Veil of Incorporation Torn: When Courts Unmask Corporate Wrongdoing

CASE TITLE: DILLY MOTORS LTD V. NUJUUM VENTURES LTD & ORS LPELR-81603 (CA)
JUDGMENT DATE: 27TH JUNE, 2025
JUSTICES: BALKISU BELLO ALIYU, J.C.A.
ADEBUKUNOLA ADEOTI IBIRONKE BANJOKO, J.C.A.
OKON EFRETI ABANG, J.C.A.
DIVISION: ABUJA
PRACTICE AREA: COMPANY LAW

FACTS:

This appeal borders on lifting the veil of incorporation of a company.

This appeal is against part of the judgment of the High Court of the Federal Capital Territory sitting at Abuja, (trial Court) delivered on 27th October 2016 by Hon. Justice A.O. Otaluka.

The Respondents purchased 10 brand new vehicles from the Appellant, namely, 1 unit of a 2014 Toyota Prado VX-L, 6 units of Toyota Camry 2.4s and 3 units of 2014 Toyota Prado TX-Ls at fully discounted offered and accepted prices, summing up to N 107,500,000.00, payable within three months from delivery, i.e. by the 30th of March 2014. The 2nd Respondent issued 10 GTB postdated cheques in the sum of N107,500,000 to be drawn on the 30th of March, 2014. The Appellant claimed that it was reluctant to accept the postdated cheques payment from the 2nd Respondent, who then offered it a Credit Bond Insurance from one International Energy Insurance (IEA) Plc with the name of the 1st Respondent as holder of the policy. The Appellant delivered the vehicles to the Respondents at the 1st Respondent’s premises, and the supplies were received by them, as evidenced by delivery notes. The Appellant, upon presentation of the postdated GTB cheques, the bank refused to accept them on the grounds of being “NUBAN- Invalid. The International Energy Insurance also declined to pay the sum covered in the insurance bond on the ground that the insurance bond had expired before the date of payment, i.e., 30th March 2014. The Appellant later found that the purported insurance bond expired on the 29th of March 2014, while the Respondents’ payment window was still open and when their postdated cheques were still not matured for presentation for payment. They asserted that the Respondents neglected to renew the insurance bond and refused to pay for the vehicles delivered to them, despite repeated demands. Hence, the Appellant commenced this suit before the trial Court.  The Respondents (as the defendants) filed a notice of Intention to defend the suit. Upon consideration of the affidavit in support of notice of intention, the trial Court transferred the case to the general cause list and directed the parties to exchange pleadings. The Appellant filed a statement of claim, to which the Respondents responded with a statement of defence, followed by a reply from the Appellant.

In its judgment, the learnt trial judge found and held that the contract was tainted with fraud perpetrated by the Respondents and entered judgment in favor of the Appellant. The Appellant felt aggrieved by the judgment of the trial Court, hence, this appeal.

ISSUES FOR DETERMINATION:

The Court determined the appeal on these issues, thus:

1. Whether the Learned trial Judge, having found that the subject matter contract was tainted with fraud, was right not to have lifted the 1st Respondent’s veil of incorporation and hold the 2nd – 6th Respondents directors jointly liable with the 1st Respondent for the claim?

2. Whether the lower Court right to hold that Appellant did not rightly proceed against the 2nd-6th respondents under Section 282(2) of the Companies and Allied Matters Act?

COUNSEL SUBMISSIONS:

The Appellant’s learned counsel referred to the holding of the trial Court in page 170 of the record that the 2nd to 6th Respondents can only be held personally liable “in the special circumstance where the veil of incorporation of the company has been lifted”, and he submitted that, in fact, such special circumstances were amply present in this case since the trial Court made a finding that there was fraud. That there was no reason why the trial Court did not lift the corporate veil of the 1st Respondent to make the 2nd to 6th Respondents personally liable, especially in view of PW1’s unchallenged evidence, which showed that firstly, the 2nd to 6th Respondents authorized the credit purchase contract. Secondly, they requested a credit window of three months, to expire on March 30, 2014, on which basis they issued 10 postdated cheques from GTB, which turned out to be duplicate cheques. Thirdly, when the Appellant was reluctant to accept the postdated cheques from the Respondents, they offered further comfort by providing a credit bond insurance, which turned out to be a fraud because it expired on the 29th March 2014, whereas their obligations to pay for the supplied vehicles matured on the 30th March 2014. He argued that since the learned trial Judge found fraud, the law requires it to lift the corporate veil of the 1st Respondent and hold the 2nd to 6th Respondents, being the founders and the directors of the 1st Respondent, personally liable for perpetuating fraud in the name of the company against the Appellant. On the reliance of the trial Court on the case of FAIRLINE PHARMACEUTICAL IND. LTD & ANOR. VS. TRUST ADJUSTMENT NIG. LTD (2012) LPELR-20860 (C.A.), he submitted that the corporate personality of an incorporated company has always been clear, and the holding of this Court in the cited case (supra) is the general principle of law. However, it is trite law that where a contract entered on behalf of a company is found to be fraudulent, the Court will fierce the corporate veil and hold the directors who perpetrated the fraud personally liable. He relied on several cases, including MEZU VS. COOPERATIVE & COMMERCE BANK (NIG.) PLC (2013) 3 NWLR (PT. 1340) 188 and VILBEKO NIG. LTD VS. NIGERIAN DEPOSIT INSURANCE CORPORATION (2006). 12 NWLR (PT. 994) 280 at 295 F-K, BOLTON ENGINEERING CO. LTD VS. TJ. GRAHAM & SONS LTD (1956) 3 ALL E.R. 624, AKINWUNMI ALADE VS ALIC NIGERIA LTD & ANOR (2010) 19 NWLR (PT. 1226) 111 and ADEYEMI VS LAN & BAKER (2000) 7 NWLR (PT. 663) 33 @ 51 D-E to the effect that where fraud is established, the Courts are empowered to disregard the separate legal personality of a company and hold the directors personally liable. He further submitted that the law will not permit directors of a company to hide behind the cloak of incorporation when they knowingly participated in fraud. The Appellant urged this Court to lift the corporate veil of the 1st Respondent and hold the 2nd – 6th Respondents jointly and personally liable for the judgment sum, on the basis that they used the 1st Respondent’s corporate structure as an instrument to perpetrate fraud against the Appellant.

