GOWORA J: At the commencement of the trial, the
plaintiff sought an amendment to its claim by the deletion of the amounts of
fourteen billion eight hundred million and six hundred and sixty six billion
dollars and their substitution with the amounts of US$ twenty two thousand five
hundred and sixty dollars and one million fifteen thousand four hundred and
seventy dollars respectively, the first amount being the replacement cost of
one vehicle and the second amount being the global sum for forty five brand new
trucks. I granted the application to amend in the face of opposition from Mr Kamudefwere and indicated that I would
furnish my reasons together with the reasons for judgment.
The law is abundantly clear on
the question of amendments to pleadings, and the court has a very wide
discretion not only in regard to the scope of the amendment but also with
regard to the time when an amendment can be applied for. In the exercise of its
discretion the court will generally be guided by the principle that such
amendment should not be seen to cause prejudice to the other litigant which
cannot be cured by an order of costs necessitated by the need to further
postpone the matter. Invariably, therefore courts have been liberal in allowing
amendment of pleadings, and it is trite that pleadings can be amended at any
time before judgment is issued. It is also a general rule that the courts will
grant an amendment to pleadings unless the application to amend is mala fide.
Mr Kamudefwere opposed the granting of the amendment on two fronts.
The first contention was that the amendment had been brought by way of a notice
of amendment which was not in the form of an application and therefore the form
adopted was inadequate. It was his submission that failing consent, an
amendment can only be made on notice. For this contention I was referred to ZFC v Taylor 1999 (1) ZLR 308. At pp 310G-311B
GILLESPIE J had this to say:
“Failing consent then it is
necessary to make application either to court or a judge in chambers, depending
upon the criteria set out in r 226. The application must be served upon the
opposing party; be supported by affidavit showing good cause; and must be
accompanied by a draft order. Only once an order has been given can process or
a pleading be considered to be amended, and only after its amendment is the
amended document susceptible of response by way of pleading or requests for
particularity. A “notice of amendment” such as I have earlier described is not
provided for in the rules and it is an irregular pleading”.
I have not been referred to any
other authority where the manner of applying for an amendment to pleadings has
been discussed. The only other authority that I have come across is UDC v Shamva Flora (Pvt) Ltd 2000 (2) ZLR 210 (H), in which
CHINHENGO J commented as follows at p 215F-G:
“… Quite correctly, they allow
for an amendment to be effected by consent of the parties to the proceedings
and, where the parties have not agreed, application for leave to amend is
provided for. I do not think our rules go far enough. A party may object to an
amendment without giving the matter any serious thought. There is no provision
in our rules to compel the objecting party to at least apply its mind to the
application to amend. Its mere objection, whether unwarranted or otherwise, is
the trigger for the application to be made to the court. The reasons for
objecting are then given in the affidavits which must be filed with the court.
I think we will do well to emulate the procedure in South African courts. There
it is possible to amend a pleading without the necessity of obtaining the leave
of the court.”
I believe that generally the
procedure for the amendment of pleadings is as stated by their Lordships in the
two authorities that I have referred to above. An application has to be made to
court for the amendment to be granted and application procedure is governed by
r 226 which requires that “all applications made for whatever purpose in terms
of these rules or any other law, other than applications made orally during the
course of a hearing, shall be made as a court application in writing to the
court on notice to all interested parties or as a chamber application in
writing to a judge. In relation to a chamber application, this is permissible
where the matter is urgent, the rules or any other enactment so provide or the
relief sought is procedural or the provisional order does not require interim
relief”.
I concur with the sentiments by
GILLESPIE J to the effect that an amendment made, other than by a written
application, is irregular. This view is bolstered by an examination of rr 132,
134 and 151. Rule 132 which itself permits the amendment of pleadings does not
specify the form that the application should take which in my view has led to
the confusion regarding the manner in which such amendments should be brought
to the court. The informality pertaining to such an application is presumed
when a court is given the discretion to allow an amendment at any stage of the
proceedings. The rules in South African courts have set out the steps that
precede an application to amend pleadings which is made to the court and as
CHINHENGO J stated we would be better placed in this jurisdiction if we
emulated those rules as they leave no room for doubt or ambiguity as to the
form and manner of filing such application.
