Introduction and background
1. This appeal arises from the judgment and the decree of Hon. Gatambia Samuel Ndungu in Mombasa Small Claims Court Case No. SCCCOMM/E631 of 2025, Johnson Mbugua v Billy Kongere & Ian Omondi. The copy of the judgment in the record of appeal is signed and dated 30 July 2025, although the Memorandum of Appeal refers to it as having been delivered on 31 July 2025; nothing turns on that discrepancy. The Appellants were the respondents before the trial court while the Respondent was the claimant. For clarity, I shall refer to the parties by their designations in this appeal.
2. By a statement of claim dated 10 June 2025, the Respondent, a hospitality consultant trading as JNSN Hospitality Partners, sued the Appellants, whom he described as the co-founders and directors of Makaazi Nyali, a hospitality establishment in Nyali, Mombasa. His case was that on or about October 2024, he was engaged to provide structured business development and operational oversight services to Makaazi Nyali on the strength of a mutually agreed proposal, at a monthly consultancy fee of Kshs 195,000/=. He averred that he rendered the agreed services from October 2024 and was paid monthly for the period October 2024 to February 2025, but that the fee for March 2025 was not paid. In a bid to resolve the matter amicably, he offered to accept fifty per cent of the March fee, that is, Kshs 97,500/=.
3. /= in full and final settlement. The offer bore no fruit and he withdrew his services on 25 March 2025. He accordingly prayed for judgment for Kshs 97,500/=, interest thereon at court rates from 25 March 2025 until payment in full, and costs of the suit.
4. The Appellants entered appearance and filed a response to the statement of claim dated 7 July 2025 in which they denied the claim in its entirety. The crux of the response was pleaded as follows:
“(a) The Claimant was engaged by Central Origin Limited t/a Makaazi Nyali to provide consultancy services for its hotel business. A copy of the trading license and certificate of incorporation for Central Origin Limited is attached as REX-1.
(b) The mere fact that payment came from an account in the director's name does not create a contractual relationship with the director.”
5. The certificate of incorporation exhibited with the response shows that Central Origin Limited was incorporated on 17 November 2022 as a private limited company under the Companies Act, 2015. The Appellants further pleaded, without prejudice to the plea of corporate personality, that the Respondent withheld his services in March 2025 thereby occasioning the company loss and damage; that monthly marketing costs of Kshs 16,000= charged to the 1st Appellant's credit card were contractually payable by the Respondent; and that the agreed rate was in fact Kshs 150,000/= monthly, with Kshs 45,000/= per month payable at the end of six months subject to satisfactory performance.
6. In the judgment now impugned, the trial court framed the question for determination as being whether the claim was proved to the required standard, which it said would be considered “in light of the doctrine of corporate identity”. To this end, the learned magistrate held as follows:
“9. It is not disputed that the Claimant was engaged by Central Origin Limited t/a Makaazi Nyali whose owners or Directors are the Respondents. The Claimant's payments were however made from the Director's account.
10. This Court is well guided by the Companies Act as well as a plethora of decisions from the Superior Courts to discern that, the Respondents though trading or engaging with the Claimant behind their corporation, their personal actions such as effecting payments from their personal accounts were obviously for the benefit or best interests of the company.
11. It cannot be then that, when the deal is so sweet, they can easily engage even in their individual capacities on behalf of the company. But when caught up between a rock and a hard place such as in this litigation, the veil of incorporation then becomes their saving grace.”
7. On that reasoning, and after invoking Aster Holdings Limited v City Council of Nairobi & 4 others [2019] eKLR and Githunguri Dairy Farmers Co-operative Society v Ernie Campbell & Company Limited & another [2018] eKLR on the circumstances in which the corporate veil may be pierced, the trial court entered judgment for the Respondent against the Appellants in the sum of Kshs 97,500/= and directed each party to bear its own costs.
The appeal
8. Aggrieved, the Appellants preferred the present appeal by a Memorandum of Appeal dated 12 August 2025 raising two grounds:
1. The learned trial magistrate erred in law in lifting the corporate veil of Central Origin Limited t/a Makaazi Nyali and entering judgment against the Appellants.
2. The learned trial magistrate erred in law by failing to uphold the doctrine of privity of contract.
9. The Appellants pray that the appeal be allowed, the judgment set aside and substituted with an order dismissing the statement of claim dated 10 June 2025, with costs of the appeal and of the claim.
The preliminary objection
10. The Respondent countered with a Notice of Preliminary Objection dated 30 September 2025 on four grounds: first, that the appeal should be struck out in limine for want of jurisdiction under section 38(1) of the Small Claims Court Act because the grounds raised are said to be predominantly matters of fact and not law; secondly and thirdly, that the affidavits supporting the Appellants' Chamber Summons and Notice of Motion, both dated 10 September 2025, are unsigned and, therefore, incurably defective; and fourthly, that the supporting affidavit sworn by the 1st Appellant on behalf of the 2nd Appellant should be struck out for want of written authority, contrary to Order 1 rules 13(1) and (2) of the Civil Procedure Rules, 2010.
11. On 3 November 2025 the court directed that the appeal be disposed of together with the preliminary objection and gave timelines for the filing and service of submissions, with highlighting scheduled for 10 March 2026. The Appellants' submissions are dated 4 November 2025 but were filed on the evening of 9 March 2026. The Respondent filed consolidated submissions dated 17 April 2026 in support of the preliminary objection and in opposition to the appeal, together with supplementary submissions protesting the late filing of the Appellants' submissions.