DECISION/HELD:

In the final analysis, the appeal was allowed.

RATIO:

COMPANY LAW- LIFTING THE VEIL OF INCORPORATION: Circumstances in which the veil of incorporation will be lifted

“The gravamen of the complaint in the said issues is against the learned trial Judge’s reliance on the case of FAIRLINE PHARMACEUTICAL INDUSTRIES LTD & ANOR. VS. TRUST ADJUSTERS NIG. LTD (supra) on the principle of law that directors and officers of an incorporated company act as agents of the company; as such, they are not personally liable for a breach of contract entered in the name of the company. However, as rightly argued by the Appellant, the holding of this Court on the authority of the cited case represents the general proposition of the law regarding the corporate personality of an incorporated company being a legal entity that is distinct and separate from its directors or officers. This is a well-known principle of law. However, like in all general propositions of law, there are certain exceptions where the Courts have lifted the veil of incorporation when necessary, in the interest of justice, where, for instance, a crime or a fraud is committed in the name of the company. This is called the doctrine of lifting the veil of incorporation, which over the years has been applied to do justice where necessary. The Apex Court in the case of BUREAU OF PUBLIC ENTERPRISES (B.P.E.) VS. B. F. I, GROUP CORPORATION (2025) 2 NWLR (PT. 1976) 371 at 400-401, para. B-E per ABUBAKAR, JSC held thus: Indeed, the concept of corporate personality, which in law recognises a company upon incorporation or a statutory body upon establishment as an artificial body separate and distinct from its members or officers, is not absolute…. The corporate personality concept, therefore, under expressed statutory provisions and as well as under the common law does not in all cases shield the person who seeks its use, most especially for fraudulent purposes or, as in this case, to be used as an instrument to perpetrate acts of disobedience of lawful Court orders…” (Underlining provided). Similarly, the Apex Court in an earlier case of AKINWUNMI O. ALADE VS. ALIC (NIG.) LTD & ANOR. (2010) 19 NWLR (PT, 1226) 111 at 142 per MUNTAKA COOMASSIE, JSC, further explained when the veil of incorporation of a company can be pierced to hold the directing minds of the company liable for acts of a company that: It must be stated unequivocally that this Court, as the last Court of the land, will not allow a party to use its company as a cover to dupe, cheat and or defraud an innocent citizen who entered into a contract with the company, only to be confronted with the defence of the company’s legal entity as distinct from its directors. Most companies in this country are owned and managed solely by an individual. Such companies are nothing more than one-man businesses. Hence, the tendency is there to enter into a contract in such a company’s name and later turn around to claim that he was not a party to the agreement since the company is a legal entity…. Fraud is certainly a ground upon which the veil of a company may be lifted in order to hold its directors personally liable…. See also the cases of MEZU VS COOPERATIVE & COMMERCE BANK (NIGERIA) PLC (supra), VILBEKO (NIG) LTD VS NIGERIAN DEPOSIT INSURANCE CORPORATION (supra), AKINWUNMI ALADE VS. ALIC NIGERIA LTD & ANOR (supra) and others cited by the Appellant’s learned counsel, OBOH V. N.F.L LTD (2022) 5 NWLR (PT.1823)283, ROWAYE VS. FRN & ORS (2018) NWLR (PT, 1650) 21 (C.A.) ACB LTD & ORS. VS. APUGO (1995) LPELR-14195 at 24-25, para, F (C.A) and several others on the doctrine of lifting of the veil of incorporation where necessary. Therefore, the judicial consensus is that where the name of a company is used to perpetrate a crime or a fraud, etc., the veil of incorporation must be lifted to see the persons hiding behind it to perpetrate the act and to hold them personally liable. It is trite that the law will never allow a statute of incorporation, or any other statute, to be used as an engine to commit fraud or an illegality.” PER BALKISU BELLO ALIYU, J.C.A.

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