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THE REPUBLIC OF TRINIDAD AND TOBAGO
IN THE HIGH COURT OF JUSTICE
Claim No. CV2013-01963
Between
YUNUS MEIGHOO
Claimant
AND
ASHRAM PERSAD
ROSHANI PERSAD
A&R GENERAL CONTRACTORS COMPANY LIMITED
Defendants
Before The Honourable Mr. Justice Frank Seepersad
Appearances:
1. Mr. Ahmed instructed by Ms. T. Lutchman for the Claimant
2. Ms. S. Lakhan and Mr. M. Rooplal for the Defendants
Date of delivery: 28th June, 2016
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DECISION
1. Before the Court for its determination is the claimant action by virtue of which the
following reliefs were claimed:
“
i. an order piercing the corporate veil of the Third Named Defendant;
ii. a declaration that the First and Second Named Defendants acted fraudulently
and/or dishonestly and/or in breach of its fiduciary duty as directors of the
Third Named Defendant by transacting its business dealings personally or
through another company, Ashper Contracting Limited;
iii. damages for fraud against the First and Second Named Defendants;
iv. damages for negligent and/or fraudulent misrepresentation against the First
and Second Named Defendants;
v. an order for equitable tracing as against the First Named Defendant and/or the
Second Named Defendant and/or the Third Named Defendant;
vi. an order preventing the First and Second Named Defendants from disposing
of their assets pending the determination of this matter; and
vii. an order to enforce a previous judgment in Claim No. CV 2011-04978.”
2. The issue to be determined in this matter is whether or not the Court should pierce the
veil of incorporation that protects the 3rd Defendant so as to make the 1st and 2nd
Defendants liable for the quantum of damages awarded in CV2011-04978 (the
Claimant’s judgment action). On the 28th February, 2013, the Court granted a
judgment in favour of the Claimant as against the 3rd Defendant for the following
sums:
(1) a. Special Damages in the sum of Three Hundred and Twenty Five Thousand
Eight Hundred Dollars ($325,800.00) together with interest at the rate of
3% per annum from November, 2008 to trial;
b. General Damages:
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i. Pain and suffering and loss of amenities in the sum of One
Hundred and Twenty Thousand Dollars ($120,000.00) together
with interest at the rate of 6% per annum from the 21st day of
December, 2011 to date of judgment.
ii. Future surgery in the sum of Fifty Five Thousand Dollars
($55,000.00) with no interest.
iii. Rehabilitation in the sum of Twenty Two Thousand Dollars
($22,000.00).
iv. Loss of future earnings in the sum of Three Hundred and Ninety
Two Thousand, Four Hundred and Eighty Dollars ($392,480.00)
with no interest.
(2) The Defendant do pay the Claimant his prescribed costs in the sum of Ninety
Nine Thousand Nine Hundred Dollars ($99,900.00).
The law
Piercing the Veil of Incorporation
3. In the matter Salomon v. Salomon & Co. [1897] AC 22. Mr. Salomon had for many
years conducted a prosperous business as a leather merchant and wholesale boot
manufacturer. In 1892, while he was still solvent, he converted his business into a
limited liability company in which he himself held 20,001 of the 20,007 shares, the
remaining six shares being held by his wife and five of his children and he was
appointed as the managing director of the company. The company subsequently ran
into financial difficulties and went into liquidation. The Court of Appeal held that the
transformation of the business into a limited liability company was contrary to the
true intent of the Companies Act and the company was a mere sham or agent for Mr.
Salomon. Accordingly, Mr. Salomon was ordered to indemnify creditors of the
company that remained unpaid. The House of Lords, however, unanimously reversed
the Court of Appeal’s decision, and held that the company had been validly formed
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and that the business belonged to the company and not to Mr. Salomon personally.
4. According to Lord Macnaghten at page 51 of his seminal judgment:-
“The company is at law a different person altogether from the subscribers
to the memorandum of association; and although 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 for them. Nor
are the subscribers as members, liable in any shape or form, except to the
extent and in the manner provided by the Act.”
5. The Court will only pierce the veil of incorporation where there exist accepted
circumstances that establish that the company is a mere façade that was created to
conceal the true facts that are at play. In many of the cases where the corporate veil
has been lifted, the circumstances were such that from inception, the corporate
structure was a sham or was an afterthought to address a detrimental circumstance.
Where however the company in question has been engaged in business for a
considerable period of time and is solvent and where no evidence of deceit has been
adduced that directly relates to the conduct of its business affairs, the Court would be
reluctant to pierce the veil of incorporation.
6. Ultimately, the Court should focus upon whether the company was established,
and/or whether the protection of incorporation was used to cover or mask deliberate
wrong doing and/or to, dishonestly evade existing obligations.
7. On the question of setting aside the corporate veil, in The Tjaskemolen [1997] 2
Lloyd’s Rep 465 Clarke J held that the principle was that it was only appropriate
to pierce the corporate veil where special circumstances existed which indicated it
was a mere façade concealing the true facts.
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The Learned Judge said at page 469:-
“In my Judgment the position is or may be different where a group
arranges its affairs in such a way as to divest a company within the
group of its assets with the purpose and effect of ensuring that they
would not be available to meet its existing liabilities, at any rate
where the transfer is made to another member of the group at an
undervalue. Depending upon the facts, such an agreement is likely
to be held to be sham or facade, as those expressions are used in
the cases.”