In casu, the application was triggered by a 'Notice to Amend' filed by
the plaintiff on 5 February 2010. In May 2010 the plaintiff had filed another 'Notice
to Amend' the claim. The defendants had not responded to either, the professed
intent to oppose only being made orally when the plaintiff moved for the
amendment at the start of the trial. Whilst the defendants did not consent to
the proposed amendments they also did not indicate a lack of consent on their
part. It is also worthy to note that these courts entertain such applications
and consider them on the basis of the informal applications that are routinely
filed by applicants without taking issue with the form adopted, which may well
be the reason why GILLESPIE J found it necessary to spell out the proper
procedure for the filing of such applications. I accept that the procedure
adopted was irregular, but I am unable to find that it was defective warranting
my refusal to grant the application due to want of form. I am further persuaded
in this view by the fact that the defendants had ample notice of the intent on
the part of the plaintiff to move for an amendment to the claim and decided for
reasons best known to themselves not to indicate their opposition to such a
move. I believe therefore that they have not been taken by surprise and would
have been fully prepared to oppose the application due to the lengthy notice
they had. Finally, the rules of this court under r 4C grant this court the
discretion to depart from the rules in an appropriate case. This in my view is
one such case, and I repeat the oft quoted clause that the rules are made for
the court and not vice versa. There has been no prejudice occasioned to them
and indeed Mr Kamudefwere never
raised the issue of prejudice.
Mr Kamudefwere also submitted that the amendment sought to have an
assessment of contractual damages assessed at the date of judgment. He
contended that the governing principle was that contractual damages had to be
assessed as at the date when performance was due and not as at the date of
judgment. Mr Dondo, per contra,
submitted that a pleading can be amended at any time even up to appeal stage
provided that certain requirements have been met.
In UDC v Shamva Flora P/L (supra) CHINHENGO J set out the guiding
principles as follows:
1.
The
court has a discretion whether to grant or refuse an amendment;
2.
an
amendment cannot be granted for the mere asking; some explanation must be offered
therefore;
3.
The
applicant must show that prima facie
the amendment has something deserving of consideration, a triable issue
4.
The
modern tendency lies in favour of granting the amendment if such facilitates
the proper ventilation of the dispute between the parties;
5.
The
party seeking the amendment must not be mala
fide;
6.
It
must not cause an injustice to the other side which cannot be compensated by
costs;
7.
The
amendment should not be refused simply to punish the applicant for neglect;
8.
A
mere loss of time is no reason, in itself, to refuse the application; and
9.
If
the amendment is not sought timeously, some reason should be given,
Courts of superior
and inherent jurisdiction, both here and in South Africa have adopted a liberal
approach wherein an amendment to pleadings will be allowed where the amendment
will not cause prejudice which cannot be cured without an award of costs or
unless the court is of the view that the application is mala fide. It must be
noted that the overriding consideration in the consideration of an amendment to
pleadings is so that the parties are in so far as is possible able to place all
the issues in contention between them before the court and enable the court to
ventilate all aspects of the dispute between the parties. Courts have emphasized
as well that pleadings are made for the court and not the court for pleadings
thus granting themselves the very wide discretionary powers that they exercise
when granting amendments. I must also accept that an amendment cannot be had
for the mere asking.
In casu, the application is meant to change
the amount being claimed from Zimbabwe
dollars to United States
dollars. Can this court say that the application is mala fide? The view I take is that it cannot nor can this court
determine at the stage of application for an amendment whether or not the
purported claim in United
States dollars would be available to the
plaintiff for breach of the contract. Mr Kamudefwere
is correct when he suggests that generally the court will award damages
assessed as at the date that the performance would have been due, that is as at
the date of breach. However, the question of nominalization is an issue that
would be determined after the parties would have presented their respective
cases to court. It was not appropriate, in my view, that I consider that issue
before the parties had ventilated the issues relating to the dispute between
them. It seems to me that the defendants have not opposed the granting of the amendment on any of the time
worn principles governing the granting or refusal of applications to amend
pleadings. The reasons that were advanced in opposing the relief were
themselves not supported by relevant authorities. I saw no prejudice that would
be occasioned to the defendants if the amendment was allowed and in the event
the parties were ready to proceed to trial and did so. It was for these reasons
that I granted the application. I turn now to the determination of the matter
on the merits.
