REPUBLIC OF KENYA IN THE CHIEF MAGISTRATE’S COURT AT KISUMU CIVIL CASE NUMBER 3 OF 2020 SAICARE ENTERPRISES LIMITED -DECREE-HOLDER/APPLICANT VERSUS WINAM CHEMISTS (K) LIMITED --»-J UDGMENT-DEBTOR/RESPONDENT PLAINTIF SUBMISSIONS (In support of the Application dated 27" July, 2020) Introduction Your Honour, ‘The Decree holder/Applicant herein on 27 July, 2020filed an Application seeking orders THAT: 1. Spent 2. This Honourable Court be pleased to issue an Order directingDr. Jeconia Kisera Awino, who is the director of the judgment-debtor to attend Court on appointed day to be orally ‘examined, as to the business and affairs of the judgment-debtor, and/or the Judgment- debtor's means of satisfying the decretal sum. 3. This Honourable Court be pleased to issue an Order directed to Dr. Jeconia Kisera Awino, in his capacity as the Director of theJudgment-debtor to produce before the Court, books of accounts, audited financial statements, annual retumns, VAT returns, bank statements, cheque books and other statutory documents relating to the operations and transactions of the Judgment-debtorfor the last three (3) years and the said Dr. Jeconia KiseraAwino be examined on oath on the said documents. 1[Page4. This Honourable Court be pleased to lift the veil of incorporation of the Judgment-debtor and allow the Decree-Holder to execute the judgment against Dr. Jeconia Kisera Awino in his personal capacity. 5. The Honourable Court be pleased to issueany other or further Orders in the interest of justice. 6. Costs of the Application be provided for. Factual Background On 28" May, 2020, this Honourable Court delivered judgment on admission in the sum of Kshs. 4,680,000/= plus interest thereon until payment in fall. On 5 June, 2020, this Honorable Court issued a Decree on the aforesaid judgment and assessed costs on 9"July, 2020, at Kshs. 275,500/= On 22™June, 2020, the judgment -debtor made a proposal of settling the decretal amount by paying Kshs. 400,000/~ on or before 30" June, 2020 and thereafterKshs. 100,000/= per month for 12 months, after which it was to review the re-payment termson or before 30th June, 2021. ‘The proposed mode of payment was rejected by theDecree-holder, but on 24"June, 2020, an offer was made to the Judgment-Debtor to pay the decretal sum in three (3) equalmonthly installments Having failed to get any further response fiom the judgment-debtor, on 14” July, 2020, the Decree-Holder’s Advocates instructed the firm of ESHIKHONI AUCTIONEERS AGENCIES (hereinafter “the Auctioneers”) to commence the execution process of the decree. The said Auctioneers served the Judgment-debtor with warrants of Attachment, warrant of sale and notices of Proclam: 14" July, 2020. mn of attachment or repossession of its movable properties and all dated At the expiry of the seven (7) days and without having received any payments, the Auctioneers went to the place of business of the Judgment-debtor in order to remove the assorted Pharmaceutical drugs and accessories which had been attached as by law required. To their utter dismay the Auctioneer found the Judgment-debtor having removed allthe attached rugs and pharmaceutical accessories leaving shelves literallyempty. 21 PageThe Actions of the judgment-debtor’s Director, one Dr. Jeconia Kisera Awino, of removing and hidingthe attached goods amounts to dishonesty necessitating the lifting of the corporate veil of the company to enable the Decree-Holder realize the fruits of its judgment The law Examination of judgment-debtor as to its property. Order 22 Rule 35 of the,Civil Procedure Rules, 2010 stipulates on examination of a judgment « debtor as to his property and puts forth thus: Where a decree is for the payment of money, the decree- holder may apply to the court for an order that— (a) the judgment-debtor; (®) in the case of a corporation, any officer thereof: or (0) any other person, be orally examined 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, and the court may make an order for the attendance and examination of such judgment-debtor or officer, or other person, and for the production of any books or documents. Firstly Your Honour, the above Rule grants this Honourable Court jurisdiction to summon any officer of a company to attend Court so that he may be examined on the assets and means of the company to settle the sum decreed to be paid by the Company as was aptly observed in the case of Masefield Trading (K) Ltd V Rushmore Company Limited & another [2008] eKLR. Your Honour we so submit that when the Auctioneers went to the judgment-debtor’spremises in order to remove the assorted pharmaceutical drugs and accessories which had been attached, they found that the judgment-debtor had removed all the attached drugs and pharmaceutical accessories leaving the shelves literally empty hence the Auctioneers were unable to execute the decree of this Honourable Court. 