The appellants' submissions
12. The Appellants submit that appeals from the Small Claims Court lie to this court only on matters of law by dint of section 38 of the Small Claims Court Act, and that the question in this appeal is purely one of law: whether the trial court was right to lift the corporate veil of Central Origin Limited, and in so doing to circumvent the doctrine of privity of contract, on the sole ground that payments to the Respondent were made from a director's account. They invoke the principle established in Salomon v Salomon & Co Ltd that a company is a separate legal person distinct from its directors and shareholders, so that directors are not personally liable for company obligations merely because they are directors. They submit that courts will only lift the corporate veil where there is evidence that the company is being used improperly, such as for fraud, sham or evasion of legal obligations, none of which was alleged; that no party applied for the lifting of the veil, the trial court having acted on its own motion; and that payment of money by a director personally is not, by itself, a sufficient ground for lifting the veil. They ask that the appeal be allowed with costs.
The respondent's submissions
13. In support of the preliminary objection, the Respondent submits that the limitation in section 38(1) of the Small Claims Court Act is jurisdictional, not procedural, and that where an appeal raises factual complaints disguised as legal error, this court must strike it out without considering the merits. He submits that the Memorandum of Appeal challenges the trial court's evaluation of evidence and its findings of fact, and relies on Okumu v Nyakinyi & another [2024] KEHC 7006 (KLR), where it was affirmed that an appeal from the Small Claims Court is akin to a second appeal, and Momentum Credit Limited v Keiwua [2025] KEHC 388 (KLR), where grounds of appeal raising factual issues were struck out because this court cannot substitute the trial court's findings unless they are so unreasonable that no rational tribunal would have arrived at them. He further relies on section 32 of the Small Claims Court Act and West Kenya Sugar Company Limited v Okendo [2024] KEHC 2844 (KLR) for the proposition that complaints about the reception of evidence are not appealable errors of law, and on the celebrated dictum in Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1 that a court without jurisdiction must down its tools.
14. The Respondent further submits that the Appellants, having declined to file submissions before the trial court despite directions to do so, cannot advance the doctrines of corporate personality and privity of contract for the first time on appeal; that the affidavit supporting the Appellants' application is unsigned and of no legal value, on the authority of Konchellah v Sunkuli & 2 others [2018] KESC 58 (KLR); and that the affidavit sworn by the 1st Appellant on behalf of the 2nd Appellant without exhibited written authority offends Order 1 rule 13 of the Civil Procedure Rules, citing Research International East Africa Ltd v Julius Arisi & 213 others [2007] eKLR and Moses Onchiri v Kenya Ports Authority & 4 others [2017] eKLR.
15. On the merits, the Respondent contends that the issue before the trial court was not a theoretical question of corporate law but a factual inquiry into the parties' dealings; who engaged him, who made repeated payments to him, and who benefited from his services, and that whether directors acted personally or as agents of a company is a factual determination dependent on evidence, citing Victor Mabachi & another v Nurtun Bates Limited [2013] eKLR. He characterises the Appellants' position as internally inconsistent: the company is said to have hired him, yet the directors paid him personally and managed the relationship, while now disclaiming liability, with the result, if accepted, that the company would never have paid anything for acknowledged services. He submits that lifting the veil is an equitable remedy addressing not just fraud but also misconduct and injustice, and invokes the twin test in Lucy Mukembura Kimani v Nzuri Feeds Suppliers Ltd [2021] KEHC 6552 (KLR) together with factors including under-capitalisation, failure to observe corporate formalities and commingling of assets, which he urges are demonstrated by the directors' payment of the company's liabilities from personal accounts.
16. Finally, the Respondent submits that the Appellants obtained a conditional stay of execution on 13 September 2025 on terms that the decretal sum be deposited in court or in a joint interest-earning account within thirty days; that no deposit was ever made despite a representation to the court on 3 November 2025 that it had been; and that the late filing of the Appellants' submissions, dated 4 November 2025 but filed on the eve of the hearing, amounts to trial by ambush. All this, he says, is an abuse of the process of the court within the meaning of Muchanga Investments Limited v Safaris Unlimited (Africa) Ltd & 2 others [2009] KECA 453 (KLR), which adopted the South African Supreme Court of Appeal's formulation in Beinash v Wixley [1997] ZASCA 32; 1997 (3) SA 721 (SCA) that an abuse of process takes place where procedures permitted by the rules to facilitate the pursuit of the truth are used for a purpose extraneous to that objective. He prays that the preliminary objection be upheld, the appeal struck out, the stay discharged, and costs awarded.
Issues for determination
17. Three issues have emerged for determination; they are, (i) whether the preliminary objection is merited, which subsumes the question whether the appeal raises matters of law within the meaning of section 38(1) of the Small Claims Court Act; (ii) if the appeal is properly before this court, whether the trial court erred in law in holding the Appellants personally liable notwithstanding the corporate personality of Central Origin Limited and the doctrine of privity of contract; and (iii) what orders should issue, including as to costs.
18. Before turning to the issues, I dispose of a preliminary matter. The Appellants' submissions were filed months out of time and without leave, in breach of the directions of 3rd November 2025. That conduct is deprecated. However, an appeal stands or falls on the record and the memorandum of appeal; submissions are not pleadings and their absence or lateness does not relieve the court of its duty to determine the appeal according to law. The Respondent, moreover, had, and took, the opportunity to answer the late submissions through his supplementary submissions, and I discern no incurable prejudice. Consistent with the command in Article 159(2)(d) of the Constitution of Kenya, 2010 that justice be administered without undue regard to procedural technicalities, I have considered both parties' submissions in full. The Appellants' conduct will, however, be reflected in the order on costs.
Analysis and determination
(i) Whether the preliminary objection is merited
19. The starting point is the nature of a preliminary objection, authoritatively stated in Mukisa Biscuit Manufacturing Co Ltd v West End Distributors Ltd [1969] EA 696. Law JA said:
“So far as I am aware, 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.”
