circumstances under which a veil of incorporation would be lifted are inter alia where there is no real formal legal separation between the Company and its shareholders’ personal financial affairs and/or that the Company is just a sham or the Company’s actions were wrongful or fraudulent, or if the shareholders and/or directors act recklessly in the management of the business of the Company and/or design a scheme, to perpetrate financial fraud, and/or if the Company’s creditors suffer unjust cost, that is, they did business with the Company and they are left with unpaid bills or unpaid Court judgment. In all these circumstances, the Court will pierce the veil of incorporation and hold the shareholders and/or the directors personally liable.”

It was their case that in the case of Corporate Insurance Brokers Limited [2002] EA 41 Ringera J. (as he then was) found that: -

“The veil of incorporation is not to be lifted merely because the company has no assets or it is unable to pay its debts and is thus insolvent. In such a situation, the law provides for remedies other than the director of the company being saddled with the debts of the company”

Respondent’s Submissions

The respondent submitted that the Appellant’s case is baseless. THEY relied on the case of Robert Kinaga Waweru v Northcorr Enterprises Ltd [201] EKLR, Justice Mabeya stated as doth: -

“12. The decretal sum has not been fully settled. In an application under Order 22 Rule 35, it is upon the directors and shareholders of a defendant company to show that the company has assets that are capable of satisfying the decree. It will be a travesty of justice for a court of equity to close its eyes where it is clear that a person incorporates a company, enters into agreements through it, derives benefits therefrom and leaves the parties to such agreements licking financial wounds while he continues to enjoy the benefits therefrom. The directors and shareholders must give full account of the assets of the company or its whereabouts.”

They rely on the case of Julian Adoyo Ongunga & another v Francis Kiberenge Bondeva (Suing as the Administrator of the Estate of Fanuel Evans Amudavi, Deceased) [2016] eKLR , where Justice Mrima stated as follows: -

“Further the issue of locus standi is so cardinal in a civil matter since it runs through to the heart of the case. Simply put, a party without locus standi in a civil suit lacks the right to institute and/or maintain that suit even where a valid cause of action subsists. Locus standi relates mainly to the legal capacity of a party. The impact of a party in a suit without locus standi can be equated to that of a court acting without jurisdiction since it all amounts to null and void proceedings.”

They relied on the case of Post Bank Credit Limited (in liquidation) vs Nyamangu Holdings Ltd (2015) eKLR , where the court stated as doth: -

“A person to be summoned under Order 22 Rule 35 (c) of the Civil Procedure Rules, to provide information on the property of the Company will also be required to produce any relevant documents or copies thereof on the assets of the Company or books of accounts including but not limited to the Judgment Debtor’s annual financial statement, documents of title property of the Company in his possession and which he may have obtained as a director and/or shareholder of the judgment-debtor.”

The Respondent submitted that that where directors fail to attend court, the corporate veil should be lifted and the Directors be held jointly and severally personally liable to pay the decretal sum and costs. For this argument, the applicant cited the case of Petrol Oil (K) Ltd vs Hosborne Arunga & 2 others [2013] eKLR where a similar application was allowed and the court held thus: -

“There being no evidence to the contrary I am satisfied that this application has merit. Having failed to provide proper accounts in respect of the Judgment/debtors assets I accordingly lift the veil of Incorporation and hold the Directors personally liable to the claim."

They relied on the case of Stephen Njoroge Gikera & Punit Dipak Vadgama t/a Gikera & Vadgama Advocates v Econite Mining Company Limited & 7 others [2018] eKLR , where the court stated as follows: -

“ [11] However, there are instances when the veil of incorporation may be lifted. In such instances, the law goes behind the corporate personality to attach responsibility to the individual shareholders or directors; thereby ignoring the separate personality of the company in favour of the economic reality prevailing in the circumstance. The Halsbury’s Laws of England, 4^thEdn para. 90; addresses the issue of piercing the veil of incorporation and states that;

“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 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. However, where this is not the position, even though an individual’s connection with a company may cause a transaction with that company to be subjected to strict scrutiny, the corporate veil will not be lifted”

[12] Was the learned Judge wrong in lifting the veil in the present case? Looking at the issue within the context of the proceedings before the trial court, the record shows that prior to the application to cease acting, the 1^st respondent had been directed by court to comply with some interlocutory orders issued on 5^th October, 2015; which required the payment of some premiums and furnishing of accounts in respect thereof, by the 1^st respondent. The 1^st respondent is yet to comply. Instead, her lawyers, the appellant, filed an application to cease acting, claiming want of instructions from their client, the 1^st respondent. However, in the course of proceedings, it emerged that the managing partner in the law firm of the appellant one Mr. Stephen Njoroge Gikera was also not only one of the two directors of the 1^st respondent, but also the majority shareholder therein.

[13] Apparently, Mr. Gikera held 60% of the 1^st respondent’s shares, while the other 40% were held by a third party. This was therefore essentially and as it emerged before the trial court; a case of Mr. Gikera wearing a different hat to avoid legal obligations that came with his directorship of the 1^st respondent, while hiding under the veil of incorporation. Unfortunately the veil could not cover him entirely because a bigger portion of the veil happened to be worn by himself just as the old adage goes “you cannot have your cake and eat it”. It is precisely this kind of situation that the principle of lifting the corporate veil seeks to obviate. 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.’ (See Jones vs. Lipman & Another [1962] 1 All ER 442) and H. L. Bolton (Engineering Co. Ltd vs. T. J. Graham & Sons Ltd [1956] 3 ALL ER where it was held;

“A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work, and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by law as such”

They urged that the court should dismiss the Appeal.