8. In Montreal Trust Company of Canada v. ScotiaMcLeod Inc. (1995) 129 D.L.R.
(4th) 711 at 720 (Ont. C.A.), the court summarized the circumstances under which
the corporate veil can be pierced to render directors or officers of a company liable as
follows:
“The decided cases in which employees and officers of companies have
been found personally liable for actions ostensibly carried out under a
corporate name are fact-specific. In the absence of findings of fraud,
deceit, dishonesty or want of authority on the part of employees or
officers, they are also rare. Those cases in which the corporate veil has
been pierced usually involve transactions where the use of the corporate
structure was a sham from the outset or was an afterthought to a deal
which had gone sour. There is also a considerable body of case-law
wherein injured parties to actions for breach of contract have attempted to
extend liability to the principals of the company by pleading that the
principals were privy to the tort of inducing breach of contract between
the company and the plaintiff: see Ontario Store Fixtures Inc. v.
Mmmuffins Inc. (1989), 70 O.R. (2d) 42(H.C.J.), and the cases referred to
therein. Additionally there have been attempts by injured parties to attach
liability to the principals of failed businesses through insolvency litigation.
In every case, however, the facts giving rise to personal liability were
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specifically pleaded. Absent allegations which fit within the categories
described above, officers or employees of limited companies are protected
from personal liability unless it can be shown that their actions are
themselves tortious or exhibit a separate identity or interest from that of
the company so as to make the act or conduct complained of their own.”
9. In Kay Aviation b.v. v. Rofe (2001) PESCAD 7 (P.E.I. C.A.) the court observed at
paragraph 25:
“The minimum level of material facts in a statement of claim founded on
causes of action against an officer, director or employee of a corporation
with whom the plaintiff has contracted is very high. The imposition of
personal liability on an employee, officer or director of a company is the
exception rather than the rule. To justify a departure from this rule a
plaintiff must plead all the relevant material facts to establish there is a
reasonable cause of action. In the absence of specifically pleaded material
facts the action against the director, officer or employee of the
corporation will be struck: Serel v. 371487 Ontario Ltd., [1996] O.J. No.
3988 (Gen. Div.). This is particularly so where the plaintiff is not a
stranger to the defendant. In the case at bar, for example, the respondent
has contracted with the corporation in which the appellant is sole director
and officer and with full knowledge of the inherent limits to liability.”
10. In Anil Maharaj (Trading as A. Maharaj Tyre Service) v. Rudy Roopnarine,
Paula Kim Roopnarine and Refinery Industrial Fabricators Limited Claim No.
2012-04524, the Claimant applied to the Court to lift the corporate veil of the Third
Defendant company, thereby ascribing personal liability to the First and Second
Defendants in a claim for monies due and owing. The Honourable Mr. Justice
Rajkumar applied the principles enunciated above and held that the Claimant had not
pleaded fraud, deceit, fraudulent misrepresentation, or dishonesty, nor had he pleaded
any other material facts specific to ascribing liability to the personal defendants. In
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the premises, his Lordship found that the case as pleaded disclosed no grounds for
lifting the corporate veil.
The circumstances under which the veil can be pierced
Fraud/Misrepresentation
11. The corporate veil will be pierced where the company is used as a cover for fraud by
the persons who stand behind the company. The mere fact that a company has itself
committed a fraud does not lead to the liability of its shareholder(s) for that fraud.
Rather, liability attached to a shareholder or director or officer where it can be shown
that this person was also involved in the fraud (Halsbury’s Laws of Canada, First
Edition, paragraph HBC-14).
12. In Jones v Lipman [1962] 1 WLR 832 an individual had contracted to sell land.
Wishing to avoid his liability he transferred the land to a company he had acquired
for the purpose. A decree of specific performance was made against both the
individual and the company on two grounds, the first was that the individual had
sufficient control of the company to compel it to perform the contract and the second,
following the principle applied in Gilford Motor Co. Ltd v Horne [1993] Ch 935,
was that the company was the creature of the first defendant and was "a device and a
sham, a mask which he holds before his face in an attempt to avoid recognition in the
eye of equity".
13. This principle was confirmed in Kensington International Ltd. v. Congo and
Others [2005] EWHC 2684, where it was held that piercing of the corporate veil
would be allowed in circumstances where corporate transactions were a sham and the
company was used for the avoidance of existing liabilities. At page 34 Justice Cooke
said as follows:
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“179. The decision of the House of lords in AG Securities Limited
–v- Vaughan [1990] 1 AC 417 establishes that “sham” does have a
meaning in law, namely an attempt to disguise the true character
(of the agreement) which it was hoped would deceive the court. As
Neuberger J (as he then was) put it in National Westminister Bank
–v- Jones [2001] 1BCLC 98, a sham agreement is one where the
parties intend to give the impression that they are agreeing that
which is stated in the agreement, whilst in fact they share the
common intention of not honouring their respective obligations or
enjoying their respective rights under it. It is simply an agreement
which the parties do not really intend to be effective, but is merely
entered into for the purpose of leading a court or Third party to
believe that it is to be effective. (The position is a fortiori where the
documents do not reveal an executed agreement or the semblance
of conclusion of a real agreement).
