IN THE COURT OF
APPEAL OF TANZANIA
AT DAR ES SALAAM
(CORAM: LUBUVA, J.A., MSOFFE, J.A., And
KAJI, J.A.)
CIVIL APPEAL NO. 78 OF 2002
YUSUFU MANJI APPELLANT
VERSUS
EDWARD MASANJA 1st RESPONDENT
ABDALLAH JUMA 2nd RESPONDENT
(Appeal from the decision of the High Court of
Tanzania at Dar es Salaam)
(Kyando, J.)
dated the 8th day of February, 2002
in Misc. Civil Application No. 227 of 2002
JUDGMENT OF THE COURT LUBUVA, J.A.:
This appeal arises from the decision of the High Court
(Kyando, J.) in Miscellaneous Civil Appeal No. 227 of 2001. In the
Court of Resident Magistrate at Kisutu, Employment Cause No. 126 of
1999 was filed by the Labour Officer on behalf of the respondents,
Edward Masanja and Abdallah Juma. In the proceedings the respondents
were claiming overtime payment, transport and rent allowance from
Metro Investment Limited, the Company which had employed them as
watchmen. In an ex-parte judgment, the trial Resident Magistrate
awarded the respondents their claim against the Company.
In the process of executing the decree, proceedings
were instituted against the appellant, Yusufu Manji, the Managing
Director of Metro Investment Limited. The trial Resident Magistrate
ordered the appellant to satisfy the ex-parte decree issued against
the Company within 30 days failure of which, he would be committed as
a civil prisoner. From this order, Miscellaneous Civil Application
No. 227 of 2001 was filed moving the High Court to examine and
satisfy itself on the propriety and legality of the trial court's
order against the appellant, Yusufu Manji, and not Metro Investment
Limited, the Company.
In support of the application for revision, it was urged
that it was improper to execute against the applicant, Yusufu Manji
the decree which was passed against the company, Metro Investment
Limited. It was strongly urged that a company being a separate legal
entity from its shareholders as directors, the shareholders as
directors should not be held liable for the debts of the company. It
was further submitted that this was an appropriate case in which the
veil of incorporation could be lifted in order to
hold the director, personally liabfe.
Dealing with the application, the learned judge took the
view that it was in the interest of justice to lift the veil of
incorporation of the company. According to the judge, this was so
because at the time the decree against the company was passed and
executed, the appellant was the managing director of the company, and
that there was evidence that effort was being made to conceal the
identity of the person running the affairs of the company.
Consequently, the appellant was held liable for satisfying the decree
passed against the company.
Dissatisfied, the appellant has preferred this appeal.
He was represented by Mr. Kamara, learned advocate. In a two-ground
memorandum of appeal, the substance of the complaint raised was that
the learned judge erred in finding that the appellant was liable to
satisfy the decree because he was not a party to the original suit,
Employment Cause No. 126 of 1999. In elaboration, he contended that
as the appellant was not a party in Employment Cause No. 126 of 1999,
there was no basis upon which to involve him in the matter at the
stage of execution. He maintained that the principle of lifting the
veil of incorporation was not applicable in the circumstances of \
the case. First, he said as the Company, Metro Investment Limited,
has since gone into Liquidation the principle of lifting the veil of
incorporation would therefore not apply. Secondly, in this case even
if it is accepted that the principle was applicable, it would only
come into play in so far as the shareholders were concerned. Here, it
was not shown that the appellant was a shareholder. At any rate, Mr.
Kamara further submitted, whatever might be the case, evidence was
required to show the relationship between the appellant and the
company. It was not a matter of mere allegation. If it was
established that the appellant was a shareholder then in that
situation he could be held liable. In support of this submission, the
Court was referred to the book titled "The Principles of
Modern Company Law by the learned author L.C.B. Gower at page
191.
On their part, the appellants who were unrepresented
did not have anything to say on these submissions. However, the 1st
respondent, Edward Masanja, observed that at the time when
execution process was being carried out, the appellant was the
Managing Director of the Company.
