Sarick Construction Limited v Children of Africa Limited & Another (Miscellaneous Application 4 of 2023) [2024] UGHC 721 (2 August 2024)

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT GULU

MISC. APPLICATION NO 04 OF 2023

(ARISING FROM CIVIL SUIT NO. O27 OF 2016)

SARICK CONSTRUCTION LTD =========================== APPLICANT VERSUS

- 1. CHILDREN OF AFRICA LTD - 2. ALWENY DOROTHY aka QUEEN DOROTHY AMOLO ======================== RESPONDENTS

BEFORE: JUSTICE PHILLIP ODOKI RULING

Introduction:

[1] The Applicant filed this application under Section 20 of the Companies Act, 2012; Section 98 of the Civil Procedure Act; Order 38 rule 5 (d) and Order 52 rule 1 & 3 of the Civil Procedure Rules S. I 71 – 1 seeking for orders that the corporate veil of the 1st Respondent company be lifted and that 2nd Respondent, who is a director of the 1st Respondent, be ordered to pay the decretal sum of UGX 7,727,690,810/=, interest and costs in High Court Civil Suit No. 27 of 2016.

Background:

[2] On the 15th October 2015 the 1st Respondent, represented by the 2nd Respondent, contracted the Applicant to construct a six (6) blocks of classrooms, dormitories, laboratories, patient wards and offices to be used as a rehabilitation Centre for children suffering from Non Communicable Diseases (NCD) in Gulu District at a total consideration of UGX 28,880,336,335/=. It was agreed that the 1st Respondent would pay the Applicant 30% of the contract sum upon completion of the substructure. The payment was to be made within 28 working days from the date of the certificate of works. Late payment was to attract 26% interest per annum. The Applicant completed the substructure and a certificate of completion was issued on the 7th April 2016. The 1st Respondent only paid to the Applicant UGX 70,000,000/=, leaving a balance of UGX 7,727,690,810/=.

[2] In September 2016, the Applicant instituted a summary suit vide Civil Suit No. 027 of 2016 against the 1st Respondent seeking recovery of the UGX 7,727,690,810/=, interest of UGX 669,733,308/= and the costs of the suit. The 1st Respondent filed an application for leave to appear and defend the suit vide High Court Misc. Application No. 134 of 2016. On the 16th May 2019 leave to appear and defend the suit was granted by this Court on condition that the 1st Respondent should deposit in Court half of the sum claimed, being UGX 3,863,845,405/= within 30 days from the date of the order, failure of which a summary judgment would be entered in favour of the Applicant. The 1st Respondent failed to fulfil the condition of the order. On the 19th May 2023 a summary judgment was entered against the 1st Respondent.

The Applicant's case;

[3] The Applicant's case, as can be deduced from the Notice of Motion and the affidavit in support of the application sworn by Okurut Samuel, a director of the Applicant, is that, following the issuance of the decree, the Applicant discovered that the 2nd Respondent, who is a director of the 1st Applicant, had with intent to hide, changed her name from Alweny Dorothy to Queen Dorothy Amolo through a deed poll. She used the same names to process a new passport and flew out of the country, making it impossible for the Applicant to look for her for purposes of execution of the decree. The Applicant carried out a search with Uganda Registration Services Bureau and discovered that the 1st Respondent was a company incorporated on the 27th June 2013 and its company number is 80100003923691. However, there were no further particulars of the 1st Respondent such as its last known address or registered office. The Applicant wrote to the NGO Board who failed to provide any information on the 1st Respondent. The Applicant looked for any properties of the 1st Respondent for purposes of execution but discovered that the 1st Respondent did not have any property registered in its names. The Applicant further discovered that the only property that would have been available for execution had no clear details since the people in its possession informed the Applicant that they only had a memorandum of understanding with the 1st Respondent's director to construct the building and later share profit. A further search at Ministry of Lands, Lira Zonal Office showed that land comprised in Block 1 Plot 95 Volume 997 Folio 14 measuring 0.807 hectares in Oyam District is in the name of the 2nd Respondent.