The plaintiff in this matter is a
commercial bank which is primarily involved in lending to persons both
corporate and individuals, engaged in agricultural pursuits. It is a statutory
corporation. In 2006 it flighted an invitation for the tender of supply of
trucks of an engine capacity ranging from 1.8 to 2.litres. The invitation to
tender, the tender by the first defendant and the contract itself were the main
documents produced before me by the parties. The invitation is dated 2 November
2006 and calls upon established companies to urgently tender for the supply and
delivery of brand new trucks within the range of 1.8 L to 2 L. Certain other
specifications not germane to this dispute are listed. The invitation then
spells out information that is 'mandatory' to enable the plaintiff to make a
concrete acceptance of the quotation and contract decision. Firstly, it is
stated that prices quoted shall be in Zimbabwe dollars, which price shall
be fixed during the bidder's performance of the contract and not subject to any
variation of any account. The invitation also spelt out that a bid submitted
with an adjustable price condition would be treated as non responsive and would
be rejected. Prices were required to be inclusive of value added tax. The
invitation to tender also required the company profile of the bidder as well as
a list of major clients and contactable references. Added to this was the
requirement of payment schedules, delivery and fallback position should
delivery not be effected as anticipated. Other stipulated requirements are not
germane to this dispute and will consequently not be referred to.
The first defendant was amongst
the companies that responded to the tender.
After an adjudication process it was decided to award the tender to the
first defendant and a contract for the supply of the vehicles was concluded
between the parties. Two days after the signing of the contract the plaintiff
paid an amount in excess of $1.8 billion Zimbabwe dollars into a current
account operated by the first respondent with a commercial bank. The contract
provided for specific dates for delivery of the vehicles to the plaintiff. Needless
to say the delivery schedule stated in the delivery clause was not adhered to
as the defendant defaulted, and in fact it has not made any delivery up to
today necessitating the plaintiff issuing summons for relief from this court.
In its summons, the plaintiff
prays for the delivery of the vehicles in question or, in the alternative, for
payment of the value of the vehicles as at the time of judgment. The second and
third defendants are husband and wife and the only directors of the first
defendant. The plaintiff has prayed, as against the two, for an order lifting
the corporate veil and for judgment against them jointly and severally with the
first defendant, on the basis that they cannot be divorced from the
latter.
At the pretrial conference three issues were
extracted for trial. I will therefore dispose of the dispute on the basis of
those issues.
The first issue for trial was whether the
agreement made and entered into by and between the parties was conditional upon
the first defendant obtaining foreign currency from the Reserve Bank of Zimbabwe.
It is pertinent therefore in resolving this issue to examine the contract
documents and other documents have a bearing on the relationship between the
parties. The tender bid document from the first defendant focused on the Ford
Ranger 1800 STD. A brief description of the vehicle is given, which description
is on the physical features of the vehicle not its mechanical capacity. The quoted
price is Z$37 500 000-00 per unit with a total price of Z$1 687 500 000-00 for
the forty five vehicles. The quotation confirms that the price is inclusive of
Value Added Tax.
A
warranty is given for three years or 100 000 kms whichever comes first. The
first respondent also confirmed an ability to supply and deliver at a
stipulated time. There were no indications of conditions that required to be
met before delivery could be effected. Next, the first defendant provides, in
the tender document, a list of vehicles and motor cycles, that are presumably
available. There is no caption with the list to state whether these are readily
available or whether the first defendant is able to easily source the same.