In this case, the central issue is the propriety of
involving the appellant at the stage of executing the decree which
emanated from a suit in which he was not a party. In the
application lodged to set aside the ex-parte judgment of the Resident
Magistrate's Court in Employment Cause No. 126 of 1999, the learned
judge addressed this issue by applying the principle of lifting the
veil of incorporation". This principle, it is to be observed,
was enunciated in the case of Salomon v. Salomon & Co.
Ltd. (1897) A.C.22.
Briefly stated, the facts were that Salomon had
initially carried on prosperously the business of a leather merchant.
Later on he converted the business into a limited company which ran
into difficulties. The company went into liquidation and its assets
were sufficient to discharge the debenture, but nothing was left for
the unsecured creditors. The Court of Appeal held Salomon liable but
the House of Lords reversed the decision holding that the company
being a legal person its members including Salomon were not liable
for its debts. As per Lord Macnaghten the House of Lords at page 49
inter alia held:
6
"The company is at law a different person
altogether from the subscribers, 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 of them. Nor are subscribers, as members liable, in any shape
"or form, except to the extent and in the manner provided by the
Act".
In our view, and as correctly held by the learned judge,
in certain special and exceptional circumstances, the court may go
beyond the purview of this principle by what was described in Salomon
(supra) lifting the veil. Were there such circumstances in this
case, we pose to ask. With respect, we do not agree with Mr. Kamara,
learned counsel for the appellant, that there were no such
circumstances. First, the alleged liquidation of the company, Metro
Investment Limited is not borne out from the evidence on record. That
is, at the time the matter was before Makwandi, Resident Magistrate,
in Employment Cause No. 126 of 1999, there was evidence to the
contrary that the company was still legally in existence and
that the appellant was the managing director.
Secondly, while the appellant was still the managing
director, it was expressly alleged in the affidavit sworn by the 1st
respondent, Edward Masanja, in support of the Employment Cause No.
126 of 1999 that the appellant Yusufu Manji was to be held liable
because there was effort to conceal the assets and identity of the
company. This allegation was not specifically denied by the appellant
by way of a counter-affidavit.
In the circumstances, it is our view that the
respondents would be left with an empty decree as it were, against
the company, Metro Investment Limited. Furthermore, it is apparent
that the company's managing director was at the time the appellant,
who, as said before was alleged to be involved in concealing the
assets of the company. For this reason, we think it would not serve
the interest of justice in this case to shield the appellant behind
the veil of incorporation.
Therefore, having regard to the fact that the appellant
was the managing director of the company, we do not accept Mr.
Kamara's contention that evidence was required to prove the
appellant's relationship with the company or that he had shares in
the company. The principle enunciated in Salomon (supra) would
apply to the contrary once special and exceptional circumstance is
shown. Here, as just shown such circumstance is premised upon the
fact that the appellant was the managing director of the company. The
appellant was also alleged to be involved in concealing the identity
and assets of the company. In that capacity, and as held by the
learned judge, we agree that the appellant was in a better position
to know the trend of affairs regarding the alleged concealment of the
company's assets.
In summary therefore, having regard to the relationship
of the company at the time with the appellant as the managing
director, the alleged concealing of the assets of the company by the
appellant which was not denied by way of counter-affidavit, we are
satisfied that this was a proper case in which to apply the principle
of lifting the veil of incorporation. The learned judge cannot, in
our view, be faulted in his decision to apply the principle.
In the event, we find no merit in the appeal which is
accordingly dismissed with costs.
DATED at DAR ES SALAAM this 15th day of
November, 2005.
D.Z. LUBUVA JUSTICE OF APPEAL
J.H. MSOFFE JUSTICE OF APPEAL
S.N. KAJI JUSTICE OF APPEAL
I certify that this is
a true copy of the original
( S.M. RUMANYIKA ) DEPUTY
REGISTRAR