The Respondent's case

[4] The 2nd Respondent swore an affidavit in reply and a supplementary affidavit in which she deponed that the 1st Respondent is a company limited by guarantee and she is its director. She deponed that at the incorporation of the 1st Respondent, she as a member only guaranteed liability of the company to the tune of Ugx 1,000,000/=. According to her, if this Court is to lift the corporate veil of the 1st Respondent, her liability is capped at only Ugx 1,000,000/=. She deponed that the construction site belongs to the 1st Respondent having purchased it from Anywar John Aruka on the 28th February 2015. She stated that in 2016 she went to the USA for many reasons, such as, private business, search for donors for the 1st Respondent and for work opportunities. When she left the country, the employees of the 1st Respondent mismanaged the office and closed the 1st Respondent's branch office in Gulu. In 2020, she developed interest in standing as a Member of Parliament. She was advised by her political strategist and supporters to use the name of her mother Amolo since she was popular. She also chose to use the name Queen which would appeal to the youth who were the majority of the electorates. She thus changed her name through a deed poll and consequently acquired a new passport with the new names. After the elections, she returned to the USA where she is a resident. She returned to Uganda in 2023 to contest in the by election after the death of Co. (rtd) Okello Engola Macodwogo. She contended that a person hiding cannot contest in a national election, put posters everywhere and maintain a social media account.

Legal representation:

[5] At the hearing, the Applicant was represented by Ms Sheila Tumwine of M/s Aequitas Advocates while the 2nd Respondent was represented by Mr. Brian Watmon of M/s Odongo & Co Advocates.

Legal Submissions:

[6] Counsel for the Applicant submitted that the acts of registering the 1st Respondent as a company limited by guarantee to only Ugx 1,000,000/=, entering a contract to the tune of Ugx 28,880,336,335/=, disclosing its property where the construction took place which is of low value of only Ugx 30,000,000/=, closing its company offices and leaving jurisdiction in 2016 are all inferences of fraud on the part of the Respondents warranting this Court to lift the corporate veil of the 1st Respondent. In support of her argument, counsel for the Applicant relied on the case of *Beatrice Odongo and another versus Tamp Engineering Consultants Limited C. A. C. A. No. 8 of 2020.*

[7] Counsel for the Respondent on the other hand submitted that the 1st Respondent, being a limited liability company registered under the Companies Act, its members can only be liable to its liabilities at winding up. Counsel submitted that since there is no proof of liquidation of the 1st

Respondent in terms of Section 57 of the Insolvency Act, this application is pre-mature and should be dismissed with costs.

[8] Counsel further submitted that the change of name by the 2nd Respondent was not an act of fraud but was for political reasons, to appeal to her electorate. Counsel reasoned that if the 2nd Respondent was in hiding; she would not have contested in 2021 general elections and in the byeelections in Oyam district in 2023. On the contention by the Applicant that there is no property of the 1st Respondent to be attached, counsel submitted that there is land which belongs to the 1st Respondent on which the construction was done. As to the argument of counsel for the Applicant that the value of the land is Ugx 30,000,000/=, counsel for the Respondent submitted that the value of the land should be in the region of Ugx 9,000,000,000/= since there is partial development done on the land by the Applicant. Furthermore, counsel for the Respondent argued that the allegations of change of address, failure to identify the address of the company and failure to identify any property to execute the decree are not indicative of fraud. In support of his argument, counsel relied on the case of *Etoma Thomas versus Zziwa Peter & 3 Others H. C. M. A. No. 338 of 2021, Samuel Abbo versus Cimeel Engineering Ltd H. C. M. A No. 29 of 2013* and *Stirling Civil Engineering Ltd versus Plinth Technical Works Ltd H. C. M. A No. 231 of 2019.*

Analysis and determination of court:

[9] The general principle in company law is that a company is a legal entity that is separate and distinct from its members, shareholders and/or directors. That principle was espoused in the celebrated English case of *Saloman versus Salomon & Co. (1897)* AC 22. The principle has since been followed by the Courts to the effect that a company is liable for all its actions or debts as opposed to its members, shareholders and/or directors being liable. The principle provides the very fabric of company law. The rational was well stated by the Supreme Court of Zambia in *Madison Investment, Property and Advisory Company Limited versus Peter Kanyinji Civil Appeal No. 010 of 2016* that:

*"…when business persons incorporate companies, as they normally do, for purposes of separating their business affairs from personal ones, or indeed the affairs of one business from those of another, the law ought to respect such arrangement. This should be so even if it is to the detriment of the very persons behind the corporate entities."*

[10] See also *Ben Hashem versus Ali Shayif [2009] EWHE 864 (Fam)* where Munby J. stated that:

*"There has always been a judicial concern not to create commercial uncertainty and undermine the benefits of incorporation. Having incorporated, the shareholders have legitimate expectation, as do those who deal with the incorporated entity, that the courts will respect the status of the entity and apply the principle in Salomon v. Salomon & Co. in the ordinary way."*

[11] The above general rule is however not cast in stone. In exceptional cases, the courts pierce through the protection that is accorded by the principle of corporate personality. Thus, in *Littlewoods Mail Order Stores Ltd versus Inland Revenue Commissioners (1969) 1 WLR 1241* Lord Denning stated that:

*"The doctrine laid down in Salomon v Salomon Co. Ltd has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited liability company* *through which the court cannot see. But that is not true. The courts can and often do draw aside the veil. They can and often do pull off the mask. They look to see what really lies behind."*

[12] The courts in Uganda have indeed lifted the corporate veil when the circumstances of the case warrant. In *Salim Jamal and Others versus Uganda Oxygen Ltd and Others SCCA No. 64 of 1995* Justice Oder JSC stated that:

*"To my mind, there is no doubt that ever since the famous case of Salomon v. Salomon & Co, (1897) AC 22, courts have rigidly applied the principle of corporate personality. But exceptions to the principle have also been made where it is too flagrantly opposed to justice or convenience or in the interest of revenue collection. In such exceptional cases, the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by holding and subsidiary companies".*

[13] The circumstances under which the corporate veil may be lifted has since been embodied in statutory law. Section 20 of the *Companies Act, 2012* provides that:

*"The High Court may, where a company or its directors are involved in acts including tax evasion, fraud or where, save for a single member company, the membership of a company falls below the statutory minimum, lift the corporate veil."* Underlined for emphasis.

[14] In *Beatrice Odongo and another versus Tamp Engineering Consultants Limited* the Court of Appeal held that:

*"…section 20 does not restrict the legal premise for lifting the corporate veil in Uganda to fraud. On the contrary, the statutory provision makes provision for acts that include, but not necessarily limited to, tax evasion, fraud or membership below statutory minimum. A literal interpretation of the provision would be that acts of fraud or tax evasion are only some of the acts that would warrant the lifting of the corporate veil. Thus, the decision in Salim Jamal & others v Uganda Oxygen Limited & others (supra) is instructive on other acts that may legally justify the lifting of the corporate veil. In addition to fraud, the case found flagrant injustice and improper conduct to justify the lifting of the corporate veil."*

[15] The power of the High Court to lift the corporate veil has to be exercised sparingly. According to *Halsbary's Laws of England Companies Vol. 14 (2016)*, the doctrine of piercing the corporate veil should only be invoked where a person is under an existing 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 or where the device of a corporate structure is used to evade limitations imposed by law and rights of relief which third parties already posses against a defendant. That same position was upheld in the English case of *Prest versus Petrodel Resources Ltd (2013) All ER 90* where the Supreme Court held that:

*"It is settled law that the court might be justified in piercing the corporate veil if a company's separate legal personality was being abused for the purpose of some relevant wrongdoing. The recognition of a limited power to pierce the corporate veil in carefully defined circumstances was necessary if the law was not to be disarmed in the face of abuse. There was a limited principle of English law which applied when a person was under an existing legal obligation or liability or subject to an existing restriction which he deliberately evaded or whose enforcement he deliberately frustrated by interposing a* *company under his control. The court might then pierce the corporate veil for purposes, and only for that purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality."*

[16] In the present case, the Applicant alleged that the last known address or registered office of the 1st Respondent is unknown and the 1st Applicant has no property registered in its names for purposes of execution. With Regard to the 2nd Respondent, the Applicant contended that the 2nd Respondent, with intent to hide, changed her name from Alweny Dorothy to Queen Dorothy Amolo and flew out of the country, making it impossible for the Applicant to look for her for purposes of execution of the decree.

[17] On the allegation by the Applicant that the last known address of the 1st Respondent is not known, the 1st Respondent is a company limited by guarantee. Under Section 7(1) (b) of the *Companies Act, 2012* the memorandum of every company has to state the registered office of the company and under Section 264(1) (a) a person may inspect the documents kept by the registrar on payment of a prescribed fee. Although the Applicant claimed that it carried out a search with Uganda Registration Services Bureau, no evidence of the search was adduced in Court. Had the Applicant carried out any search, he would have been provided with a report indicating the registered office of the 1st Applicant. The burden was on the Applicant to prove its allegation that the registered office of the 1st Respondent was unknown but it failed to discharge that burden. I am therefore not convinced that the registered office of the 1st Respondent is unknown.

[18] On the allegation by the Applicant that the 1st Respondent does not have property to be attached in execution. The 2nd Respondent adduced the sale agreement as proof that 1st Respondent owns the land where the construction took place. Although the Applicant alleged that the occupants of the land stated that they only had a memorandum of understanding with the 1st Respondent's director to construct the building and later share profit, the Applicant did not adduce any affidavit from the said occupants. I am therefore convinced that the land belongs to the 1st Respondent.

[19] Regarding the value of the land, no valuation report was adduced by the Applicant to prove that the value of the land is only UGX 30,000,000/= as alleged by counsel for the Applicant. I agree with counsel for the Respondent that the value of the land must be much higher since it is party developed at a cost of UGX 8,570,459,891/=.

[20] I note that the Applicant has not made any attempt to apply to the Court for attachment of the said land so that if there is any adverse claim, the Court would determine it. It appearsthe Applicant is merely bent at securing payment from the 2nd Respondent.

[20] I have not found any merit in the allegation of the Applicant that the 2nd Respondent, with intent to hide, changed her name from Alweny Dorothy to Queen Dorothy Amolo and flew out of the country, making it impossible for the Applicant to look for her for purposes of execution of the decree. First, the 2nd Respondent was under no existing legal obligation or liability or subject to an existing restriction which she deliberately evaded or whose enforcement she deliberately frustrated by interposing the 1st Respondent under her control. Secondly, no evidence was adduced by the Applicant to prove that the change of name was to evade any execution against her since there was no impending execution against her. Thirdly, 2nd Respondent has explained and I am satisfied with the explanation that she changed her name for political reasons. Fourthly, the 2nd Respondent changed her name in 2020 and the new passport was issued in 2022 much before the decree was issued by this Court in May 2023.

[21] I have equally not found any merit in the submission of counsel for the Applicant that the act of registering the 1st Respondent as a company the liability of whose members is limited to UGX 1,000,000/= and entering into a contract of over UGX 28,880,336,335/= amounted to fraud on the part of the 2nd Respondent. I have not come across any law that limits or restricts a company from entering into contracts or transactions the value of which is beyond the liability its members as stated in the company memorandum.

[22] In the end, I find that the Applicant has not satisfied the Court that there are any grounds warranting this Court to lift the corporate veil of the 1st Respondent. This application is accordingly dismissed with costs to the Respondents.

I so order.

Dated and delivered by email this 2nd day of August 2024.

Phillip Odoki

Judge.