20. Sir Charles Newbold P added:
“A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct.”
21. Measured against that standard, the second, third and fourth grounds of the preliminary objection cannot dispose of this appeal. They are directed at affidavits filed in support of the Appellants' interlocutory applications of 10th September 2025 for stay of execution; they are not directed at the appeal itself. An appeal under section 38(1) of the Small Claims Court Act is originated by a memorandum of appeal, whose validity does not depend upon any affidavit. The authorities the Respondent cites on unsigned affidavits and on Order 1 rule 13 of the Civil Procedure Rules, Konchellah v Sunkuli & 2 others and Research International East Africa Ltd v Julius Arisi & 213 others, state sound propositions of law, but they bear on the competence of the interlocutory applications, which have been overtaken by the hearing of the appeal itself and are spent. Those grounds of objection therefore fail, not because they are wrong in law, but because they dispose of nothing that remains alive.
22. The first ground, by contrast, raises a true threshold point: the jurisdiction of this court. Section 38(1) of the Small Claims Court Act, No. 2 of 2016 provides:
A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.
23. If the grounds of appeal raise no matter of law, this court has no business considering them, for as Nyarangi JA memorably put it in Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1:
“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence.”
24. What, then, is a “matter of law”? The Supreme Court considered the cognate phrase in Gatirau Peter Munya v Dickson Mwenda Kithinji & 2 others [2014] KESC 38 (KLR), and its characterisation has consistently been applied by this court to appeals under section 38(1) of the Small Claims Court Act. At paragraph 80 the Supreme Court stated:
“From the foregoing review of the comparative judicial experience, we would characterize the three elements of the phrase “matters of law” as follows: (a) the technical element: involving the interpretation of a constitutional or statutory provision; (b) the practical element: involving the application of the Constitution and the law to a set of facts or evidence on record; (c) the evidentiary element: involving the evaluation of the conclusions of a trial Court on the basis of the evidence on record.”
25. Applying that characterisation, I am unable to accept the Respondent's contention that the two grounds of appeal are factual complaints in legal dress. The grounds do not invite this court to re-evaluate the evidence or to disturb any finding of fact. On the contrary, they take the trial court's central findings exactly as they stand; that the Respondent was engaged by Central Origin Limited t/a Makaazi Nyali, and that his payments were made from a director's personal account, and pose a single question: whether those facts are capable, in law, of justifying the lifting of the corporate veil and the entry of judgment against the directors personally. That is the practical element identified in Gatirau Peter Munya, that is, the application of the law to facts as found. Whether given or undisputed facts can in law sustain a legal conclusion is a quintessential question of law. The authorities the Respondent relies upon, including Momentum Credit Limited v Keiwua and Okumu v Nyakinyi & another, concerned invitations to re-assess evidence and re-open concurrent factual conclusions; they are distinguishable, because no such invitation is extended here.
26. Nor is there substance in the complaint that the Appellants are advancing corporate personality and privity for the first time on appeal. Both doctrines were squarely pleaded in the response to the statement of claim, in the terms I have set out at paragraph 3 above, and the trial court itself framed the case as one to be decided “in light of the doctrine of corporate identity” before proceeding to determine that very question. A party whose pleaded defence has been adjudicated upon does not raise a new point by challenging that adjudication on appeal. The failure to file submissions before the trial court, while regrettable, could not amount to an abandonment of a pleaded defence; submissions are neither pleadings nor evidence.
27. The preliminary objection accordingly fails in its entirety and is dismissed. The appeal is properly before this court on matters of law.
(ii) Whether the trial court erred in law in lifting the corporate veil and in disregarding privity of contract
28. The starting point is elementary but fundamental. Central Origin Limited was incorporated on 17 November 2022 under the Companies Act, 2015. By dint of section 16(2) of the Companies Act, 2015, a company becomes, from the date of incorporation, a body corporate distinct from its members, capable of exercising all the functions of an incorporated company. The classic exposition of the consequence remains that of the House of Lords in Salomon v A Salomon & Co Ltd [1897] AC 22, a decision which, though English, has long been received as the foundation of Kenyan company law. Lord Macnaghten said, at page 51:
“The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons 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 members liable, in any shape or form, except to the extent and in the manner provided by the Act.”
29. Kenyan courts have consistently affirmed that separateness, while recognising a narrow and exceptional jurisdiction to look behind it. In Victor Mabachi & another v Nurtun Bates Limited [2013] eKLR, the Court of Appeal, drawing on Jones v Lipman [1962] 1 WLR 832, observed that:
“…if a company was thought to be a mere cloak or sham, a device or a mask which the defendant held to his face, in an attempt to avoid recognition by the eye of equity, the court could grant summary judgment even against the person behind that company.”
30. More recently, in Lucy Mukembura Kimani v Nzuri Feeds Suppliers Ltd [2021] KEHC 6552 (KLR), the very decision the Respondent invokes, the High Court (J. Ngugi J, as he then was) distilled the Kenyan position into a twin test, at paragraph 10:
“In general, therefore, Courts in Kenya will only allow for the piercing of the corporate veil when two requirements are met: First, the company is a mere instrumentality or alter ego of the shareholder or director in question such that there is such unity of interest and ownership that one is inseparable from the other; and Second, the facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice.”
31. The comparative jurisprudence of the Commonwealth is to the same effect and, though not binding on this court, is instructive. In Prest v Petrodel Resources Ltd [2013] UKSC 34, the United Kingdom Supreme Court confined the piercing of the corporate veil to a narrow evasion principle. Lord Sumption JSC said, at paragraph 35, that there is:
“…a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality.”
