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ELCAllowedNot stated in judgment· [2019] KEELC 5045 (KLR)

Aster Holdings Limited v City Council of Nairobi & 4 others [2019] KEELC 5045 (KLR)

Environment and Land Court of Kenya
3 April 2019
EOE. O. Obaga
1,412 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Environment and Land Court lifted a company's corporate veil on fraud grounds, allowing a judgment creditor to examine directors about hidden assets.

What this practically means

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Executive summary

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This was a ruling on a Notice of Motion dated 5th March 2018 in which the Decree Holder, who had obtained judgment on 31st October 2017 declaring it the lawful owner of the suit property and awarding general damages of Kshs.100,000,000/=, sought to have the directors of the 5th Judgment Debtor orally examined on oath as to assets and means of satisfying the decree, and sought lifting of the Respondent's corporate veil. The Applicant could trace neither the Respondent's assets nor its registered office. It established that the Respondent's directors were Esther Njeri Gitau and Acres and Homes Limited, whose directors included William Kabogo Gitau - who had testified under oath during the main hearing that he was a director of the Respondent, which was untrue. The Respondent opposed through grounds of opposition, arguing prematurity (costs untaxed), absence of demonstrated fraud, non-exhaustion of execution avenues, and abuse of process. The court framed one issue: whether the corporate veil should be lifted. Applying Halsbury's Laws of England and Kenyan authorities including Githunguri Dairy Farmers and De Ruiters Roses, the court held the veil may be pierced where incorporation is used for fraud or improper purpose. It found fraud in the Respondent's registration of the suit property and dishonesty in William Kabogo Gitau's false testimony. It also held that taxation of costs is irrelevant to lifting the veil, and that grounds of opposition cannot answer factual assertions in an affidavit. The Notice of Motion was allowed in terms of prayers 6, 7, 8, 9, 10 and 11.

Key legal issues

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01

Whether the corporate veil of the Respondent should be lifted to enable execution of the decree

Holding

The veil was lifted on grounds of fraud and dishonesty, since the Respondent had fraudulently obtained title and its director William Kabogo Gitau testified falsely that he was a director of the Respondent.

Reasoning

The court reiterated the separate legal personality of a company but noted the established exceptions. Relying on Halsbury's Laws and Kenyan authorities, it held the veil may be pierced where incorporation is used for fraud or improper conduct. Here the Respondent was found in the main judgment to have fraudulently registered the suit property, and William Kabogo Gitau, a director of Acres and Homes Limited (itself a director of the Respondent), testified falsely that he was a director of the Respondent. The Respondent filed only grounds of opposition, which cannot answer issues of fact, so the uncontradicted affidavit evidence of inability to trace assets stood. Fraud and dishonesty justified lifting the veil.

p. 2
02

Whether the application was premature because costs had not been taxed

Holding

Taxation of costs is irrelevant to lifting of the corporate veil.

Reasoning

The Respondent argued the application was premature since costs had not been taxed nor leave to execute obtained. The court rejected this, holding that lifting the corporate veil concerns unmasking the true persons behind a company and has nothing to do with whether costs have been taxed. The application was therefore competent despite the pending taxation.

p. 2

Legal principles established

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  • Courts will disregard the veil of incorporation where the device of incorporation is used for some illegal, fraudulent or improper purpose.
  • A corporate veil can be lifted where there are allegations of fraud or dishonesty against the Directors; insolvency alone is not a ground.

Court orders

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  1. 1.The Notice of Motion dated 5th March, 2018 allowed in terms of prayers 6, 7, 8, 9, 10 and 11 (including oral examination on oath of the Respondent's directors as to assets and means of satisfying the decree and lifting of the corporate veil)

Authorities

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Cases cited (4)

  • Githunguri Dairy Farmers Co-operative Society vs Ernie Campel & Company Limited and another
    [2018] eKLR
  • De Ruiters Roses East Africa Limited Vs Alora Flowers Limited
    [2006] eKLR
  • Electrowatts Limited Vs Countryside Suppliers Limited & Another
    [2014] eKLR
  • Corporate Insurance Brokers Ltd & Another
Jurisdiction invoked
Original jurisdiction to enforce its own decree through execution proceedings (notice of motion for oral examination of directors and lifting of corporate veil)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (1)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Aster Holdings Limited v City Council of Nairobi & 4 others [2019] KEELC 5045 (KLR)", Case Analysis (2019). Not stated in judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2019/5045/eng@2019-04-03

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.