3|Page‘Your Honour, the actions of removing the proclaimed goods demonstrates improper conduct in the part of Dr. Jeconia Kisera Awino who is the soul and mind of the judgement-debtor. It is therefore our submission that the only way of establishing the Judgment-debtor’s means of satisfying the decretal sum is for this Honourable Court to grant an Order directing Dr. Jeconia Kisera Awino, who is the director of the judgment-debtor, to attend Court on appointed day to be orally examined, as to the business and affairs of the judgment-debtor. The judgment-debtor’s/Respondent’s Replying Affidavit swom by Dr. JECONIA KISERA AWINO does not in any manner address the substantive issues raised in the Decree- holder’s/Applicant’s Application but rather it is anchored on faulting the Notice of proclamation especially by alleging that the witnesses therein: DAVID OLUNGA and NASAR SULEIMAN are not licensed auctioneers under the Auctioneers Act, No. 5 of 1996. Your Honour may it be noted that the Auctioneers Act, No. 5 of 1996 does not require the witnesses to a proclamation notice to be licensed auctioneers. We humbly urgethis Honourable Court to grant the Order directing Dr. Jeconia Kisera Awino, who is the director of the judgment- debtor to attend Court on appointed day to be orally examined, as to the business and affairs of the judgment-debtor, and/or the Judgment-debtor’s means of satisfying the decretal sum and also to produce before the Court, books of accounts, audited financial statements, annual returns, VAT returns, bank statements, cheque books and other statutory documents relating to the operations and transactions of the Judgment-debtorfor the last three (3) years and the said Dr. Jeconia Kisera Awino be examined on oath on the said documents. Secondly Your Honour, it is trite law that a company is a separate legal entity from its shareholders and directors thus creating the concept of the veil of incorporation. The juridical precedent cited since the decision in Salmon v Salmon and Co, Itd (1897) A.C. 22HL. Albeit, courts of law have since,in certain instances,pierced the veil of incorporation to see what is happening behind it as the same is not a cure nor a bar for director's actions that are premeditatedto escape liability nor is it a vehicle for directors of a company to abuse the dispensation of justice. For instance, in the case of Masefield Trading (K) Ltd V Rushmore Company Limited & another [2008] eKLR(supra), the courtwhile discussing the circumstances under which a Court may lift the veil of incorporation cited Ringera J (as he then 4]Pagewas) in Ultimate Laboratories vs. Tasha Bioservice Limited Nairobi HCCC No. 1287 of 2000 (unreported) at page 9: “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).” Your Honour, the actions of the Director of the Judgment-debtor herein depicts traits of dishonesty and improper conduct which clearly suggest that the said Director of the Judgment- Debtor intends to frustrate the Decree-Holder/Applicant from realizing the fruits of its judgment. Your Honour, this is a perfect case for the veil of i .corporation of the Judgment-debtor company to be lifted thereby enabling the Decree-Holder to realize the fruits of its judgment. The Court in the case of Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLReited the Court of Appeal in the case of Githunguri Dairy Farmers Co- Operative Society V Ernie Campbell & Co. Ltd & Another [2018] eKLRwhere the Court of Appeal also discussed the circumstances under which the corporate veil should be lifted and opined thus: “However, the circumstances under which a Court ought to disregard the veil of incorporation are as stated in paragraph 90 of HALSBURY’S LAWS OF 4 EDITION VOLUME 7(1) as: “90. Piercing the corporate veil. Nobwithstanding 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 when there is fraud or improper conduct but in all cases where the character of the Company, or the nature of SI Page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, and will consider who are the persons, as shareholders or even as agents, directing and controlling the acti ities of the Company. From the foregoing, Your Honour, we humbly submit that the instant case is a perfect one for the Court to exercise its discretion to lift the veil of incorporation of the Judgement-debtor to enable the Decree-holder realize the fruits of its judgement. DATED at NAIROBI this 1“ DAY of SEPTEMBER, 2020 BRYAN KHAEMBA, KAMAU KAMAU & COM OCATES ADVOCATES FOR THE D) [OLDER/APPLICANT. CHAI HOUSE, 6™ FLOOR KOINANGE STREET P.O. BOX 1300-00200 NAIROBI. Tel: 0794692207 Email: bryankhaemba.kamauadvocates@gmail.com TO BE SERVED UPO! LUMUMBA & LUMUMBA ADVOCATES 4™ AVENUE TOWERS, 15™ FLOOR, SUIT NO. 3 6 [Page4™ NGONG AVENUE, OFF BISHOPS ROAD P.O. BOX 10676-00400 NAIROBI. E-mail: Info@lumumbalaw.com Tel: 0710409145/0736745940 7|PageREPUBLIC OF KENYA IN THE CHIEF MAGISTRATE’S COURT AT KISUMU CIVIL CASE NUMBER 3 OF 2020 SAICARE ENTERPRISES LIMITED .DECREE-HOLDER/APPLICANT VERSUS WINAM CHEMISTS (K) LIMITED SUDGMENT-DEBTOR/RESPONDENT PLAINTIFF'S LI: OF AUTHORITH 1, Masefield Trading (K) Ltd V Rushmore Company Limited & another [2008] eKLR 2. Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLR DATED at NAIROBI this 1* DAY of SEPTEMBER, 2020 BRYAN KHAEMBA, KAMAU KAMAU& COM) ADVOCATES FOR THE Di JER/APPLICANT HAI HOUSE, 6™ FLOOR KOINANGE STREET P.O, BOX 1300- 00200 NAIROBI, Tel: 0794692207 Email: bryankhaemba.kamauadvocates@gmail.com‘TO BE SERVED UPON: LUMUMBA & LUMUMBA ADVOCATES 4™ AVENUE TOWERS, 15" FLOOR, SUIT NO. 3 4" NGONG AVENUE, OFF BISHOPS ROAD P.O. BOX 10676-00400 NAIROBI. E-mail: Info@lumumbalaw.com Tel: 0710409145/0736745940Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLR KENYA LAW REPUBLIC OF KENYA, MUGOMWENJE & SONS LIMITED. A. PLAINTIFF PETER NJERU MUGO... *? PLAINTIFF. ALEXANDER KANG'ETHE MWENSE snd" PLAINTIFE -VERSUS- KENYA NATIONAL ASSURANCE COMPANY LTD....DEFENDANT RULING 1. On 30" September 2003 Judgment was entered, in favour of Kenya National Assurance Company Ltd (in Liquidation), the ‘Defendant (herein after Kenya National) against Mugomwenje & Sons Lined, the 1 Plaintiff, for Kshs 3,941,116.20 together ‘with interest and costs. BRIE BACK GROUND 2, The 1* Plaintiff is a Limited Liability Company incorporated under the Companies Act. It is not denied that it hed two Directors/sharcholders namely Peter Njeru Mugo (herein after Mugo) who is the 2" Plaintiff in this suit and Alexander ‘Kang’ethe Mwvenje (hereinafter Mwvenje) who isthe 3" Plaintiff in this suit. 3. The matters in this suit relate to the agreement, entered into in 1990, between Kenya National and the 1* Plaintiff. By that agreement Kenya National offered the 1* Plaintiff a loan on condition, amongst athers, thatthe 1” Plaintiff would create a legal charge over the property LR. No. 1112/52 Embu Municipality (the Property); the loan was repayable in 15 years; and the &wo Directors/shareholders Mugo and Mweaje would give thee personal guarantees. 4. This case was filed by che 1" Plaitff alleging that Kenya National filed to comply wih the terms of the agreement and the 1 Plaintiff therfore claimed that it suffered loss and damage. The 1* Plaintiff claimed total Kshs, 11 435,853.55. The 1* Plaintiff also sought a declaration tot the Legal charge over the property was nll and void, 5. Kenya National fled « defence and counter claim whereby it sought to recover the loan it issued fo the 1 Plaintiff against the 1* Plaintiff, Mago and Mwene, tps konystow.org- Page 18Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLR 6, This Court by its judgment of 30" September 2003 dismissed the 1" PlaintifPs claim against Kenya National for Toss and damage; the Court declared the legal charge over the property tobe null and void; the Cour dismissed the counter claim of Kenya National as against Mugo and Mwenje; and entered judgment for Kenya Nationa against the I" Plaintiff for Ka. 3,941,116.20 plus interest and costs of ths suit 7. Kenya National, after taxation of the costs, filed an execution application secking to attach the I Plaintiff's moveable and immovable properties, 8, It docs seem that Kenya National was unsuccessful in that execution and therefore proceeded to file a Notice of Motion pplication dated 28° September 2015, The prayers sought in that application are: ‘NOTICE OF MOTION a. THAT PETER NJERU MUGO and ALEXANDER KANGETHE MWENIE as Directors of MUGOMIWENJE & SONS LTD, the ‘Judgmert-Debior herein do come 10 Court and show cause why execution ofthe judgment herein should not be effected against them personally. b, THAT this Court be pleased 10 lift the corporate veil for MUGOMIENJE & SONS LTD and order execution ofthe decree herein against the Directors, PETER NJERU MUGO and ALEXANDER KANGETHE MWENJE personally. ©. THAT the 2° and 2" Plaintiffs be orally examined as to whether any or what debts are owing tothe Judgment-Debtor and ‘whether the Judgment-Debtor has any and what property or means of satisfying the decree and forthe production ofall documents and books of aecount pertaining tothe affairs ofthe Judgment-Debtor. 4. THAT the Decree-Holder be permitted to atach and sell property Title Number Emu Township/S2 registered inthe names of PETER NJERU MUGO and ALEXANDER KANGETHE MWENJE andlor any other assets of the Direciors in satisfaction ofthe decree. ©. THAT the Court be pleased to issue an order prohibiting the 2" & 3° Plaintiffs fom transferring or charging the property Title 'No, Fmibu Township/S2 in any way, and all persons from taking any benefit from such purported transferor charge, 9. That application was heard by Justice Fred Ochieng and the Leamed Judge delivered his Ruling on 13% December 2017. Ie is because of the Learned Judges finding by chat Ruling that I had to hear the cross examination ofthe 1* Plaintif?'s Director, The [Leamed Judge formed the opinion that he could not grant the orders sought without such eross examination, The Leamed Judge therefore ordered that cross examination to proceed and for it to proceed the said Directors were ordered to produce the I Plaintiffs records and books of account together with comprehensive up to-date statements of the I* Plaintiff's bank accounts, The [Leamed Judge in that Ruling further expressed himself tus: “T wish to emphasize the fact that this is uot an order forthe iting of the corporate veil. The determination as to whether oF not the corporate veil willbe lifted will aly be made after the Directors are given an opportunity to answer the questions ‘from the Defendant.” CROSS EXAMINATION 10, At cross examination of the 1" Plaintif’s Directors only Mugo attended. During his cross examination he informed the Court that Mwenje bad passed away. No evidence of Movenje’s demise was produced before me but in view ofthe fact that the Leared ‘Counsel for Kenya National did not contradict that information it is assumed that itis ined so. 11, Mugo's cross examination centered on the "Plaintiff's bank statements, he had attached to his replying affidavit sworn on 6" November 2015. In that Replying Affidavit Mugo deponed tat the 1“ Plaintf, unlike what was stated on behalf of Kenya Nationel, ‘was not a shell Company, Mugo deponed thatthe {* Plaintiff was a going concen with a hank account. tpt kenystoncorg-Poge 28Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLR 12 The bank account statements for account No: 0041142995, Mugo referred to, were from April November 2015. They are ‘bank statements of Barclays Bank Hurlingham Branch. The statements shows deposits made from time to time. Some of those deposits are clearly shown s being for rental, For example on 9" April 2015 someone identified as Mary Peter deposited Khs.8,000 for April H/Rent, On 10° April 2015 there is a cash deposit of Kshs. 2,000.00, That deposit was made by Jobn Kariukt Torrent. There are other cash deposits reflected in that account which have no indication who made thera and for what purpose, ‘There are also debits made by cheques by unidentified persons 13. Mugo on being eross examined by the Leamed Counsel for Kenya National confirmed that he had not produced the books of account of the 1" Paint. 14, Mugo confirmed that by the bank statements ofthe 1" Plaintif,stached to his replying affidavit, the credit balance in the 1" Plaintiff's said account as at 30° April 2015 was Ksh. 108,439.35, That as at end of May 2015 that account had a credit balance of| Kshs.125,230.15. Tha as a end of June 2015 the eecount had credit balance of Ksh, 332,580.35; while end of July 2015 the eredit balance was Kshs.275,714.30; and asa end of August the eredit balance was Kshs. 125,736.45, 15. On being cross examined Mugo stated that he was unaware why deposits were made into the I" Plaintif’s account, Mugo without substantiating his claim stated thatthe Directors ofthe 1* Plaintiff made deposits into 1* Plaintiff's bank account to be used to pay Kenya National and that the construction of the building on the property was both from money advanced by Kenya National and from the Director's contibution, 16. On being re-examined by his Leamed Advocate Mugo stated: am receiving rent. The Company (1* Plaintiff) does not own anything.” ANALYSIS AND DETERMINATION 17. The Notice of Motion dated 28° September 2015, whose prayers have been reproduced above, is premised on the grounds that Kenya National has been unable to execute this Court's judgment of September 2003 because, the 1* Plaintiff was found to be a shell Company’ with no attachable assets from inception; that its Directors had used that Company to commit fraud against Kenya National by obtaining a loan fom Kenya National; thatthe I" Plant's Director Mwenje, who also was a Director of Kenya National used his fiduciary position within Kenya National to perpetuate aud; and thatthe {* Plaintiff's Directors were fraudulent and dishonest in the affairs ofthe I" Plaintiff Company, 18. Kenya National referred in ts application to an investigative report of Phtuma Agencies, That Agency was unable to trace the location ofthe 1" Plaintiff and was unable to trace any of its atachable asses, 19. Kenya National also provided a Company search done by its Learned Advocate which indeed confirmed that both Mugo and. ‘Mwenje were the 1* Piainif’s Ditectors/shareholders. That search also revealed thatthe 1" Plaintiff had not fled any annual ‘returns with the Registrar of Companies since inception, 20, The loan granted by Kenya National tothe PlaintfT, which i the subject ofthis suit, was forthe construction of a building on the property. I willbe recalled, as stated above thatthe property is registered in both the names of Mugo and Mwenje, The legal ‘charge over the property, in favour of Kenya National, was declared null and void by the judgment ofthis Court, Since then Kenya [National had been unable to execute the judgment it obtained against the 1* Plaintiff. Justice Fred Ochieng by his Ruling of 13° December 2017 ordered Mugo and Mivenj tobe cross examined onthe afsirs ofthe I“ Plaintitt. Mugo and Mwenje were ordcred by the Learned Judge to produce, during such eross examination, the I* PlaintfPs book of accounts, records and comprehensive ‘Bank statements. At the cross examination of Mugo no books of account were produced nor were record or Comprehensive Bank Statements provided. The only Bank statements before Court, refered to above, are forthe period of Apri to November 2015, The loan the subject of this suit was disbursed from 1993 to 1995, The one question which remains un-answered is how were the proceeds of that loan utilized by the Company" Mugo did not provide any infamation in that regard, Mugo i filing to provide 1* Plaintiff's books of account, records and comprehensive bank statement denied this Court the opportunity of knowing the health or otherwise ofthe I* Plaintiff Compaay. prima kenyalow-or- Page 96‘Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Lid [2019] eKLR. 21. But one thing seems clear from the documents before Court: the 1* Plaintiff was incorporated for no other reason other than to borrow money from Kenya National. The 1* Plaintiff was incorporated on 19% September 1990, The offer for the loan by Kenya National, of which Menje was a Director, was made on 23" February 1990, It follows that the offer forthe loan was made before the 1" Plainuif was incorporated, 22. A seach carried out by the Advocate for Kenya National confirms Mugo and Muwenje were the only wo Direcrrs/shareholders. No annual retums have ever been filed with the Registrar of Companies, Muga when given the opportnity failed to prove, by documents whether the 1" Plaintiff was a shell Company or not. It wil be recalled that Mugo while being ross examined and re- ‘examined stated that the 1* Plaintiff isa going eoncem and later stated thatthe Company had no assets, 23, The judgment of September 2008 found as a fat thatthe proceeds ofthe loan were collected from Kenya National by Mugo and “Muenje. Mwenje had an obligation to inform the Court how that money was utilized. 