32. His Lordship added that “in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.” The South African Supreme Court of Appeal took the same restrictive view in Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd & others 1995 (4) SA 790 (A), holding that “a court has no general discretion simply to disregard a company's separate legal personality whenever it considers it just to do so”, and that the circumstances justifying piercing “would generally have to include an element of fraud or other improper conduct”. These persuasive authorities reinforce, and are entirely consonant with, the Kenyan position in the Victor Mabachi (supra) and the Lucy Mukembura Kimani (supra) cases.
33. The synthesis that emerges from the local and comparative authorities is this: the lifting of the corporate veil is exceptional; it must be anchored on demonstrated misuse of the corporate form — fraud, sham, impropriety, the evasion of an existing obligation, or such unity of interest that the company is a mere alter ego whose recognition would sanction fraud or promote injustice. Mere control of a company by its directors, or the fact that a director has paid a company debt from his own pocket, is not sufficient.
34. The trial court cited orthodox authority, including Aster Holdings Limited v City Council of Nairobi & 4 others [2019] eKLR, which reproduces the well-known passage from Halsbury's Laws of England, 4th Edition, Vol 7(1), paragraph 90, 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.” The difficulty lies not in the authorities cited but in their application. The single circumstance on which the trial court rested was that payments to the Respondent came from a director's personal account; and its own characterisation of that circumstance was that such payments “were obviously for the benefit or best interests of the company”. With respect, that finding points away from, not towards, the lifting of the veil. A director who pays the company's creditor from personal funds, for the company's benefit, acts for the company; the act affirms the company's position as the contracting party rather than exposing the company as a cloak or sham. It is a commonplace of commercial life, particularly in young, closely-held companies, and the law is clear that discharge of a debtor's obligation by a third party does not make the payer a party to the contract.
35. None of the recognised grounds for piercing the veil was pleaded, proved or found. There was no allegation, let alone a finding, of fraud, sham or impropriety. There was no finding that the company was under-capitalised, that corporate formalities were systematically disregarded, that funds were commingled as a course of dealing, or that the company was the Appellants' mere alter ego. The factors the Respondent now urges under the Lucy Mukembura Kimani framework, under-capitalisation, want of board minutes, commingling, are inferences pressed for the first time on appeal, unsupported by any findings below; and it is not open to this court, exercising a jurisdiction confined to matters of law, to make fresh findings of fact to shore up the judgment. The restriction in section 38(1) of the Small Claims Court Act cuts both ways.
36. Tested against Prest v Petrodel Resources Ltd (supra), the case for piercing is weaker still: the company was not interposed to evade any existing obligation of the Appellants, on the trial court's own finding, the company was the contracting party from the outset. There was, in short, no obligation of the directors from which they were hiding behind the company; the only obligation ever shown was the company's own. I would add, without resting my decision on it, that the veil was lifted by the trial court of its own motion, without any application by the Respondent and without inviting the parties to address it, a course that sits uneasily with the exceptional and fact-intensive nature of the jurisdiction.
37. The doctrine of privity of contract completes the analysis. Once it was found, indeed, treated as undisputed, that the engagement was between the Respondent and Central Origin Limited, the doctrine settled the question of who could be sued upon it. As Viscount Haldane LC put it in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, “only a person who is a party to a contract can sue on it”; and the converse is equally true. The Court of Appeal in Agricultural Finance Corporation v Lengetia Ltd & another [1985] KLR 765 (Hancox JA), adopting Halsbury's Laws of England, 3rd Edition, Vol 8, paragraph 110, stated the rule thus:
“As a general rule a contract affects only the parties to it, it cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it.”
38. Judgment against the Appellants personally, upon a contract to which the company alone was party, could not stand consistently with that doctrine, absent a lawful basis for piercing the veil, and, for the reasons given, there was none. Nothing in the Small Claims Court Act displaces the doctrine; section 32 of that Act, which relieves the court of strict rules of evidence, has no bearing on substantive liability.
39. I am alive to the equity the Respondent presses which is that he rendered services whose delivery was not seriously contested, that the directors dealt with him and paid him personally for months, and that on the Appellants' argument the company “has never paid a cent” for acknowledged services. The sentiment is understandable, but it is misdirected against the wrong defendants. The law offers the Respondent a remedy against the party that engaged him.
40. Both grounds of appeal accordingly succeed. In lifting the corporate veil on the sole strength of payments made from a director's personal account, and in entering judgment against non-parties to the contract, the trial court fell into error of law.
(iii) Disposal and costs
41. There remains the Respondent's complaint touching on the conditional stay granted on 13 September 2025; that the decretal sum was never deposited despite the condition and despite a representation to the court on 3 November 2025 that a deposit had been made. The complaint was not answered by the Appellants and is a matter of legitimate concern; a party cannot obtain an indulgence on terms and then treat the terms as optional. With the determination of the appeal, however, the interlocutory stay is spent; and since the decree itself is now set aside, an order compelling deposit would serve no purpose. The Appellants' conduct in that regard, and their filing of submissions long out of time in breach of the directions of 3rd November 2025, are appropriately reflected in the order on costs.