Pictures of the vehicles and motor cycles together with specifications are
provided in detail. Included in the tender documents is a letter written by the
second defendant. The letter, written on 27 November 2006 opens with the
sentence:
“We, the undersigned, hereby
tender and should this letter be accepted in whole or part, undertake to supply
Motor Vehicles as per the requirement of the tender, and in conformity with the
Fund's General Conditions of Tender, and the specifications, the articles
described or referred to in this document or such said articles as may be
ordered by the Fund in, consideration of the prices as Nickstate Investments
(Pvt) Ltd are concerned.”
The contract was then concluded
on the basis of these documents. Clause 3 of the contract is in the following
terms:
It is agreed that the seller sells forty five (45) brand new Ford
Ranger, pick up trucks. (the emphasis is mine)
It is further agreed that the
pick up trucks shall comply with the following specifications
i)
they shall be long wheel base
ii)
the engine capacity shall be 1.800 litres
Clause
4 provides that “the vehicles are bought
with the following accessories on each one of them” and a list of the
accessories is then provided. (my emphasis)
Clause
5 of the contract reads:
“The
purchase price of the vehicles is the sum of (Z$1,687,500,000-00) (One billion
six hundred and eighty seven million, five hundred thousand Zimbabwe dollars) based on a unit
price of ZW$37,500,000-00 (thirty seven million five hundred thousand).”
Clause
7 reads as follows:
“It
is agreed that the price referred to in clause 5 above is fixed and not subject
to any variation whatsoever.'
Delivery
is covered in clause 9 which is in the following terms:
“The
motor vehicles shall be delivered to the customer's premises that is to say,
Hurudza House No 14-16 Nelson Mandela Avenue, Harare duly registered in two
batches as follows:
i)
15
(fifteen ) vehicles by 31 January 2007
ii)
30
(thirty) vehicles by 28 February 2007”
In its declaration the plaintiff
alleged that the first defendant had breached the terms of the agreement and
that despite being paid in full for the vehicles the first defendant had failed
to deliver any of the vehicles and further, that, despite numerous requests by
the plaintiff, the first defendant had failed and or neglected to deliver the
said vehicles. In response to this averment, the defendants had denied that
they had failed neglected or refused to deliver and that the plaintiff was
aware that the defendants had applied to the Reserve Bank for the allocation of
foreign currency. It was further averred by the defendants that the allocation
was approved on 9 February 2007 but the bank did not have the required foreign
currency to avail to the defendants to fulfill the terms of the contract.
The contract concluded by the
parties does not make mention of the need for the defendants to source for
foreign currency to purchase the vehicles. This is accepted by the defendants.
Their contention however, is that the fact that the vehicles had to be imported
should be presumed and it did not need to be written down. It was contended
that the vehicles could not be purchased in Zimbabwe dollars and payment had to
be made in a currency acceptable to the manufacturer and it is precisely
because the defendants had to import the vehicles that they had approached the
Reserve Bank for the allocation of foreign currency. Although accepting that
the written contract was never varied in writing, it is suggested by the
defendants that the parties communicated through correspondence which clearly
established that there was an understanding between the parties that the
defendants needed to source funds through the Reserve Bank of Zimbabwe in order
to import the vehicles to be delivered to the plaintiff by the first defendant.
The defendants produced to court a
number of letters written by the second defendant explaining or seeking to
explain the delay in delivery of the vehicles. The first letter is dated 29
January 2007 which was a mere two days before the date scheduled for the delivery
of the first batch and the explanation given for the anticipated delay in
delivery is the late approval of the allocation of foreign currency. An
assurance is given in the letter that everything was under control. The second
letter dated 15 February 2007 again speaks of the delays in obtaining foreign
currency allocation (approval?). The writer goes further to state that
arrangements had been made for the first batch of fifteen vehicles to be in the
country by 28 February 2007. It was stated further that the supplier had refused
to accept an advance payment that had been arranged due to the fact that it had
come from a bank in South
Africa. The last sentence in the letter is
to the effect that correspondence from the Reserve Bank was being attached and
the defendants were vigorously pushing for payment and the vehicles would be
released 'soon'. Attached to the letter in question was a Reserve Bank approval
for the defendants to pay for the vehicles through their bank. There was no
allocation of funds on the certificate produced.
