Court name
Commercial Court of Uganda
Case number
Miscellaneous Application-2016/309
Judgment date
26 September 2017

Paulinus v Byamugisha & Anor (Miscellaneous Application-2016/309) [2017] UGCommC 104 (26 September 2017);

Cite this case
[2017] UGCommC 104

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

 

MISCELLANEOUS APPLICATION NO.309 OF 2016

(Arising out of HCCS No.387 of 2013)

 

 

PAULINUS CHUKWU EJIOFOR       :::::::::::::::::::::::::::::::    APPLICANT

 

VERSUS 

 

  1. CHARLES BYAMUGISHA
  2. BYAMUGISHA BABY COACH &

SONS TRANSPORT CO. LTD    :::::::::::::::::::::::::::::::::::    RESPONDENTS

 

 

BEFORE:  THE HON.JUSTICE DAVID K.WANGUTUSI

 

R U L I N G:

In this application Paulinus C. Ejiofor to be referred to as the Applicant, seeks orders against Charles Byamugisha and Byamugisha Baby Coach & Sons transport Co. Ltd. referred to as the 1st and 2nd Respondents respectively that;

The corporate veil of the 2nd Respondent be lifted to enable the applicant commence execution proceedings against the 1st Respondent - Managing Director of the 2nd Respondent for the  enforcement of decree in HCCS No. 387 of 2013”.

The application is grounded on the following;

  1. That the applicant is a holder of a decree in HCCS No. 387 against the 2nd Respondent but when he sought to enforce it for recovery, he discovered that all the known assets were registered in the names of the 1st Respondent who is the Managing Director of the 2nd Respondent.
  2. That the 2nd Respondent is but a sham and device set up by the 1st Respondent to mask himself from recognition to avoid enforcement of the decree.
  3. That this is a fit and proper case wherein an order to lift the veil and execution against the 1st Respondent be granted.

 

The back ground to the application has its origin in HCCS 387 of 2013 wherein the Applicant sued the 2nd Respondent and obtain judgment in default of the Respondent’s filing of a defence Application to set aside the judgment was given on condition that the Respondent deposited UGX 110,000,000= within 14 days which it failed to do so.

When the Applicant proceeded to recover the decretal sum, it hit a snag because the items it sought to attach were not registered in the 2nd Respondent’s names thus the application to lift the corporate veil so as to execute against the 1st Respondent.

The circumstances when a corporate veil can be lifted are found in a lot of authorities both foreign and domestic.  The authorities are to the effect that the principle protecting the shareholders enunciated in Salmon & Salmon (1897) AL 22 HL would be disregarded where court is satisfied that it would cause injustice.  In other words where injustice would be occasioned court would give the corporate personality the ‘back seat’ and direct its attention to those who control the company and benefit from it.

Such instances arise where court finds that the incorporation simply shields those who are using it for illegal or improper purposes.  The situation I aptly described in Jones v Lipiman [1962] IWLR 832 at 833 as;

The creature of the MD, a devise and a sham, a mask which he held before his face in an attempt to avoid recognition by the eye of equity.”

In this application, the Applicant contends that as a successful decree holder in a suit against the 2nd Respondent he attempted to recover by execution only to find that all the property that he had always considered the 2nd Respondent’s was actually registered and belonged to the 1st Respondent.

Furthermore that while he had always considered the 1st Respondent as a shareholder in the 2nd Respondent company, he was surprised to find a one Bright Muhwezi instead in the Memorandum and Articles of Association.

He however submitted that while the names differed, it was one and the same person signing both as Byamugisha and Muhwezi.

He contended that the act of signing under different names was fraudulent.

In reply the 1st Respondent contended that the buses did not belong to the 2nd Respondent and that the 1st Defendant was different from Muhwezi and that he had not been fraudulent as the signatures were simply similar but signed by different people.  He further contended that he was simply Managing Director appointed by the 2nd Respondent.  In paragraph 9 of the affidavit in reply he deposed;

“….. I am simply a Managing Director in the 2nd Respondent Company save for executing my duties therein as a Managing Director.”

In yet another affidavit by Amos Musheija a Liquidator in respect of the 2nd Respondent he deposed in Paragraph 6

“I have also ascertained that the 1st Respondent is only an appointed director in the 2nd Respondent’s company and the shareholders/subscribers of the 2nd Respondent are well known to be Muhwezi Bright and Mugabirwe Robert.”

He relied on the Memorandum and Articles of Association of the 2nd Respondent.

On whether 1st Respondent had no interest or shares in the 2nd Respondent is an issue which can be discerned from the pleadings, proceedings and their annextures.

Record shows that on the 18.06.2014, Counsel for the Respondents attempted to substitute the order of court to deposit cash to a security in form of a Bus.  He submitted;

  •  

which he was willing to provide as security.   This in my view is strange because the 1st Respondent who claimed to be an appointed Managing Director without any shares or interest could not be the one providing security.

For the 1st Respondent to risk his bus on behalf of a company he knew was limping can only be construed to be great attachment and lots of interest in the company.

Secondly the said Bright Muhwezi or Mugabirwe, have never come into the picture at all since this case begun on 12 July 2013.

None of them has ever filed any affidavit to show he was different from the 1st Respondent, even where a company in which they are said to have shares is at stake. 

One wonders whether there is a Bright Muhwezi.

Thirdly I have looked at the signatures of the said Bright Muhwezi on the Memorandum and Articles of Association of the 2nd Respondent against that of the 1st Respondent in the various affidavits and found the similarities very striking.

Where the Applicant pointed out the similarities of the signature of the 1st Respondent and that of the purported Bright Muhwezi, it was imperative that the 1st Respondent produces Bright Muhwezi.  I find this as the 1st Respondents burden because

  1. He is the one insisting that Bright Muhwezi who is a shareholder of the 2nd Respondent exists.

 

  1. If Muhwezi exists, it is the 1st Respondent as Managing Director of the 2nd Respondent who knows where to find him.

The failure of 1st Respondent to file anything by way of affidavit from Bright Muhwezi who was a shareholder and whose shareholder ship was at stake lends credence to the Applicants averment that Bright Muhwezi does not exist and that the signatures which are similar, are not only so, but are indeed by the same person who in this case is the 1st Respondent.

Now why would the 1st Respondent create a company with a fictitious shareholder unless his intention is to benefit from the illegal act.  The creation can only be to shield himself from anyone who might want to trace the person behind the 2nd Respondent.

Under such a situation it is easy to conclude that the company is just a cover and a sham with the 1st Respondent’s face behind the mask benefiting directly from the benefits.

In all I find the 2nd Respondent as a creature and device by the 1st Respondent created to act as a buffer between those seeking recoveries of what is owed to them.

To avail the 1st Respondent the protection under Salmon & Salmon (1897) would occasion injustice to the 2nd Respondent’s creditors.

The sum total is that I find this a fit and proper case wherein the corporate veil may be perforated, to enable the Applicant as creditor to execute against the 1st Respondent who directly benefited from the 2nd Respondent in as much as the fictitious Muhwezi was none other than the 1st Respondent.

 

 

This application is therefore granted with costs.

 

Dated at Kampala this 26th  day of September 2017.

 

 

 

HON. JUSTICE DAVID WANGUTUSI

JUDGE