The Commercial Case Law Index is a collection of judgments from African countries on topics relating to commercial legal practice. The collection aims to provide a snapshot of commercial legal practice in a country, rather than present solely traditionally "reportable" cases. The index currently covers 400 judgments from Uganda, Tanzania, Nigeria, Ghana and South Africa.
Get started on finding judgments that are relevant to you by browsing the topic list on the left of the screen. Click the arrows next to the topic names to reveal a detailed list of sub-topics. Most judgments are accompanied by a short summary written by subject-matter expert postgraduate students from the University of Cape Town.
This case looked at the whether the veil of incorporation could be lifted and the defendants held liable for the debt of the company. The court looked at the instances when lifting of the corporate veil was applicable. There are three instances when the veil of incorporation can be lifted. 1) when a court in construing a statute, contract or other documents; 2) when the court is satisfied that the company is a mere façade concealing the true facts and 3) when it is established that the company is an authorized agent of its members/directors.
Further, the veil of incorporation can be lifted when the veil of incorporation is used as an instrument of fraud. The standard of proof required in cases of fraud is more onerous that the ordinary balance of probabilities. Section 20 of the Companies Act (‘the act’) empowers a court to lift the veil of incorporation against directors where there is any involvement in fraud by the directors. Fraud was defined to mean any act of dishonesty or actual fraud.
The court found in this case that the plaintiff was barred from instituting action against the defendants. Accordingly, the claim was dismissed with costs.
The applicant was directed to use other means to recover a judgment debt. The application was instituted to hold the second to sixth respondents liable for the first respondent’s debt as the controlling company of the first respondent.
The applicant argued that unless the corporate veil was lifted, and the second to sixth respondents were ordered to pay the debt, the applicant would not be able to recover the judgment debt.
The issues before the court were whether corporate veil could be lifted.
The court held that the first respondent company and second respondent company were one and the same. From the evidence, the third to sixth respondents were acting on behalf of the first and second respondents.
Grounds for lifting the veil were provided in section 20 of the Companies Act, and included where a company or its directors are involved in acts of fraud. The court held that the instruments of the first respondent were honestly executed. Failure to execute the court order was not reason for lifting the corporate veil as it was not evidence of fraud. However, a further ground for lifting the corporate veil was to prevent the deliberate evasion of contractual obligations. The court held that the third to sixth respondents’ resolve to sell the properties were attempts to prevent the realization of the judgment debt, and using the first respondent as a mask for fraud.
The application was granted.