42. As to costs, the discretion under section 27 of the Civil Procedure Act (Cap 21) is that costs follow the event unless the court, for good reason, orders otherwise. Good reason exists here to depart from the ordinary rule notwithstanding the Appellants' success. First, this litigation is in no small measure of the Appellants' own making: they dealt with the Respondent under a trade name, made payments to him from personal accounts, and blurred the very line between themselves and their company on which they now succeed. Secondly, their conduct of the appeal, the unexplained failure to honour the condition on which they obtained a stay, and the late filing of submissions,
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1. This appeal arises from the judgment and the decree of Hon. Gatambia Samuel Ndungu in Mombasa Small Claims Court Case No. SCCCOMM/E631 of 2025, Johnson Mbugua v Billy Kongere & Ian Omondi. The copy of the judgment in the record of appeal is signed and dated 30 July 2025, although the Memorandum of Appeal refers to it as having been delivered on 31 July 2025; nothing turns on that discrepancy. The Appellants were the respondents before the trial court while the Respondent was the claimant. For clarity, I shall refer to the parties by their designations in this appeal.
2. By a statement of claim dated 10 June 2025, the Respondent, a hospitality consultant trading as JNSN Hospitality Partners, sued the Appellants, whom he described as the co-founders and directors of Makaazi Nyali, a hospitality establishment in Nyali, Mombasa. His case was that on or about October 2024, he was engaged to provide structured business development and operational oversight services to Makaazi Nyali on the strength of a mutually agreed proposal, at a monthly consultancy fee of Kshs 195,000/=. He averred that he rendered the agreed services from October 2024 and was paid monthly for the period October 2024 to February 2025, but that the fee for March 2025 was not paid. In a bid to resolve the matter amicably, he offered to accept fifty per cent of the March fee, that is, Kshs 97,500/=.
3. /= in full and final settlement. The offer bore no fruit and he withdrew his services on 25 March 2025. He accordingly prayed for judgment for Kshs 97,500/=, interest thereon at court rates from 25 March 2025 until payment in full, and costs of the suit.
4. The Appellants entered appearance and filed a response to the statement of claim dated 7 July 2025 in which they denied the claim in its entirety. The crux of the response was pleaded as follows:
“(a) The Claimant was engaged by Central Origin Limited t/a Makaazi Nyali to provide consultancy services for its hotel business. A copy of the trading license and certificate of incorporation for Central Origin Limited is attached as REX-1.
(b) The mere fact that payment came from an account in the director's name does not create a contractual relationship with the director.”
5. The certificate of incorporation exhibited with the response shows that Central Origin Limited was incorporated on 17 November 2022 as a private limited company under the Companies Act, 2015. The Appellants further pleaded, without prejudice to the plea of corporate personality, that the Respondent withheld his services in March 2025 thereby occasioning the company loss and damage; that monthly marketing costs of Kshs 16,000= charged to the 1st Appellant's credit card were contractually payable by the Respondent; and that the agreed rate was in fact Kshs 150,000/= monthly, with Kshs 45,000/= per month payable at the end of six months subject to satisfactory performance.
6. In the judgment now impugned, the trial court framed the question for determination as being whether the claim was proved to the required standard, which it said would be considered “in light of the doctrine of corporate identity”. To this end, the learned magistrate held as follows:
“9. It is not disputed that the Claimant was engaged by Central Origin Limited t/a Makaazi Nyali whose owners or Directors are the Respondents. The Claimant's payments were however made from the Director's account.
10. This Court is well guided by the Companies Act as well as a plethora of decisions from the Superior Courts to discern that, the Respondents though trading or engaging with the Claimant behind their corporation, their personal actions such as effecting payments from their personal accounts were obviously for the benefit or best interests of the company.
11. It cannot be then that, when the deal is so sweet, they can easily engage even in their individual capacities on behalf of the company. But when caught up between a rock and a hard place such as in this litigation, the veil of incorporation then becomes their saving grace.”
7. On that reasoning, and after invoking Aster Holdings Limited v City Council of Nairobi & 4 others [2019] eKLR and Githunguri Dairy Farmers Co-operative Society v Ernie Campbell & Company Limited & another [2018] eKLR on the circumstances in which the corporate veil may be pierced, the trial court entered judgment for the Respondent against the Appellants in the sum of Kshs 97,500/= and directed each party to bear its own costs.
The appeal
8. Aggrieved, the Appellants preferred the present appeal by a Memorandum of Appeal dated 12 August 2025 raising two grounds:
1. The learned trial magistrate erred in law in lifting the corporate veil of Central Origin Limited t/a Makaazi Nyali and entering judgment against the Appellants.
2. The learned trial magistrate erred in law by failing to uphold the doctrine of privity of contract.
9. The Appellants pray that the appeal be allowed, the judgment set aside and substituted with an order dismissing the statement of claim dated 10 June 2025, with costs of the appeal and of the claim.
The preliminary objection
10. The Respondent countered with a Notice of Preliminary Objection dated 30 September 2025 on four grounds: first, that the appeal should be struck out in limine for want of jurisdiction under section 38(1) of the Small Claims Court Act because the grounds raised are said to be predominantly matters of fact and not law; secondly and thirdly, that the affidavits supporting the Appellants' Chamber Summons and Notice of Motion, both dated 10 September 2025, are unsigned and, therefore, incurably defective; and fourthly, that the supporting affidavit sworn by the 1st Appellant on behalf of the 2nd Appellant should be struck out for want of written authority, contrary to Order 1 rules 13(1) and (2) of the Civil Procedure Rules, 2010.
11. On 3 November 2025 the court directed that the appeal be disposed of together with the preliminary objection and gave timelines for the filing and service of submissions, with highlighting scheduled for 10 March 2026. The Appellants' submissions are dated 4 November 2025 but were filed on the evening of 9 March 2026. The Respondent filed consolidated submissions dated 17 April 2026 in support of the preliminary objection and in opposition to the appeal, together with supplementary submissions protesting the late filing of the Appellants' submissions.