180. In Re Polly Peck international Plc [1996] 2 AER 433 at page
444 Robert Walker J (as he then was) quoted Staughton LJ in an
earlier decision, pointed out that it was better to speak of
“substance”, “reality” and that which was “genuine”, rather than
use the words ‘disguise, cloak, mask, colourable device, label,
form artificial, sham, stratagem and pretence”. The point is rightly
made that a court looks for the substance of a matter, and, in doing
so, looks for the legal substance, not its economic substance, if
different.
181. Examples of entities, structures or transactions which the
court has not accepted at face value, on the basis of such or similar
reasoning, are cases such as Gilford Motor company Limited –v-
Horne [1933] 1 Ch 935 and Jones –v- Lipman [1962] 1 WLR 832.
In the former, the Court of Appeal held that a former managing
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director, who was bound by a restrictive covenant following
departure from his employers, was unable to escape the effect of
his covenant by carrying out business through a company which he
had formed for that purpose.”
14. The Learned Judge stated that there can be transactions which have no legal
substance and which are set up to defeat claims of creditors and he stated further that
if these transactions are a pure sham and a façade they will be treated by the court as
invalid.
15. In Gilford Motor Co. Ltd. v. Horne [1933] Ch. 935, the Court found that the
company had been formed as a device, stratagem or mask and was used to effectively
carrying out he business of an individual and the Court pierced the veil of
incorporation.
What type of behaviour amounts to fraud?
16. According to the common law principles as outlined in Derry v. Peek (1889) 14 App
Cas. 337, "fraud is proved when it is shown that a false representation has been
made: (1) knowingly; or (2) without belief in its truth; or (3) recklessly, careless
whether it be true or false".
17. Fraud was defined by the learned authors of Snell’s Equity 33rd Edition,
paragraph 8-002 as follows:
“In equity then, the term “fraud” has seemingly been extended beyond
actual fraud to include, by a fiction, conduct that involves no deceit or
dishonesty on A’s part. The equitable concept of fraud does not stop at
“moral fraud in the ordinary sense” but also takes into account of “any
breach of the sort of obligation which is enforced by a court that from the
beginning regarded itself as a court of conscience”. The term
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“constructive fraud” is used to differentiate conduct falling within that
law. The adverb “constructive” is a euphemism and it reveal the fiction
inherent in extending a concept such as fraud, which has a well-settled
meaning, to situations that are clearly beyond the reach of that well-
settled meaning.”
What amounts to misrepresentation?
18. The learned editors of Chitty on Contracts, 30th edition at paragraphs 6-006-6-008
stated as follows:
6-006
“A misrepresentation must be a false statement of fact, past or present
as distinct from a statement of opinion, or of intention or mere
commendatory statements. Mere “puffs” do not amount to
representations: *Dimmock v Hallet (1866) L.R. 7 Ch. App. 21 at 27. A
mere statement of opinion which proves to have been unfounded, will
not be treated as a misrepresentation, Hummingbird Motors Limited v
Hobbs [1986] R.T.R. 276.....as a general rule these cannot be regarded
as representations of fact, except insofar as they show that the opinion
or intention is held by the person expressing it. Moreover statements
must be construed as they would reasonably be understood by the
recipient in the context in which the statement was made. Thus a
statement as to the nature of a policy made to an experienced loss
adjuster, who had a copy of the policy schedule that described it
correctly, and was thought to have a copy of the policy itself, was
regarded as “a contention, not as a representation” – in other words, it
was merely an expression of opinion.”
6-007
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“However, in certain circumstances a statement of opinion or of
intention may be regarded as a statement of fact, and therefore as a
ground for avoiding a contract if the statement is false. Thus, if it can
be proved that the person who expressed the opinion did not hold it, or
could not, as a reasonable man having his knowledge of the facts,
honestly have held it, the statement may be regarded as a statement of
fact.”
6-008
“If a person states as his opinion something which he does not in fact
believe, or which given the facts known to him, he could not honestly
hold, he makes a false statement of fact. So where at a sale of property,
the vendor described the occupier as “a most desirable tenant”, while
in fact he knew that the rent was considerably in arrear, this was held
to entitle the purchaser to rescind the contract.”
19. At paragraph 6-012, the Editors went on to say as follows:
“...It is suggested that the fundamental principle which underlies all the
cases of misrepresentation,... is not so much that statements as to the
future, or statements of opinion, cannot be misrepresentations; but rather
that statements are not to be treated as representations where, having
regard to all the circumstances, it is unreasonable of the representee to
rely on the representor’s statements rather than on his own judgment. In
general this seems to be the reason why statements as to the future and
statements of opinion have been held not to ground relief; in dealing with
statements of this nature it has usually been felt that the representee ought
not to have relied on the representor. It has been recognized that
sometimes a statement which on its face a statement of fact was really only
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one of opinion because it was apparent that the maker had no real
knowledge or was simply passing on information for what it was worth.”
Agency
20. In a limited range of circumstances, a company may be held to have acted as the
agent of its owner. In order for limited liability to apply, the company must act for
itself rather than as an agent of the shareholder. There is however a presumption that
the company is acting on its own behalf and clear evidence of agency would be
required to defeat this presumption.