The letters addressed to the
plaintiff were not responded to. The plaintiff's witness Mrs Chinodya explained
that when the defendants started coming up with excuses on the delivery of the
vehicles they were requested to put their explanations in writing. The witness
told the court that the position of the plaintiff was that the contract was for
the supply and delivery of vehicles and not for the importation of the same.
The plaintiff was hopeful that the endevours by the defendants would succeed
but when the contract was concluded it was never a term of the contract that
the defendants would require an allocation of foreign currency from the Reserve
Bank of Zimbabwe
in order for them to perform their obligations on the contract. The contract
was never varied a position accepted by the defendants. I was unable to accept
the contention by Mr Kamudefwere that
the fact that the vehicles would be imported was presumed and it did not need
to be written in the contract. He did not cite any authority for this submission
and I am not persuaded that this is a correct principle of the law of contract.
Apart from the letters written by
the second defendant after the contract was concluded I have not seen any
evidence pointing to a condition that the defendants had to obtain foreign
currency from the Reserve Bank of Zimbabwe in order to comply with
their obligations under the agreement. The plaintiff's witness Mrs Chinodya
emphasized that what was concluded was in fact an agreement of sale of the
stated number of vehicles and that tenders were invited for supply of the
vehicles in the local currency. She was adamant that any tenders that were
quoted in foreign currency were turned down. She also said that the issue of
the need for foreign currency arose after the first defendant failed to meet
the delivery dates and in her view it was nothing but an excuse. I find no
reason to doubt the veracity of her evidence and on this issue I find for the
plaintiff. Her evidence was given in a straight forward manner and she made a better
impression on the court than did the second defendant who was very evasive and
unwilling to answer difficult questions under cross examination. Overall
looking at the evidence of the two witnesses against the backdrop of the
documents which preceded the contract and the contract itself, it is my view
that the contract was not conditional upon the first defendant being allocated
foreign currency by the Reserve Bank as pleaded by the defendants. I find that
therefore that performance by the defendants was not conditional upon obtaining
foreign currency from Reserve Bank.
The first defendant was incorporated as
a company in 2006 and commenced operations in full in 2007. When the contract,
which is the subject matter of this dispute, was concluded the first defendant
had been operational for just a year. The second and third defendants, who are
husband and wife are the only directors of the first defendant and the second
defendant indicated to the court that he is, in fact, the alter ego of the first defendant. The plaintiff averred in its
declaration that the second and third defendants, where the contract with the
plaintiff was concerned, had, instead of ensuring that due compliance by the
first defendant of its obligations to the plaintiff, wrongfully, unlawfully and
fraudulently diverted funds paid by the plaintiff in terms of the agreement for
their own purposes.
Mr Kamudefwere, in his submissions at the close of the trial did not
seek to address the question of whether or not the corporate veil should be
lifted as prayed for by the plaintiff. He in fact conceded that the second
defendant was the alter ego of the
first defendant. He did not mention the third defendant. Per contra, it is contended by Mr Dondo that the shares in the company are all owned by the second
and third defendants and that therefore judgment should be entered against all
the defendants jointly and severally.
It is a fundamental and trite
principle of law that a registered company is a legal persona in its own right and endowed with its own separate legal persona which is distinct from its
shareholders. It is
also settled law that in certain exceptional circumstances where the company is
controlled in terms of activities and decisions by another person the courts
have allowed the corporate veil to be lifted to reveal the real person behind
the company. I will respectfully refer to a passage by MARGO J in Gering v Gering & Anor 1974 (3) S.A. 358 at 361 where the learned judge
stated:
“There are three companies, apart
from Lauren Lyn (Pty) Ltd, in which the first defendant has a 100 per cent
interest in the shareholding. It is true that, in the case of these companies,
their records are not stricto sensu
in the possession, custody or control of the first defendant in his personal capacity.
However, on the facts, these companies are his creatures and his instruments.