The appellants' submissions
12. The Appellants submit that appeals from the Small Claims Court lie to this court only on matters of law by dint of section 38 of the Small Claims Court Act, and that the question in this appeal is purely one of law: whether the trial court was right to lift the corporate veil of Central Origin Limited, and in so doing to circumvent the doctrine of privity of contract, on the sole ground that payments to the Respondent were made from a director's account. They invoke the principle established in Salomon v Salomon & Co Ltd that a company is a separate legal person distinct from its directors and shareholders, so that directors are not personally liable for company obligations merely because they are directors. They submit that courts will only lift the corporate veil where there is evidence that the company is being used improperly, such as for fraud, sham or evasion of legal obligations, none of which was alleged; that no party applied for the lifting of the veil, the trial court having acted on its own motion; and that payment of money by a director personally is not, by itself, a sufficient ground for lifting the veil. They ask that the appeal be allowed with costs.
The respondent's submissions
13. In support of the preliminary objection, the Respondent submits that the limitation in section 38(1) of the Small Claims Court Act is jurisdictional, not procedural, and that where an appeal raises factual complaints disguised as legal error, this court must strike it out without considering the merits. He submits that the Memorandum of Appeal challenges the trial court's evaluation of evidence and its findings of fact, and relies on Okumu v Nyakinyi & another [2024] KEHC 7006 (KLR), where it was affirmed that an appeal from the Small Claims Court is akin to a second appeal, and Momentum Credit Limited v Keiwua [2025] KEHC 388 (KLR), where grounds of appeal raising factual issues were struck out because this court cannot substitute the trial court's findings unless they are so unreasonable that no rational tribunal would have arrived at them. He further relies on section 32 of the Small Claims Court Act and West Kenya Sugar Company Limited v Okendo [2024] KEHC 2844 (KLR) for the proposition that complaints about the reception of evidence are not appealable errors of law, and on the celebrated dictum in Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1 that a court without jurisdiction must down its tools.
14. The Respondent further submits that the Appellants, having declined to file submissions before the trial court despite directions to do so, cannot advance the doctrines of corporate personality and privity of contract for the first time on appeal; that the affidavit supporting the Appellants' application is unsigned and of no legal value, on the authority of Konchellah v Sunkuli & 2 others [2018] KESC 58 (KLR); and that the affidavit sworn by the 1st Appellant on behalf of the 2nd Appellant without exhibited written authority offends Order 1 rule 13 of the Civil Procedure Rules, citing Research International East Africa Ltd v Julius Arisi & 213 others [2007] eKLR and Moses Onchiri v Kenya Ports Authority & 4 others [2017] eKLR.
15. On the merits, the Respondent contends that the issue before the trial court was not a theoretical question of corporate law but a factual inquiry into the parties' dealings; who engaged him, who made repeated payments to him, and who benefited from his services, and that whether directors acted personally or as agents of a company is a factual determination dependent on evidence, citing Victor Mabachi & another v Nurtun Bates Limited [2013] eKLR. He characterises the Appellants' position as internally inconsistent: the company is said to have hired him, yet the directors paid him personally and managed the relationship, while now disclaiming liability, with the result, if accepted, that the company would never have paid anything for acknowledged services. He submits that lifting the veil is an equitable remedy addressing not just fraud but also misconduct and injustice, and invokes the twin test in Lucy Mukembura Kimani v Nzuri Feeds Suppliers Ltd [2021] KEHC 6552 (KLR) together with factors including under-capitalisation, failure to observe corporate formalities and commingling of assets, which he urges are demonstrated by the directors' payment of the company's liabilities from personal accounts.
16. Finally, the Respondent submits that the Appellants obtained a conditional stay of execution on 13 September 2025 on terms that the decretal sum be deposited in court or in a joint interest-earning account within thirty days; that no deposit was ever made despite a representation to the court on 3 November 2025 that it had been; and that the late filing of the Appellants' submissions, dated 4 November 2025 but filed on the eve of the hearing, amounts to trial by ambush. All this, he says, is an abuse of the process of the court within the meaning of Muchanga Investments Limited v Safaris Unlimited (Africa) Ltd & 2 others [2009] KECA 453 (KLR), which adopted the South African Supreme Court of Appeal's formulation in Beinash v Wixley [1997] ZASCA 32; 1997 (3) SA 721 (SCA) that an abuse of process takes place where procedures permitted by the rules to facilitate the pursuit of the truth are used for a purpose extraneous to that objective. He prays that the preliminary objection be upheld, the appeal struck out, the stay discharged, and costs awarded.
Issues for determination
17. Three issues have emerged for determination; they are, (i) whether the preliminary objection is merited, which subsumes the question whether the appeal raises matters of law within the meaning of section 38(1) of the Small Claims Court Act; (ii) if the appeal is properly before this court, whether the trial court erred in law in holding the Appellants personally liable notwithstanding the corporate personality of Central Origin Limited and the doctrine of privity of contract; and (iii) what orders should issue, including as to costs.
18. Before turning to the issues, I dispose of a preliminary matter. The Appellants' submissions were filed months out of time and without leave, in breach of the directions of 3rd November 2025. That conduct is deprecated. However, an appeal stands or falls on the record and the memorandum of appeal; submissions are not pleadings and their absence or lateness does not relieve the court of its duty to determine the appeal according to law. The Respondent, moreover, had, and took, the opportunity to answer the late submissions through his supplementary submissions, and I discern no incurable prejudice. Consistent with the command in Article 159(2)(d) of the Constitution of Kenya, 2010 that justice be administered without undue regard to procedural technicalities, I have considered both parties' submissions in full. The Appellants' conduct will, however, be reflected in the order on costs.
Analysis and determination
(i) Whether the preliminary objection is merited
19. The starting point is the nature of a preliminary objection, authoritatively stated in Mukisa Biscuit Manufacturing Co Ltd v West End Distributors Ltd [1969] EA 696. Law JA said:
“So far as I am aware, 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.”