21. In Halsbury’s Laws of England 5th ed. (2008), Volume 14, paragraph 121, the
authors considered the issue of an agency relationship as between a parent company
and a subsidiary, or between a company and its shareholders and opined that a Court
may not be inclined to infer that the company was acting as the agent of the
shareholder merely by looking at who owns the company’s shares and that it will
have to consider all aspects of the relationship between the parties (Adams v Cape
Industries plc [1990] Ch 433 at 536, [1991] 1 All ER 929 at 1020, CA, per Slade
LJ).
When can a finding of sham/façade or alter ego be made?
22. The separate legal personality of a company may be disregarded where the company
is considered to be sham, façade or the alter ego of its shareholders. Generally, the
evidence should suggest that it was the shareholder who was carrying on business,
rather that the company itself.
23. In identifying what is a mere façade, the motive of those behind the company will be
relevant. The court will go behind the status of the company as a separate legal entity
distinct from its shareholders and will consider who are the persons, as shareholders
or even as agents, directing and controlling the activities of the company where the
device of a corporate structure has been used to evade limitations imposed on conduct
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by law or rights of relief which third parties possess against a Defendant.
24. In Re Polly Peck International plc (in administration) [1996] 2 All ER 433
Walker J stated at 447 paragraph c-e that:
“Sham, pretence, cipher and facade are all (as was said by Dixon J in the
passage already quoted) ‘bad names’ implying a value judgment of
disapprobation. ‘Sham’ was at least half way to becoming a term of art
(requiring an intention common to all parties) but has now, it seems, been
supplanted (at least in the context of licence or tenancy) by ‘pretence’
(seeAslan v Murphy (Nos 1 and 2), Duke v Wynne [1989] 3 All ER 130 at
133, [1990] 1 WLR 766 at 770 and AG Securities v Vaughan, Antoniades
v Villiers [1988] 3 All ER 1058 at 1067–1069, [1990] 1 AC 417 at 462–
465). MrKosmin did not rely on sham or pretence. He did submit (orally)
that PPIF was a ‘cipher’ and (in his skeleton argument) that it was a
‘facade’. I think that his use of ‘cipher’ was to add colour and force to his
submission on agency or nomineeship (which I have already considered).
‘Facade’ (or ‘cloak’ or ‘mask’) is perhaps most aptly used where one
person (individual or corporate) uses a company either in an
unconscionable attempt to evade existing obligations (Gilford Motor Co
Ltd v Horne [1933] Ch 935, [1933] All ER Rep 109 and Jones v Lipman
[1962] 1 All ER 442, [1962] 1 WLR 832) or to practise some other
deception (a sort of unilateral sham, since the corporate facade has no
independent mind).”
Background facts
25. The 3rd Defendant was incorporated by the 1st Defendant in May 2003, and the two
named Directors were the 1st and 2nd Defendants. One hundred shares were issued
with a total share capital of $100 and the shares were distributed as between the 1st
and 2nd Defendants.
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26. On the 29th January 2011, the 1st Defendant incorporated another company known as
Aspher Contracting Company Limited and 100,000 ordinary shares were issued and
the 1st and 2nd Defendants were the named directors.
Evidence at the trial
27. The Claimant relied on his evidence and that of Mr. Roach Francis and he tendered
several documents into evidence which included inter alia land deeds in the name of
First and Second Defendant, a Search Report of A&R General Contractors Company
(YM7), a Search Report of Ashper Contracting Company Limited (Y.M9), an
application to join Ashram Persad (YM10), pre action letters, a letter dated 18th
September, 2013 from Mr. Rennie Gosine (YM13) and Certified Copies of Company
Documents for Ashper Contracting and for A&R General Contractor Company
(YM14 and YM15 respectively).
28. The Defence called the 1st Defendant, Mr. Ashram Persad.
Assessment of the evidence
29. The Court having seen and heard from the witnesses formed the view that the
Claimant was a credible witness, however the Court, for the reasons that will be
referred to hereinafter, found that 1st Defendant Mr. Ashram Persad was
contradictory, evasive and non-committal during the course of his cross examination
and this engendered in the Court a feeling that he was not being candid, honest or
frank.
30. At paragraphs 5 and 7 of his witness statement the 1st Defendant stated that:
5. “The Third Named Defendant is a small-scale company and is
involved in the business of providing contracting services, namely
road building, trucking constructing of retaining walls, backfilling,
rental of equipment and the supply of aggregate. The Third Named
Defendant is not involved in the sale and/or development of land.”
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7. “The Third Named Defendant is the owner of several pieces of
equipment and tools including a Cutting Torch, Welding Plan, Chop
Saw, Jack Hammer and Safety Gear and Equipment. The Third
Named Defendant also rents tools and equipment on a ‘needs basis’.
The Third Named Defendant is the owner of a Mitsubishi truck,
registration number TBY 8160.”
31. In cross examination the witness was asked what assets the 3rd Defendant held and he
replied “only the TBY truck”. During the course of his cross examination, the 1st
Defendant accepted that in Martin v. Frederick Engineering Ltd. and AR General
Contractors Company Limited CV 2007-03146 a judgment was obtained on the 9th
June, 2009 in favor of Martin for $617,231.35 against the 3rd Defendant and that same
was registered on the 12th November, 2009. The 1st Defendant also accepted that he
made a payment on account of the judgment in the sum of $100,000.00 on the 30th
August 2010 and that the said sum was paid from his personal account (the first
judgement).