24, Although Mugo, by his replying affidavit attempted to blame Kenya National fr slow release ofthe loan I wish to eaution Mugo by informing him that that was what the 1* Plaintifpleaded in this case and which this Court by its judgment rejected. This is what was stated in the judgment: “What legal or moral authority do the 2" (Mugo) and 3"4(Mwenje) Plaintis now have to turn around and allege a breach of the terms of the agreement by accusing the Defendant (Kenya National) of falling to disburse the loan funds as agreed. In my view the Plaintiff have no righ to complain; they asked for a change in the manner the loan Was (0 be disbursed and they ‘govt? 25. Mago also attempted to argue that Kenya National was wound up and was therefore incapable of proceedings with this matter. 26. In my view nothing can be further from the truth, in tht statement. Tis suit was instituted by the Kenya National when it was ‘under Liquidation, I follows that Kenya National can proceed with ths case unt its natural conclusion, This is because eave must hhave been granted to fle suit, even thougis I cannot confirm this because the original fle went missing: this present file is re- constructed fle 27. As I found herein above the 1" Plaintiff Company was incorporated for the sole purpose of obtaining a loan from Kenya Nationa. This is supported by the fact the 1" Plaintiff didnot carry out any or whatsoever busines since inception. Its beeause of that, that I make a finding thatthe I" Plaintiff was used asa vebicle to dfiaud Kenya National, This finding is supported by the CCoutt of Appeal finding inthe case: GITHUNGURL DAIRY FARMERS CO-OPERATIVE SOCIETY V ERNIE. CAMPBELL & CO. LTD & ANOTHER [2018] eKLR where almost similar fact as in this ease pertain. In that ease a Company was incorporated for the purpose of ‘contracting withthe Respondent to construct a milk plant. Ths is what Court of Appeal stated: “The appellant incorporated the 2” Respondent and then had it enter into an agreement with the 1 Respondent knowing, ‘well that T had no financial means or assets (© meet the obligations related with the contract. In the absence of any reasonable excuse or justification from the appellant for its conduct, then Me find it safe to draw an improper and fraudulent purpose necessitating lifting the 2" Respondents veil of incorporation for purposes of ensuring justice to both parties.” 28, The Court of Appeal in that case Githunguri Dalry Case (Supra) further discussed under what cizcumstances the corporate veil ‘Should be lifted and had this o say: “However, the circumstances under which a Court ought to disregard the vll of incorporation are as stated in paragraph 90 of HALSBURY’S LAWS OF ENGLAND 4 EDITION VOLUME 7(1 as: “90. Piercing the corporate vil, npr konyalow.or- Page 4Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLR [Notwithstanding the effect of a Company's incorporation, in some eases the Court will ‘pierce the corporate veil” in order {to enable it to do justice by treating a particular Company, for the purpose ofthe litigation before it, as identical with the person or persons who control that Company. This will be done not only when there is fraud or improper conduct but in cases where the character of the Company, or the nature ofthe persons who contro it isa relevant feature, In such case the Court will go behind the mere status of the Company as a separate legal entity distinet from its shareholders, and will consider who are the persons, as shareholders or even as agent, directing and controlling the activites of the Company. However, where this isnot the position, even though an individual's connection with a Company may eause a transaction with that Company to be subjected to strict scrutiny, the corporate vel will nat be plereed.” 29, The cross examination of Mugo clearly reveals that justice willbe met by lifting the corporate veil ofthe 1 Plaintiff, Mugo and his eo-Directors handling ofthe 1* Plaintiff Company lead me to draw an inference of fraudulent and improper conduct. 30.The Court of Appeal in that case Githunguri Dairy Case (Supra) stated what i the effect of iting corporate veil and stated: 'n VTE Capital PLC v Nutritek International Corp & Another & 3 Others (Supra), Court of Appeal (UK) observed that: nif the corporate vil isto be pierced, “the true facts” must mean that, in reality, I Is the person behind the Company, rather than the Company, which isthe relevant actor or recipient (as the ease may be)” 31. From following that quoted ease itis my finding thatthe loan disbursed by Kenya National was received and utilized by its Directors and it is just that those Ditestors do satisfy the judgment entered herein, 532. Ibis obvious the Directors had no intention of repaying the loan granted to the 1* Plaintiff hat is obvious from the fact those Directors failed to exceute personal guarantees and yet that was one of the conditions of the I* Plaintiff obtaining the loan. It may ‘not be far fetch, as suggested by Kenya National, that Mvenje abused his Fiduciary position, since he was a Dieeetr ia both Kenya [National and the 1" Plaintiff Company. 