He is conducting business through them, or holding assets through them, and,
they are separate juristic personalities, they are in substance merely part of
the machinery by which he alone conducts his business affairs.”
In certain cases courts have gone
as far as stating that a company is the agent of the controlling shareholder.
In the English case of Wallersteiner
v Moir (No 1) (1974) 3 All ER 217
(CA) LORD DENNING had this to say at 238a-c:
“I am prepared to accept that the
English concerns-those governed by English company law or its counterparts in Nassau or Nigeria
– were distinct legal entities. I am not so sure about the Liechtenstein
concerns such as Rothschild Trust, the Cellpa Trust or Stawa AG. There was no
evidence before us of Liechtenstein law. I
will assume too, that they were distinct legal entities, similar to an English
limited company. Even so, I am quite clear that they were just the puppets of
Doctor Wallersteiner. He controlled their every movement. Each danced to his
bidding. He pulled the strings. No one else got within reach of them.
Transformed into legal language they were his agents to do as he commanded. He
was the principal behind them. I am of the opinion that the court should pull
aside the corporate veil and treat these concerns as his creatures-for whose
doings he should be and is responsible. At any rate, it was up to him to show
that any one else had a say in their affairs and he never did so…”
I have been urged by the
plaintiff's counsel to enter judgment against all three defendants jointly and
severally. This is however despite a concession from counsel that the third
defendant played a minimal role in the affairs of the first defendant. The
extent of her shareholding in the company was not established in evidence. I
did not hear Mr Kamudefwere argue
against the lifting of the corporate veil.
The second defendant was candid
enough to admit that he was the alter ego of the first defendant. The evidence
of the extent of personal control of the company on his part could not be
disputed. He controlled its finances. He personally responded to the offer to
tender from the plaintiff. He attended the meetings with the representatives of
the plaintiff to decide the terms and conditions of the contract. He signed the
contract for the supply of the vehicles to the plaintiff. He wrote every single letter that was
addressed to the plaintiff regarding the contract. He personally made
commitments to assist the plaintiff in disposing of the Ford trucks at a good
price when they would have been delivered in an effort to persuade the
plaintiff into purchasing alternative vehicles from Willowvale Motor Industries
because the first defendant had not delivered in terms of the contract. More
telling however, is the manner in which the money deposited into the first
defendant's bank was treated by him. If I accept the contention by him that a
billion dollars was deposited into an investment account of the company to
secure the value of the deposit. Although he was quizzed on the whereabouts of
the billion dollars the second defendant was unable to state how much was in
the investment account, his response being that he would have to check with the
bank.
It is not in dispute that the second defendant
drew cheques in his personal name against the account into which the purchase
price paid by the plaintiff was deposited. It is further not in dispute that
within a week from the date of such money being deposited almost the entire
amount had been consumed. When the purchase price was deposited the account
held an amount $177,107,578-64. After the deposit the balance shot to
$1,864,607,578-64. By 11 December 2006 the balance in the account stood at
$218,294,649-64. Of the amount withdrawn from the account $2,200,000-00 went
into the second respondent's account. The evidence adduced by the investigator
of the plaintiff was to the effect that the defendants purchased an immovable
property and a motor vehicle from the deposit. It cannot be gainsaid that the
entire amount has been consumed but the vehicles have not been purchased.
The first defendant itself has no
assets and it is obvious from an examination of the transactions on the bank
account that it is the vehicle through which the second defendant mobilized
funds with which to enhance his estate. The two million odd dollars that he
paid himself soon after the plaintiff deposited money into the business account
of the second defendant cannot be justified. The second defendant was unable to
explain why this money had been paid to him. It is worth noting that in the
summary of evidence filed on behalf of the defendants that the contention is
made that there is nothing prohibiting the first defendant from accessing or
investing any money paid into the business account. It is also not disputed
that an amount of $180 million was used from the account to pay for a property
in Marlborough,
although it is contended that the purchase of the property had been planned
well before the plaintiff paid any money into the account. The point is made
that the $180 million constitutes the 10 per cent deposit that the defendants
had paid to the plaintiff in terms of the contract.