Analysis

Lifting of the corporate veil is done in circumstances where the directors are unable to show that the company is a legitimate enterprise. One of the things that show legitimacy of an enterprise is its books of account and evidence of assets owned.
It is not enough to lift a corporate veil because a company is unable to pay its debts. It is when a company is a shell, sham and meant to defraud creditors that it is said to be a sham. The court lifting the veil should never limit liability of the directors to shareholding. It should be to a fullest extent possible to pay the judgment debt. The appellant did not get any adverse order against them. The order lifting the corporate veil was directed to the directors of the Appellants. The court, found and rightly so that the Appellant are a sham, a front for the directors and its owners to defraud the public.
The Appellants themselves were a shell and not legitimate business. This was because no books of account were produced. The directors of the Appellants were hiding behind the veil of incorporation to fail to pay lawful debtors.
It is not surprising that, the faceless persons behind the appellants did not appeal. There is no doubt that the Respondent has a legitimate debt. There is equally no doubt that the appellants are shams shells and fronts for its directors. There is no legitimate question of law raised. In the case of Robert Khamala Situma v Afrikon Limited [2022] eKLR, Justice Maureen Onyango stated as doth: -

“The above provisions were considered in NBI HCCC No. 1287 of 2000 Ultimate Laboratories v Tasha Bioservice Limited (Supra) wherein the Court observed as follows: -

“Two things emerge from the above proposition. One, the power of the Court to summon a person to attend and be examined under Order 22 Rule 35 is circumscribed within the purpose set out in the Rule. That is;

…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.

I therefore, take the view that, as long as the Applicant has shown that the Respondent is in a position to provide information in the nature of discovery….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, the Court should summon the person to attend and be examined in relation to the purpose stated in the Rule.”

Having regard to the clear provisions of Order 22 Rule 35 of the Civil Procedure Rules, and owing to the fact that the Judgment Debtor’s indebtedness to the Applicant for the decretal sum herein is not disputed, the Applicant is justified and well within his rights to seek the orders of this court to summon the Judgment Debtor’s Director and/or former director to be examined on oath over the state of affairs of the Company. It is not for the defendant to determine the mode of execution for the decree holder and the filing of insolvency proceedings against the company is just one among the many avenues available for such execution.”

There is no duty by the Respondent to show that the defendants are a sham. The Appellants have a special knowledge of their books. By failing to provide the same, there will be an adverse inference is to be made. In the case of Nesco Services Limited v CM Construction [EA] Limited [2021] eKLR, Justice G V Odunga as then he was stated as doth:

“In my view, the fact that the document in question was authored by the Appellant’s agent and was produced by consent of the parties themselves entitled the learned trial magistrate to rely on it. The Court of Appeal in Ephantus Mwangi and Another vs. Duncan Mwangi Civil Appeal No. 77 of 1982 [1982-1988] 1KAR 278 had this to say on the issue:

“Where documents are put in by consent, as for example an agreed bundle of correspondence, the usual agreement is that they are admitted to be what they purport to be (so as to save the necessity for formal proof of each document).”

Since the said author was for reasons unknown to the Court not called to testify and dispute its authenticity, adverse inference could be made thereon.

In Kenya Akiba Micro Financing Limited vs. Ezekiel Chebii & 14 others [2012] eKLR the court stated as follows:

“Section 112 of the Evidence Act Chapter 80 of the laws of Kenya provides:

‘In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proofing of disproving that fact is upon him.’

Where a party has custody or is in control of evidence which that party fails or refuses to tender or produce, the court is entitled to make the adverse inference that if such evidence was produced, it would be adverse to such a party. In the case of Kimotho –vs- KCB (2003) 1 EA 108 the court held that adverse inference should be drawn upon a party who fails to call evidence in his possession.”

There is no point of law raised in the matter. The lifting of the corporate veil is a legal point. No issue of law has been raised. Without complying with order 22 Rule 35, the Appellant’s goose was cooked. However, the court found orders against directors not the company. The directors were not aggrieved by the decision as they did not Appeal. The Appeal is thus baseless. In the circumstances, the appeal is baseless and is accordingly dismissed with cost of Kshs. 85,000/=.
In awarding costs, the court is guided by the Supreme Court set forth guiding principles applicable in the exercise of that discretion in the case of Jasbir Singh Rai & 3 others v. Tarlochan Singh Rai & 4 others, SC Petition No. 4 of 2012; [2014] eKLR, as follows: -

“[18] It emerges that the award of costs would normally be guided by the principle that “costs follow the event”: the effect being that the party who calls forth the event by instituting suit, will bear the costs if the suit fails; but if this party shows legitimate occasion, by successful suit, then the defendant or respondent will bear the costs. However, the vital factor in setting the preference is the judiciously-exercised discretion of the Court, accommodating the special circumstances of the case, while being guided by ends of justice. The claims of the public interest will be a relevant factor, in the exercise of such discretion, as will also be the motivations and conduct of the parties, before, during, and subsequent to the actual process of litigation…

... Although there is eminent good sense in the basic rule of costs– that costs follow the event – it is not an invariable rule and, indeed, the ultimate factor on award or non-award of costs is the judicial discretion. It follows, therefore, that costs do not, in law, constitute an unchanging consequence of legal proceedings – a position well illustrated by the considered opinions of this Court in other cases.

Costs follow the event. The event is the dismissal of this Appela. The Respondent will have costs of Ksh. 85,000/-.

Determination

The upshot of the foregoing is that I make the following orders: -
The appeal lacks merit and is accordingly dismissed with costs of Kshs. 85,000/= to the Respondents.
This file is closed.

DATED, SIGNED and DELIVERED VIRTUALLY at MOMBASA on this 15^th day of April, 2024.

In the presence of:-

Ms Kagendo for the Appellant

Ms Kerubo for the Respondent

Court clerk- Brian