533. In view of my above finding itis inthe interest of justice that an order be made to attach the property, since the money lent by Kenya National to the 1" Plainti was intended to be used to construct a building on the properey, Whether in fact that money was used to consiuct that building, this Court will never know because Mugo failed to produce the books of accounts or records of the EPs 34, Kenya National having succeeded in its application dated 28° September 2015 will be awarded its costs thereof, 35 Tn the end I make the following orders ‘The corporate veil of MugoMwenje & Sons Limited is hereby lifted and the judgment of this Court and all subsequent orders against MugoMwenje & Sons Limited shall be executed Jolntly and severally against Peter Njeru Mugo and Alexander Kangethe Mwenje. », Im execution of the decree hereof I.R. NO.1112/S2 Embu Municipality is hereby attached as provided under Order 22 Rule 48 of the Civil Procedure Rules until further orders ofthis Court. «In execution ofthe decree hereof L.R. NO. 1112/52 Embu Municipality shall be sold by pul sale shall be paid to Kenya National Assurance Company Ltd (in Liquidation), auction and the proceeds of 4. The terms of sale by public auction ordered under (c) above shall be settled by the Deputy Registrar ofthis Court, «, The Costs of Notice of Motion dated 28" September 2015 shall be paid jointly and severally by Peter Njeru Mugo and Alexander Kang’ethe Mwenje to Kenya National Assurance Company Limited (im Liquidation) tpt kenyalow.org- Page 516‘Mugomwenje & Sons Limited & 2 others v Kenya National Assurance Company Ltd [2019] eKLR. 36. Orders accordingly DATED, SIGNED and DELIVERED at NAIROBI this 15™ day of MAY, 2019. MARY KASANGO JUDGE , Ruling Read and Delivered in Open Court inthe presence of: Sophie sonsesnnnnenenee COURT ASSISTANT FOR THE 1" PLAINTIFF FOR THE 2° PLAINTIFF FOR THE 3" PLAINTIFF FOR THE DEFENDANT QEREFEN Ss vss sare nt mnt can Sea eis eo Kea oat nama sad eal aparece nae ne uma on fe om ry pra sons Reed our vay Ply Dicer ntptiaackenyalow.org- Page 81MASEFIELD TRADING (k) LTD v RUSHMORE COMPANY LIMITED & another [2008] eKLR. GiKENYA LAW Sie npn lke REPUBLIC OF KENYA INTHE HIGH COURT OF KENYA AT.NAIROB! (MILIMANI COMMERCIAL COURTS) MASEFIELD TRADING (K) LTD. |. PLAINTIFF VERSUS RUSHMORE COMPANY LIMITE! FRANCIS M. KIBUI. AND JACKSON KAHUNGURA.. INTERESTED PARTY RULING This is a long and protracted case. Judgment was on 29" July 2004 entered in favour of the plaintiff against the 1" defendant on for the sum of KShs.22 million plus interest at the rate of 16% per annum from the date of filing suit until payment in full. The plaintiff was awarded the costs of the suit against the 1 defendant. The plaintiff's suit against the 2™ defendant was dismissed with costs. Upon obtaining the said judgment, the plaintiff attempted to execute against the 1" defendant. The plaintiff leamt that the only asset of the 1* defendant, being LR No. 209/10577/2, had been transferred to the interested party, Jackson Kahungura Kariuki, a director of the 1 defendant, during the pendency of the suit. The said property was later charged to Standard Chartered Bank to secure a loan of KShs.6 million. The borrower is the interested party. (On 10" December 2004 the plaintif filed an application pursuant to the provisions of Section 3A of the Civil Procedure Act, Order XXI Rule 36 and Order XXXIX Rule I of the Civil Procedure Rules seeking several orders of the court. The plaintiff sought orders restraining the interested party from transferring, further charging, alienating or in any other way dealing with the property known as LR No. 20911057712 (hereinafter referred to as the suit property). The plaintiff further sought an order of the court to compel the interested party to produce all books of account of the 1* defendant and more specifically the audited accounts covering the period October 2000 to July 2004. The plaintiff further sought an order fo secure the interested party's altendance in court for the purposes of his examination ‘on oath on the 1% defendant's means and assets. The plaintiff sought an order compelling the interested party to personally satisfy the decree herein and also pay the costs of the application. The grounds in support of the application are on the face of the application. The application is supported by the annexed affidavit of Stanislaus Wijenie, the general manager of the plaintif. tpchuwickonyelow.org-Poge 115MASEFIELD TRADING (K) LTD v RUSHMORE COMPANY LIMITED & another [2008] eKLR The application is opposed. The 1“ defendant filed grounds in opposition to the application. The interested party filed a replying affidavit in opposition to the application. The parties filed skeleton submissions prior to the hearing of the application. It should be noted that before the said application was canvassed before this court, the interested party had earlier raised a preliminary objection to the application. Kasango J considered the said preliminary objection and dismissed the same. Pending the hearing of this application, the leaned Judge restrained the interested party from transferring, further charging, alienating or in anyway dealing with the suit property pending the hearing and determination of the application. The said ruling was delivered on 4" May 2005. At the hearing of the application, Mr. Munyu for