32. Aspher Contracting Limited was formed after the first judgment was obtained. A
further payment was made on this judgment in February 2011 and it was again made
from the 1st Defendant’s personal account. In cross examination, the witness stated
that these payments were loans to the 3rd Defendant, however no documentary
evidence was produced to support the said contention.
33. These two payments from the 1st Defendant’s personal account raised suspicion in the
Court’s mind as no rational explanation as to why the sums on account of the
judgment were not made by the 3rd Defendant. The Court noted that the 1st
Defendant incorporated Aspher Contracting Limited after the first judgment had been
obtained and that Aspher engaged in the same type of business as the 3rd Defendant
and no viable reason was advanced as to why this second company was formed.
34. One year after its formation, annual returns were filed on behalf of Aspher
Contracting Limited but no returns were filed for the 3rd Defendant and the Court
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found that the 1st Defendant’s explanation that two different set of accountants were
preparing the different returns was unconvincing and unduly convenient.
35. The circumstances engendered in the Court the feeling that a deliberate attempt and
decision was taken after the first judgment to discontinue the operations of the 3rd
Defendant and to transfer all business operations to Aspher.
36. Several bank accounts for the 3rd Defendant for the years 2008, 2009, and 2011 were
placed before the Court however, no statements for 2010 were produced.
37. The 3rd Defendant’s account with Scotia Bank painted a picture of the company being
in overdraft. There were pleaded references and documentation in relation to further
payments that were made on the first judgment and the issue of a compromise of the
said judgment was also raised. This Court paid little regard to this aspect of the
evidence and found that the documents contained hearsay evidence and the issues in
relation to same were not issues which could be properly determined by this Court on
the facts of the instant matter.
38. During his cross examination, the 1st Defendant was taken through the various bank
statements and it was revealed that sums were used from the 3rd Defendant’s account
to pay the 1st Defendants personal expenses, some of which included foreign travel
expenses, mortgage payments, credit card bills and insurance policies.
39. The 1st Defendant was the only signatory to the said accounts but he claimed he could
not recall or give an account in relation to several of the withdrawals. The Court
found it strange that the witness was able to recall some of the small withdrawals but
could not recall the reasons for the larger withdrawals. He was also unable to explain
what the withdrawals that were labeled as ‘loan payments’ were in relation to.
40. The Court noted that on the 7th August, 2009 over $428,000.00 was deposited into the
3rd Defendant’s account and on the same day over $398,000.00 was withdrawn.
Several drafts were purchased, a bank transfer was done and two loan payments were
made. The 1st Defendant was unable to advance any proper explanation as to why
such a substantial amount was withdrawn from the 3rd Defendant’s account and he
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simply said “well you have to pay your bills”. Counsel questioned him as to whether
the movement of $398,742.00 from the 3rd Defendant’s account was consistent with
the operation of small business and he responded that the withdrawal was not by one
cheque and that he had to pay out to the creditors.
41. There was also a transfer of $45,000 to account No. 7061561514 and the witness gave
no information as to why this was done or to whom the said account belonged and no
documentary evidence or explanation was advanced to support his claims that funds
were withdrawn to pay creditors.
42. The statements also revealed a deposit in excess of $400,000.00 on the 11th
September 2009 and on the said day withdrawals in excess of $400,000.00 were also
made and most of these withdrawals were by way of draft purchases. Pursuant to an
order of the Court dated 26th May 2015, the bank supplied particulars of the drafts
purchased on the 11th September and the information provided was as follows:
i. Kishore Singh - $20,000.00
ii. West & Associates - $40,000.00
iii. A1 Auto Supplies - $5,000.00
iv. U&T Electrical - $5,000.00
v. Keston Mc Clatchie - $30,000.00
vi. D Jones - $10,000.00
vii. N Persad - $70,000.00
viii. S Mohammed - $24,000.00
ix. Ashram Persad - $150,000.00
43. Although this information was available to the 1st Defendant his witness statement
made no reference to same and no explanation as to why the various drafts were
prepared was ever advanced.
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44. There was extensive cross-examination as to why the draft for $150,000.00 was made
to him and the 1st Defendant said that it was a reimbursement by the company. The
following is a portion of the cross examination and the responses issued:
Ashram Persad: You are aware I paid Rennie Gosine some
money. I paid Rennie Gosine money. We are a
small business and you put money in the
business and take it out when it has it. It is a
small operation.
Claimant’s Attorney: Mr. Persad, let’s get it clear, are you saying
that the $70,000.00 cheque that you paid to
Rennie Gosine, are you saying that this is what
you took back now in this cheque to yourself of
$150,000.00 on the 11th September, 2009? Is
that what you are saying?
Ashram Persad: I can’t remember the exact date but whatever
date it was.... money was reimbursed for when I
made that payment, whenever it was reimbursed.