20. Sir Charles Newbold P added:
“A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct.”
21. Measured against that standard, the second, third and fourth grounds of the preliminary objection cannot dispose of this appeal. They are directed at affidavits filed in support of the Appellants' interlocutory applications of 10th September 2025 for stay of execution; they are not directed at the appeal itself. An appeal under section 38(1) of the Small Claims Court Act is originated by a memorandum of appeal, whose validity does not depend upon any affidavit. The authorities the Respondent cites on unsigned affidavits and on Order 1 rule 13 of the Civil Procedure Rules, Konchellah v Sunkuli & 2 others and Research International East Africa Ltd v Julius Arisi & 213 others, state sound propositions of law, but they bear on the competence of the interlocutory applications, which have been overtaken by the hearing of the appeal itself and are spent. Those grounds of objection therefore fail, not because they are wrong in law, but because they dispose of nothing that remains alive.
22. The first ground, by contrast, raises a true threshold point: the jurisdiction of this court. Section 38(1) of the Small Claims Court Act, No. 2 of 2016 provides:
A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.
23. If the grounds of appeal raise no matter of law, this court has no business considering them, for as Nyarangi JA memorably put it in Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1:
“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence.”
24. What, then, is a “matter of law”? The Supreme Court considered the cognate phrase in Gatirau Peter Munya v Dickson Mwenda Kithinji & 2 others [2014] KESC 38 (KLR), and its characterisation has consistently been applied by this court to appeals under section 38(1) of the Small Claims Court Act. At paragraph 80 the Supreme Court stated:
“From the foregoing review of the comparative judicial experience, we would characterize the three elements of the phrase “matters of law” as follows: (a) the technical element: involving the interpretation of a constitutional or statutory provision; (b) the practical element: involving the application of the Constitution and the law to a set of facts or evidence on record; (c) the evidentiary element: involving the evaluation of the conclusions of a trial Court on the basis of the evidence on record.”
25. Applying that characterisation, I am unable to accept the Respondent's contention that the two grounds of appeal are factual complaints in legal dress. The grounds do not invite this court to re-evaluate the evidence or to disturb any finding of fact. On the contrary, they take the trial court's central findings exactly as they stand; that the Respondent was engaged by Central Origin Limited t/a Makaazi Nyali, and that his payments were made from a director's personal account, and pose a single question: whether those facts are capable, in law, of justifying the lifting of the corporate veil and the entry of judgment against the directors personally. That is the practical element identified in Gatirau Peter Munya, that is, the application of the law to facts as found. Whether given or undisputed facts can in law sustain a legal conclusion is a quintessential question of law. The authorities the Respondent relies upon, including Momentum Credit Limited v Keiwua and Okumu v Nyakinyi & another, concerned invitations to re-assess evidence and re-open concurrent factual conclusions; they are distinguishable, because no such invitation is extended here.
26. Nor is there substance in the complaint that the Appellants are advancing corporate personality and privity for the first time on appeal. Both doctrines were squarely pleaded in the response to the statement of claim, in the terms I have set out at paragraph 3 above, and the trial court itself framed the case as one to be decided “in light of the doctrine of corporate identity” before proceeding to determine that very question. A party whose pleaded defence has been adjudicated upon does not raise a new point by challenging that adjudication on appeal. The failure to file submissions before the trial court, while regrettable, could not amount to an abandonment of a pleaded defence; submissions are neither pleadings nor evidence.
27. The preliminary objection accordingly fails in its entirety and is dismissed. The appeal is properly before this court on matters of law.
(ii) Whether the trial court erred in law in lifting the corporate veil and in disregarding privity of contract
28. The starting point is elementary but fundamental. Central Origin Limited was incorporated on 17 November 2022 under the Companies Act, 2015. By dint of section 16(2) of the Companies Act, 2015, a company becomes, from the date of incorporation, a body corporate distinct from its members, capable of exercising all the functions of an incorporated company. The classic exposition of the consequence remains that of the House of Lords in Salomon v A Salomon & Co Ltd [1897] AC 22, a decision which, though English, has long been received as the foundation of Kenyan company law. Lord Macnaghten said, at page 51:
“The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons 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 members liable, in any shape or form, except to the extent and in the manner provided by the Act.”
29. Kenyan courts have consistently affirmed that separateness, while recognising a narrow and exceptional jurisdiction to look behind it. In Victor Mabachi & another v Nurtun Bates Limited [2013] eKLR, the Court of Appeal, drawing on Jones v Lipman [1962] 1 WLR 832, observed that:
“…if a company was thought to be a mere cloak or sham, a device or a mask which the defendant held to his face, in an attempt to avoid recognition by the eye of equity, the court could grant summary judgment even against the person behind that company.”
30. More recently, in Lucy Mukembura Kimani v Nzuri Feeds Suppliers Ltd [2021] KEHC 6552 (KLR), the very decision the Respondent invokes, the High Court (J. Ngugi J, as he then was) distilled the Kenyan position into a twin test, at paragraph 10:
“In general, therefore, Courts in Kenya will only allow for the piercing of the corporate veil when two requirements are met: First, the company is a mere instrumentality or alter ego of the shareholder or director in question such that there is such unity of interest and ownership that one is inseparable from the other; and Second, the facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice.”
31. The comparative jurisprudence of the Commonwealth is to the same effect and, though not binding on this court, is instructive. In Prest v Petrodel Resources Ltd [2013] UKSC 34, the United Kingdom Supreme Court confined the piercing of the corporate veil to a narrow evasion principle. Lord Sumption JSC said, at paragraph 35, that there is:
“…a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality.”