the plaintiff submitted that the plaintiff obtained judgment against the 1* defendant but has been unable to execute and satisfy the decree on account of the fact that the only asset of the 1° defendant had been transferred to the interested party during the pendency of the suit. He submitted that the plaintiff was seeking the assistance of the court to lift the veil of incorporation of the 1° defendant by compelling the interested party to attend court to explain to the court the means and assets of the 1° defendant, by producing evidence including its books of accounts Mr. Munyu was of the view that the interested party transferred the sult property to himself in order to defeat the plaintiff's claim. He urged the court to issue an order preserving the sult property pending cross-examination of the interested party. He reiterated that the court should aid the plaintiff realize the fruits of its judgment. He urged the court to allow the application as prayed in order for a determination to be made whether the transfer of the suit property and the subsequent registration of the same in favour of the interested party was fraudulent. He submitted that this could only be established if the interested party was cross-examined on the assets and means of the 1 defendant. He submitted that the court had jurisdiction to lift the veil of incorporation and hold a director liable to settle the decretal sum decreed against a company where the court forms an opinion that a wrong was committed by such a director. Mr. Njugune for the 1* defendant opposed the application. He submited that the court had no jurisdiction to grant the application sought by the plaintiff since the entire application was pegged on the issue of fraud. He maintained that the issue of fraud was a substantive issue which could not be determined in an interlocutory application but rather in a full tial. He argued that since proceedings in the suit had been concluded, this court lacked jurisdiction to grant the order of injunction sought since such orders could only be issued at an interlocutory stage. He submitted that a corporate veil could not be lifted on an application for examination of directors. He maintained that such lifting of the corporate veil could only be undertaken in winding up proceedings under Section 323 of the Companies Act. He was of the view that the court was functus officio once judgment was rendered and could not allow any party to canvass an application for execution against a person who was not a party to the sult. He urged the court to dismiss the application with costs since, in his view, the same was incompetent. Mr. Mbigi for the interested party opposed the application. He relied on the replying affidavit swom by the interested party in opposition to the application. He also relied on the skeleton submissions filed in court. He submitted that there were no materials placed before the court to entitle this court make the orders sought by the plaintiff in the application. He explained that the object of calling a director for ‘examination was discovery. He referred the court to the provisions of Order XI Rule 36 of the Civil Procedure Rules on what the court is expected to do when examining a director. He maintained that the full assets of the company (1* defendant) had already been disclosed by a director of the company and therefore the application for discovery was not genuine in the circumstances. He was of the view that the plaintiff was in actual fact seeking to obtain the satisfaction of the debt of the 1* defendant by the interested party. Mr. Mbigi urged the court to ignore the affidavit sworn by Stanislaus Wijenje since he was n&t a nt:dvirchanyslo.org- Page 2MASEFIELD TRADING (K) LTD v RUSHMORE COMPANY LIMITED & another [2008] eKLR director of the plaintiff. He submitted that the basis of the plaintis application was hearsay evidence adduced by a co-director of the interested party. He urged the court to strike out the paragraphs of the affidavit in support of the plaintif’s application that were in infringement of the hearsay rule. He explained that the question as to whether the suit property was fraudulently transferred to the interested parties was the subject of a suit filed by the 2" defendant against the interested party. The said suit was pending determination before the High Court, Central registry. He maintained that since the application ‘was based on fraud, and since no judgment had been rendered on the said issue of fraud, the prayers sought in the application were premature and could not be granted by the court. He reiterated that the application before the court was in actual fact an application for execution of the decree under the guise that it was an application for discovery. He urged the court to dismiss the application with costs since in his view the same was misguided have carefully considered the rival arguments made by the parties to this application in support of their respective opposing positions. | have also considered the pleadings flled by the parties in this application. The authorities cited have also been of help to the court. There are several issues which arose for determination by the court. The first issue is whether the plaintiff fled a competent application before court. The 1" defendant and the interested party argued that the plaintiff's application cannot be granted in the circumstances