Claimant’s Attorney: Mr. Persad, I would like you to look at
paragraph 32 of your Witness Statement. Page
417 please, Volume 2 of the Trial Bundle. Page
471. Paragraph 32 of your Witness Statement.
It says “Further, I provided the funds for the
two cheques to Mr. Rennie Gosine referred to
at paragraph 20 above. The Third Defendant is
to repay these sums to me.” Mr Persad, Let me
re-read that last sentence; “The Third
defendant is to repay these sums to me”. That
means that as at 15th May, 2015, the Third
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Defendant Company still has these sums
outstanding to you. Isn’t that so? A cheque that
you paid in August 2010 and again I think in
September, 2011, February, 2011...... still has
to be repaid....isn’t that what that sentence is
saying?
45. The $70,000.00 paid on account of the first judgment was paid on the 24th February,
2011 and therefore could not have been a reimbursement on account of same as the
said withdrawal was made prior to 2011.
46. Based on the evidence, the Court formed the unshakable view that the 1st Defendant
unilaterally treated with the 3rd Defendant’s funds as his own, he was the controlling
mind of the 3rd Defendant and exercised sole control over the 3rd Defendant’s funds
which were used for his own benefit and it is more probable that the 3rd Defendant
acted for and on behalf of, and was the agent of, the 1st Defendant.
47. The evidence also revealed that NIS payments for the 3rd Defendant were not made in
a timely fashion and lump sum payments were only made after Court proceedings had
been instituted.
48. Section 99 of the Companies Act Chap. 81:01 (hereinafter referred to as “the Act”)
that:
“(i) Every director and officer of a company shall in exercising his powers and
discharging his duties-
a. act honestly and in good faith with a view to the best interests of the
company; and
b. exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
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(ii)Under Section 151 (1) Companies Act the Directors are obligated to place
at every annual shareholders meeting financial statements for the last year of
operation.
49. Section 151(1) of the Act states:
“Subject to this section and to section 152, the directors of a company
shall place before the shareholders at every annual meeting of the
shareholders of the company-
(a) comparative financial statements, as prescribed, relating
separately to-
a. the period that began on the date the company came into
existence and ended not more than twelve months after
that date or, if the company has completed a financial
year, the period that began immediately after the end of
the last period for which financial statements were
prepared and ended not more than twelve months after the
beginning of that period; and
b. the immediately preceding financial year,
(b) the report of the auditor, if any: and
(c) any further information respecting the financial position of the
company and the results of its operations required by the
articles of the company, its Bye-laws, or any unanimous
shareholder agreement and any information required to be
reported under section 93(6).”
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50. Under Section 154 (i) of the Act the Directors are required to approve these financial
statements.
51. Under Section 155 (i) of the Act more than 21 days before the Annual Meeting a
copy of the financial statements are to be sent to each shareholder.
52. In the instant matter no Annual returns were filed from 2008-2012 for the 3rd
Defendant in apparent breach of Section 151, Section 154 and Section 155 of the
Companies Act.
53. Section 36 of the National Insurance Act Chapter 32:01 provides that:
“There is hereby established a system of compulsory national
insurance under which subject to subsection (2) employed persons
registered or eligible to be registered under Part II shall be
insured under this Act in respect of the several contingencies in
relation to which benefits are provided under section 46(1) and
there shall be payable to or in respect of such persons in the
prescribed circumstances, any benefit so payable.”
54. Section 37 of the National Insurance Act states that:
“(1) Every employed person and every unpaid apprentice
shall be insured in the manner provided by this Act and
the Regulations against personal injury caused on or after
the appointed day by accident arising out of and in the
course of that person’s employment and there shall be
payable in the prescribed circumstances to or in respect of
every such person the type of benefit (hereinafter called
“employment Injury benefit”) specified in section 46(3).”
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55. Section 38 of the National Insurance Act states:-
“(1) Subject to section 37 and tables A1, A2, A3, A4, A5, A6,
A7 and A 8 of the Second Schedule, contributions payable in
respect of an employed person who has attained the age of
sixteen years but has not yet attained the age of sixty-five years,
shall be paid partly by that employed person and partly by his
employer.
(2) Payment of contribution in respect of an employed person
referred to in subsection (1) shall be effected by his employer
who shall deduct from the earnings of the employed person at
the time that payment of such earnings is made, a sum equal in
amount to the part of the contribution payable by the employed
person.
(3) Where an employer fails to make a deduction in accordance
with subsection (2), he shall not make that deduction at any
time thereafter and shall be liable to the Board for the total
outstanding sum.
(4) Section 39B of the National Insurance Act states:-
a. Where any employer fails to pay the amount of contributions
payable by him the Board under the provisions of this Act by
the fifteenth day after the due date, he shall be liable to pay;-
b. a penalty of twenty-five per cent of the outstanding sum; or
c. penalty of one hundred per cent of the outstanding sum, where
the period for which the contributions were retained, in excess
of five years; and
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d. interest on the entire sum (penalty and outstanding sum at the
rate of fifteen per cent per annum from the sixteenth day of the
following month until payment.”
56. Section 356 (i) of the Companies Act states that:-
“A company is deemed to be unable to pay its debts if :-
(a) a creditor, by assignment or otherwise, to whom the company
is indebted in a sum exceeding five thousand dollars then due,
has served on the company, by leaving it at the registered office
of the company, a demand under his hand or under the hand of
his agent lawfully authorised requiring the company to pay the
sum so due, and the company has for three weeks thereafter
neglected to pay the sum, or to secure or compound for it to the
reasonable satisfaction of the creditor;
(b) execution or other process issued on a judgment decree or any
Court in favour of a creditor of the company is returned
unsatisfied in whole or in part; or
(c) it is proved to the satisfaction of the Court that the company is
unable to pay its debts, and in determining whether a company
is unable to pay its debts, the court shall take into account the
contingent and prospective liabilities of the company.”
