tawandamusarurwaIN the last article, we discussed instances where the court can pierce the corporate veil.
This week, we identify other exceptions to the corporate veil.
Fraud
The courts have purposely refrained from attempting to define all the circumstances under which the corporate veil will be lifted.
This has been done to avoid unnecessarily fettering what is clearly the exercise of a wide judicial discretion.
However, it is clear that the court will disregard a company’s separate personality where an element of fraud or other improper conduct in either the establishment or use of a company exists.
In the case of Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others 1995 (4) 790(A) at 803G — 804A SA, the principle was buttressed wherein the court held: “It is undoubtedly a salutary principle that our courts should not lightly disregard a company’s separate personality, but should strive to give effect to and uphold it.
To do otherwise would negate or undermine the policy and principles that underpin the concept of separate corporate personality and the legal consequences that attach to it.
But where fraud, dishonesty or other improper conduct is found to be present, other considerations will come into play.
The need to preserve the separate corporate identity would in such circumstances have to be balanced against policy considerations which arise in favour of piercing the corporate veil . . . and a court would then be entitled to look at substance rather than form in order to arrive at the true facts, and if there has been a misuse of corporate personality, to disregard it and attribute liability where it should rightly lie. Each case would obviously have to be considered on its own merits.”
In Mkombachoto v Commercial Bank of Zimbabwe and Another 2002 (1) ZLR 31(H) at 390D, the court further buttressed fraud being a basis for piercing the corporate curtain.
The court held: “In my view, the court has no general discretion to disregard the company’s separate legal personality whenever it considers it just to do so. The court may ‘lift the veil’ only where otherwise as a result of its existence fraud would exist or manifest justice would be denied.”
In many instances, the corporate veil has been fraudulently used by judgment debtors who try to evade settlement of obligations.
This is usually done through inter-pleader proceedings.
In such cases, the position has been settled by the Supreme Court, which noted: “This is a classic case for disregarding the separate corporate personality of the companies in order to assign liability where it belongs. Corporate personality is being misused in order to dodge liability and for that reason policy considerations require that it be disregarded.” (Manja and 98 Others v Sheriff of Zimbabwe and Another (SC 9-21))
The question that follows is whether it is procedurally necessary for a judgment creditor to have obtained a prior court order lifting the corporate veil before attempting to attach the property.
The case of Cape Pacific (supra) indicated that even if there are other routes that can be taken, the mere failure to do so does not block the lifting of the corporate veil.
The court held: “In principle, I see no reason why piercing of the corporate veil should necessarily be precluded if another remedy exists . . . If the facts of a particular case otherwise justify the piercing of the corporate veil, the existence of another remedy, or the failure to pursue what would have been an available remedy, should not in principle serve as an absolute bar to a court granting consequential relief . . .”
The Honourable Justice Barat Patel (as he then was), commenting on the above excerpt in the case of Deputy Sheriff v Trinpac Investments (Pvt) Ltd & Anor 2011 (1) ZLR 548(H) at p 553, held: “While these observations may not be directly pertinent to the question at hand, they certainly fortify the principle that mere procedural technicalities should not be allowed to frustrate or impede the effective satisfaction of a just claim.
“In any event, I see no logic or practical reason in requiring the judgment creditor to institute fresh proceedings in this court to pierce the corporate veil in circumstances where those proceedings would entail the same conclusion that I have reached earlier.”
The Supreme Court was seized with a similar question in Robert Tindwa v The Sheriff for Zimbabwe And Anor SC 94/22.
In that case, it held that there were no compelling reasons why a judgment creditor was obliged to institute fresh proceedings for lifting of the corporate veil.
If the end result would be that the corporate veil would be pierced, certainly, that order could still be granted in inter-pleader proceedings. In such circumstances, the court further held that it was not necessary to institute fresh proceedings for the lifting of the corporate veil as all facts point to the conclusion that the appellant is the alter ego of the judgment debtor.
The interests of justice did not require the institution of fresh proceedings, as insisting on the same would be tantamount to denying the judgment creditor what is due to them. (See Sibanda v Sibanda SC 7/14).
To be continued. . .
LEGAL DISCLAIMER: The material contained in this article is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the article. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.
Arthur Marara is a corporate law attorney practising law in Harare.He is also a notary public and conveyancer. He is passionate about employment law, commercial law and family law, as well as promoting legal awareness and access to justice. He writes in his personal capacity. You can follow him on social media (Facebook Attorney Arthur Marara), or WhatsApp him on +263780055152 or email [email protected]
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