Caneland Limited v Dolphin Holdings Limited (Civil Case 1135 of 2000)

The Kenyan High Court considered whether shares held in a bank by a wholly owned subsidiary company of a judgment debtor could be attached in order to settle a judgment debt payable by the judgment debtor. Caneland Limited (the judgment creditor) claimed that shares in Delphis Bank Limited were beneficially held by Dolphin Holdings Limited (the judgment debtor), through its subsidiary company, Dolphin Investments Limited.
Caneland argued that being Dolphin Investment's parent company, Dolphin Holdings was the ultimate beneficiary of the shares in the bank and therefore the court should allow the shares to be attached.

Dolphin Holdings cited and relied on Lord Macnaghten’s statement in the English law case of Salomon v Salomon & Co (1897) AC 22, wherein it was contended that a “…company is at law a different person altogether from its subscribers...and, though 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."

In this particular case, the Kenyan High Court confirmed that the separation of a company and its members has never been in doubt, but that each case must be examined individually to determine whether, in the particular circumstances, the corporate veil ought to be pierced. The court relied on cases such as The Roberta (1937) 58 Ll L Rep 159 and Bird & Co v Thomas Cook & Son [1937] 2 All ER 227, and ruled that Dolphin Investments was a "separate entity in name alone" and probably for "other" purposes. The court further confirmed that it would refuse to permit the logic of the principle laid down in Salomon v Salomon to apply "where it is too flagrantly opposed to justice and will disregard the principle of corporate personality if justice warrants it".

Moreover, the court maintained that "equity will not permit a statute, or indeed the law, to be a cloak for fraud", and that the corporate veil should be pierced in this case, as it would otherwise allow a debtor "to hide behind the cloak of corporate identity to avoid meeting its legal obligations".

There is no doubt that the existence of fraud is recognized as one of the main circumstances in which the corporate veil should be pierced. However, the ruling failed to address the issue of fraud and which facts constituting fraud were relied upon in the case. The Caneland case appears to involve a simple non-payment of a judgment debt. If the Kenyan courts decide to follow this controversial decision, this could result in subsidiaries being sued for monies owed by parent companies (and vice versa) and therefore leading to the inevitable erosion of the basic principle that a company is a separate legal entity