57. The evidence reveals that the 1st and 2nd Defendants failed to act in the 3rd
Defendant’s best interest and NIS payments were not made as statutorily required and
significant penalties and interest would have been incurred. They also acted in breach
of sections 151, 154 and 155 of the Companies Act by failing to ensure that the
annual returns were filed within the specified time periods.
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58. In the Claimant’s judgment action, the 1st Defendant gave evidence and was fully
aware of the terms of the judgment given by the Court; however no steps were taken
by or on behalf of the 3rd Defendant to pay any portion of the sums awarded to the
Claimant.
59. The evidence established that the only asset held by the 3rd Defendant is the TBY
truck. The Claimant’s judgment action was filed after the formation of Aspher but
the injury to the Claimant was occasioned prior to Aspher’s existence. The evidence
established that prior to the formation of Aspher the 3rd Defendant was doing well and
the 1st Defendant, it appears, acquired considerable real estate. It is rather strange that
after the first judgment and subsequent to the formation of Aspher that the 3rd
Defendant seemed to virtually stop engaging in commercial activity. The Court does
not think that this was an unfortunate coincidence especially given the seemingly
unprecedented level of commercial activity and construction that occurred after 2010.
It also does not appear that the 1st Defendant experienced any financial detriment
after Aspher was formed. On the evidence the Court formed the view that the 1st
Defendant deliberately shifted business operations away from the 3rd Defendant and
started operating Aspher after the first claim was made and the vehicle of
incorporation was conveniently used by the 1st Defendant to shield his personal assets
from possible claims.
60. In Creasey v Breachwood Motors Limited (1992) BCC 638, the Plaintiff ‘C’
worked for a company called Welwyn. Another company called Motors carried on a
similar business. Both companies were owned and controlled by the same
shareholders, ‘F’ and ‘S’. ‘C’ issued a writ claiming damages for wrongful dismissal
against Welwyn. Welwyn ceased trading and the next day Motors took over its
business. It paid Welwyn’s creditors but made no allowance for C’s claim. It was held
that Motors should be treated as liable for Welwyn’s liability to C. In the course of
his judgment the Learned Richard Southwell QC said this with regard to the conduct
of the shareholders F and S at page 648 letters A-D:
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“Nothing I have seen in the evidence could justify their
conduct in deliberately shifting Welwyn’s assets and business
into Motors in total disregard of their duties as directors and
shareholders, not least their duties created by parliament as a
protection of all creditors of a company.
Welwyn was not put into liquidation. As a subsisting company
it was entitled to retain its business and assets, so that they
might be available to pay a dividend, however small, to such
of Welwyn’s creditors as motors decided not to pay.
Mr Ford and Mr. Seaman decided instead to remove the
business and assets of Welwyn to motors, and, realising that
the business could not be carried on satisfactorily unless
Welwyn’s trade creditors were paid, paid all their actual
creditors, but left Mr. Creasey facing a Defendant without
assets. They did so in the full knowledge of Mr. Creasey’s
claim.
On the state of evidence before me the inference could readily
be drawn that one of the reasons why Mr Ford and Mr
Seaman acted in the way they did was in order to ensure that
Mr Creasey if he succeeded in his claim would not be able to
recover anything. But I consider that it would be wrong to
draw so strongly adverse an inference at this stage on only the
affidavit evidence.
In all the circumstances, however, this is a case in which the
court would be justified in lifting the veil and treating Motors
as liable for this remaining liability of Welwyn.”
61. In Trustor AB v Smallbone and Others [2001] 1 W.L.R 1177 the First Defendant S
was the Managing Director of the Claimant Company and the Claimant Company sort
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to pierce the corporate veil of the Second Defendant so as to find that that the Second
Defendant I LTD was really the nominee of the First Defendant.
62. Sir Andrew Morritt V.C at paragraph 3 and 7 stated that:-
“3. Without having obtained the approval of the board, on 18 June 1997 Lord
Moyne and Mr. Smallbone opened an account for Trustor with Barclays Bank plc,
cheapside and procured the transfer to the credit of that account of moneys of
Trustor amounting to SKr 779m. The only signatories to that account were Lord
Moyne and Mr. Smallbone. Between mid-June and early November 1997 SKr
486m (£38.88m) was paid out of that account on the signatures of Lord Moyne
and Mr. Smallbone without reference to Trustor or its other directors. The
recipients included Mr. Smallbone (£33,334.34) and Introcom (SKr 166.7m,
£404, 100 and FMK 75.5m). Of the sums received by Introcom SKr 43,335 and
£327,509 were applied for the benefit of Mr Smallbone in payments to his wife
and Cove investments Ltd, a company incorporated in the Turks and Caicos
Islands and controlled by Mr Smallbone.
7. Rimer J made a number of findings to which I should refer. First, he found that
Introcom was controlled by a Liechtenstein trust called the Lindsay Smallbone is
a beneficiary. He considered that the directors of Introcom were nominee acting
on the instructions of Mr Smallbone so that Introcom could be regarded as Mr.