since the plaintiff was seeking the court's determination on whether fraud was committed by the interested party. It was the 1% defendant's and the interested party's argument that the court lacked jurisdiction to compel the interested party to appear in court to be cross examined on the assets of the 1* defendant since an explanation had already been given regarding the said assets. The 1% defendant submitted that an application seeking to lift the veil of incorporation could only be made in a winding up cause pursuant to the provisions of Section 323 of the Companies Act. | considered the said objections raised by the 1" defendant and the interested party. Order XXI Rule 36 of the Civil Procedure Rules provides that: “Where a decree is for the payment of money, the decree-holder may apply to the court for an order that— (a) the judgment-debtor, or (0) in the case of @ corporation, any officer thereof, or (6) any other person, be orally examined 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, and the court may ‘make an order for the attendance and examination of such judgment-debtor or officer, or other person, and for the production of any books or documents.” think the above rule grants this court jurisdiction to summon any officer of a company to attend court so that he may be examined on the assets and means of the company to settle the sum decreed to be aid by the company. By examining such an officer, the court may or may not lift the veil of incorporation. Although the 1™ defendant and the interested party argued that the application was premature, itis evident that such an application can only be made after judgment has been entered in favour of a decree holder. As regard whether the court may lift the veil of incorporation in an application predicated upon Order XXI Rule 36 of the Civil Procedure Rules, and whether such an application can be only made in ipsa kenyalew.or - Page 9MASEFIELD TRADING (k) LTD v RUSHMORE COMPANY LIMITED & another (2008) eKLR winding up causes, Ringera J had this to say in Ultimate Laboratories vs, Tasha Bioservice Limited Nairobi HCCC No. 1287 of 2000 (unreported) at page 9: "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 principlo 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] WLR. 832).” It is therefore clear that the 1% defendant's and the interested party’s objections are in the circumstances not merited since what is before the court is a simple application regarding whether a director of a company may be summoned to the court to be orally examined to enable the court determine whether the company has any assets or means to settle the amount decreed as payable to the plaintif. In the present application, the plaintiff did establish that the interested party, a director of the 1" defendant company transferred the suit property from the company to himself in circumstances that clearly suggest that the interested party may have intended to frustrate the plaintiff from realizing the fruits of its judgment. The said transfer was effected during the pendency of the suits | think itis only just and fair that the interested party be summoned to court and be orally examined on the circumstances under which the suit property was transferred from the ownership of the 1* defendant. The fact that there exists a pending suit between the two directors of the 1 defendant regarding the suit property is no bar for this court examining the interested party to determine if any law was broken in the said transfer, The 1" defendant and the interested party jumped the gun when they reached the premature conclusion that the veil of incorporation of the company was being lifted before the said director of the 1% defendant was orally examined by the court. Itis upon examination of the interested party that this court may, if the circumstances warrant, lit the veil of incorporation and hold the directors of the company personally liable to satisfy the amount decreed to be paid by the 1" defendant. In the premises therefore, | will grant the prayers sought in the plaintif’s application in terms of prayers 3 and 4 of the application. Jackson Kahungura Kariuki shall attend court to be examined on ‘oath in regard to the 1" defendant's means and assets. To assist the court in reaching a determination whether the 1* defendant has assets to satisfy the decree, the said Jackson Kahungura Kariuki shall produce all the books of accounts of the 1 defendant, and more specifically, the audited accounts covering the period October 2000 and July 2004. The other prayer in the application i.e. prayer 5 shall be considered after the said Jackson Kahungura Kariuki, the interested party herein, has been orally examined by the court. The orders granted by Kasango J restraining the interested parties from adversely dealing with the suit property shall remain in place pending examination of the interested party by the court. The plaintiff shall have the costs of the application. DATED at NAIROBI this 12" day of NOVEMBER, 2008. L. KIMARU JUDGE @gative, Wie the sin, suc and metadata of he Case Search database are iene by Kenya Law under este Canons napa kenyalow.org- Page 4MASEFIELD TRADING (K) LTD v RUSHMORE COMPANY LIMITED & another [2008] eKLR ‘Aiton SpasAla 4.0 Intmsina eto the jul oprions contained in aren te pueda and ae fre fom any eoptgheebekons Read ourExiaey Pals LDiclaee tpt konyatow.org- Page 5