32. His Lordship added that “in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.” The South African Supreme Court of Appeal took the same restrictive view in Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd & others 1995 (4) SA 790 (A), holding that “a court has no general discretion simply to disregard a company's separate legal personality whenever it considers it just to do so”, and that the circumstances justifying piercing “would generally have to include an element of fraud or other improper conduct”. These persuasive authorities reinforce, and are entirely consonant with, the Kenyan position in the Victor Mabachi (supra) and the Lucy Mukembura Kimani (supra) cases.
33. The synthesis that emerges from the local and comparative authorities is this: the lifting of the corporate veil is exceptional; it must be anchored on demonstrated misuse of the corporate form — fraud, sham, impropriety, the evasion of an existing obligation, or such unity of interest that the company is a mere alter ego whose recognition would sanction fraud or promote injustice. Mere control of a company by its directors, or the fact that a director has paid a company debt from his own pocket, is not sufficient.
34. The trial court cited orthodox authority, including Aster Holdings Limited v City Council of Nairobi & 4 others [2019] eKLR, which reproduces the well-known passage from Halsbury's Laws of England, 4th Edition, Vol 7(1), paragraph 90, 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.” The difficulty lies not in the authorities cited but in their application. The single circumstance on which the trial court rested was that payments to the Respondent came from a director's personal account; and its own characterisation of that circumstance was that such payments “were obviously for the benefit or best interests of the company”. With respect, that finding points away from, not towards, the lifting of the veil. A director who pays the company's creditor from personal funds, for the company's benefit, acts for the company; the act affirms the company's position as the contracting party rather than exposing the company as a cloak or sham. It is a commonplace of commercial life, particularly in young, closely-held companies, and the law is clear that discharge of a debtor's obligation by a third party does not make the payer a party to the contract.
35. None of the recognised grounds for piercing the veil was pleaded, proved or found. There was no allegation, let alone a finding, of fraud, sham or impropriety. There was no finding that the company was under-capitalised, that corporate formalities were systematically disregarded, that funds were commingled as a course of dealing, or that the company was the Appellants' mere alter ego. The factors the Respondent now urges under the Lucy Mukembura Kimani framework, under-capitalisation, want of board minutes, commingling, are inferences pressed for the first time on appeal, unsupported by any findings below; and it is not open to this court, exercising a jurisdiction confined to matters of law, to make fresh findings of fact to shore up the judgment. The restriction in section 38(1) of the Small Claims Court Act cuts both ways.
36. Tested against Prest v Petrodel Resources Ltd (supra), the case for piercing is weaker still: the company was not interposed to evade any existing obligation of the Appellants, on the trial court's own finding, the company was the contracting party from the outset. There was, in short, no obligation of the directors from which they were hiding behind the company; the only obligation ever shown was the company's own. I would add, without resting my decision on it, that the veil was lifted by the trial court of its own motion, without any application by the Respondent and without inviting the parties to address it, a course that sits uneasily with the exceptional and fact-intensive nature of the jurisdiction.
37. The doctrine of privity of contract completes the analysis. Once it was found, indeed, treated as undisputed, that the engagement was between the Respondent and Central Origin Limited, the doctrine settled the question of who could be sued upon it. As Viscount Haldane LC put it in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, “only a person who is a party to a contract can sue on it”; and the converse is equally true. The Court of Appeal in Agricultural Finance Corporation v Lengetia Ltd & another [1985] KLR 765 (Hancox JA), adopting Halsbury's Laws of England, 3rd Edition, Vol 8, paragraph 110, stated the rule thus:
“As a general rule a contract affects only the parties to it, it cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it.”
38. Judgment against the Appellants personally, upon a contract to which the company alone was party, could not stand consistently with that doctrine, absent a lawful basis for piercing the veil, and, for the reasons given, there was none. Nothing in the Small Claims Court Act displaces the doctrine; section 32 of that Act, which relieves the court of strict rules of evidence, has no bearing on substantive liability.
39. I am alive to the equity the Respondent presses which is that he rendered services whose delivery was not seriously contested, that the directors dealt with him and paid him personally for months, and that on the Appellants' argument the company “has never paid a cent” for acknowledged services. The sentiment is understandable, but it is misdirected against the wrong defendants. The law offers the Respondent a remedy against the party that engaged him.
40. Both grounds of appeal accordingly succeed. In lifting the corporate veil on the sole strength of payments made from a director's personal account, and in entering judgment against non-parties to the contract, the trial court fell into error of law.
(iii) Disposal and costs
41. There remains the Respondent's complaint touching on the conditional stay granted on 13 September 2025; that the decretal sum was never deposited despite the condition and despite a representation to the court on 3 November 2025 that a deposit had been made. The complaint was not answered by the Appellants and is a matter of legitimate concern; a party cannot obtain an indulgence on terms and then treat the terms as optional. With the determination of the appeal, however, the interlocutory stay is spent; and since the decree itself is now set aside, an order compelling deposit would serve no purpose. The Appellants' conduct in that regard, and their filing of submissions long out of time in breach of the directions of 3rd November 2025, are appropriately reflected in the order on costs.
42. As to costs, the discretion under section 27 of the Civil Procedure Act (Cap 21) is that costs follow the event unless the court, for good reason, orders otherwise. Good reason exists here to depart from the ordinary rule notwithstanding the Appellants' success. First, this litigation is in no small measure of the Appellants' own making: they dealt with the Respondent under a trade name, made payments to him from personal accounts, and blurred the very line between themselves and their company on which they now succeed. Secondly, their conduct of the appeal, the unexplained failure to honour the condition on which they obtained a stay, and the late filing of submissions,
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