Smallbone’s company and his knowledge could be treated as Introcom’s
knowledge. Second, he found that the payments into and out of the Trustor
account at Barclays, Cheapside and the account of Introcom at the same bank
and branch were by Mr Smallbone or on his instructions without the authority of
trustor. Third, he concluded that Introcom was simply a vehicle Mr. Smallbone
used for receiving money from Trustor and that the payments to Introcom
‘were unauthorised and involved an inexcusable breach of his duty as managing
director of Trustor’. fourth, he rejected a submission of Mr. Smallbone to the
effect that the payments to Introcom were justified by an agreement dated 8
August 1997. Fifth, in the light of those conclusions he found that ‘the payments
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to Introcom were unauthorised and improper ones, being payments to Mr
Smallbone’s own company which was then going to and did devote itself to
further unauthorised and improper dissipations of the money.”
63. In conclusion the Learned Judge said at paragraph 24 and 25:-
“24. Thus it is established that Introcom was and is controlled by Mr Smallbone,
the payments from the Trustor account with Barclays, Cheapside to the account of
Introcom at Barclays, Cheapside were affected by Mr Smallbone or on his
instructions.
25. … Introcom was a device or facade in that it was used as the vehicle for the
receipt of the money of Trustor. Its use was improper as it was the means by
which Mr Smallbone committed unauthorised and inexcusable breaches of his
duty as a director of Trustor.”
64. On the facts of the instant case, the Court finds that the 3rd Defendant was really the
alter ego of the 1st Defendant. The 1st Defendant called the shots, he determined the
nature and direction adopted by the 3rd Defendant and unilaterally used the funds of
the 3rd Defendant for purposes not associated with its legitimate business. There were
also breaches of the duties and responsibilities that fell upon him as a director.
Further, the evidence suggests that the 1st Defendant made a conscious decision to
transfer business away from the 3rd Defendant by forming Aspher Contracting
Limited after the judgment in the first claim was obtained and the Court is of the view
that it is highly probable that the objective was to effectively cease the operations of
the 3rd Defendant. The 1st Defendant directed, determined and controlled the
activities of the 3rd Defendant and the vehicle of the corporate structure was used so
as to evade the liabilities that fell by virtue of the judgment obtained in the first claim
and to insulate the 1st Defendant’s assets from that or any other claim that arose in
relation to the operation of his business endeavors under the cover of the 3rd
Defendant.
Page 28 of 29
65. The protection of incorporation was not designed to enable persons to incorporate
companies so as to escape liabilities by incorporating and/or transferring business
operations from one to another. Neither could there have been the intention to
completely institute the financial assets of individuals who form companies and who
solely direct the course of the said business in furtherance of their own objectives and
who benefit solely from the profits generated by the said activity nor should
protection be given where the said individual is effectively, the company. The
intention of incorporation was never to shield “smart men” or to enable shareholders
to manipulate the corporate structure to ensure that profits generated from
commercial activity could be put out of the reach of creditors by ensuring that same is
withdrawn from the company and placed in the hands of the shareholders, thereby
leaving the company without any tangible assets. The protection of incorporation
should be afforded only when the company complies with the provisions of the
Company’s Act and its actions are undertaken in the best interest of the company and
the shareholders or owners act as agents for the company and not vice versa. There
seemingly is a regrettable tendency in this jurisdiction for persons to believe that they
can form companies for their unilateral benefit, solely enjoy the profits generated by
the company and leave the said company cash stripped so that judgments cannot be
enforced. Such a circumstance has to be condemned, and will not be condoned by
this Court.
66. In the circumstances, this Court is prepared to pierce the corporate veil as it is
convinced that special circumstances exist which indicate that the 3rd Defendant was
and is a mere façade that operated as the alter ego of the 1st Defendant. The Court
finds that the 3rd Defendant was used as a vehicle by the 1st Defendant so as to
insulate him personally from claims. The Court found on the evidence that the
conduct of the affairs of the 3rd Defendant was arbitrary and ad hoc and the 3rd
Defendant was merely a puppet and the 1st Defendant operated as the puppet master.
67. There is no evidence before the Court to suggest that the 3rd Defendant was however
the alter ego of the 2nd Defendant.
Page 29 of 29
68. In the circumstances the Court finds as a fact that the 3rd Defendant has not paid the
judgment owed to the Claimant. The 1st Defendant by virtue of his formation of and
conduct of business under Aspher created a circumstance where the 3rd Defendant no
longer had viable assets and was unable to discharge its obligations as the Claimant.
The Court is firmly of the view that it is inherently probable that the 1st Defendant
formed Aspher Contracting Limited to carry out or take over the business of the 3rd
Defendant and that at all material times the 3rd Defendant was effectively a sham
company that was used and controlled by the 1st Defendant and which operated as the
agent of the 1st Defendant.
69. Accordingly the Court hereby declares and orders as follows:
e. It is declared that the 1st Defendant was and is the alter personality and
controlling mind of the 3rd Defendant and the 1st Defendant is therefore liable
for the sums due to the Claimant under High Court action CV2011-04978.
f. The parties shall be heard on the issue of costs.
……………………………………..
FRANK SEEPERSAD
JUDGE