It is very obvious that the
second defendant did not differentiate between himself and the company and he
felt clearly that whatever was in the account of the company belonged to him to
deal with as he pleased. In fact he admitted that the company was solely his
and his counsel described the company as his alter ego. It is only appropriate
therefore that the corporate veil be lifted where he is concerned and that
whatever liability may found to attach to the company should also attach to the
second defendant.
The third defendant's position in
relation to the activities of the company is not so clear. She did not attend
and give evidence on her own accord despite the fact that an order was sought
against her jointly with the first and second defendants. The question
exercising my mind is whether or not the plaintiff is entitled to obtain an
order against her jointly with the other two. She is undoubtedly a shareholder,
although the extent of her shareholding in the first defendant has not been
stated. She chose not to enlighten the court. In its declaration the plaintiff
made the averment that the purchase price paid by it had been diverted by the
second and third defendants and used in purchasing luxury items such as
vehicles. Specific mention of an immovable property in Marlborough was made. The purchase was not
denied nor was it denied that it was purchased for the second and third
defendants. Apart from the issue of the properties purchased with the funds
belonging to the plaintiff there is no other reason advanced before me to
justifying my uplifting the corporate veil. Is this sufficient reason in the
absence of control on the part of a defendant?
The authorities from this
jurisdiction that I was referred to do not touch on this aspect of the dispute
and in my research I was able to find a South African case which may assist me
in determining whether or not the corporate veil should also be lifted in
relation to third defendant. I wish to quote, with respect a few excepts from the judgment of LE ROUX J in Lategan & Anor NNO v Boyes & Anor 1980 (4) S.A. 191. At
200E-F the learned judge stated:
“In his admirable work, Modern Company Law, LC B Gower devotes a
full chapter [Chap 10] to the subject
'Lifting the Veil'(3ed at 189-217). He deals with it as exceptions to the
principle of Saloman v Saloman & Co 1897 AC 22 (HL, which
finally enshrined the sanctity of a separate corporate personality distinct
from its members”.
And
at 200H-201C he stated:
“I was also referred to an
interesting article in the Tydskrif vir Heden-daagse Romeins Reg vol 30 (1967)
at 216 et seq by M L Benade, where the author pleads for a more realistic view
of corporate identity in South Africa to bring it in line with the 'positive'
approach of American courts, which may be summed up in the words of JUDGE SANBORNE in
US v Milwaukee Refrigerator Transit Co (1905) 42 Fed 247 at 255, where
he held that a company should be seen as an entity
'but when the notion of a legal
entity is used to defeat public convenience, justify wrong, protect fraud or
defend crime, the law will regard the corporation as an association'.
This approach appears to be in
line with that in modern England
(as sketched by Gower (supra)) and is based on common sense and a developed
sense of equity. An excellent example is afforded by the case of Gilford Motor
Co v Horne 1933 Ch 935 (CA) where the defendant, who was a former employee of
the plaintiff, had contracted with the latter not to approach its customers. He
promptly formed a company and it proceeded to contravene the contract. The
court interdicted both the defendant and the company which it described as a
device with a stratagem, a mere cloak and a sham, which it considered an
instrument in the defendant's hands.”
And further on at 210F-H the
learned judge concluded;
“A true precedent for this principle
does exist in our case law, namely the case of Orkin Bros Ltd v Bell 1921 TPD 92, where the directors of
a company were held personally liable to a seller who sold goods to a company
at the instance of its directors when they knew the company to be insolvent
circumstances and completely unable to pay for the purchase and it appeared
that the sole purpose of the transaction was to diminish the personal liability
of the directors under a contract of suretyship. This was held to constitute a
fraud on the seller and he obtained judgment against the directors personally.
I have no doubt that our courts
would brush aside the veil of corporate identity time and again where
fraudulent use was made of the fiction of legal personality. In the present
case however, there is no evidence that the second defendant fraudulently
failed to mention the position of the sureties …”
The authorities are agreed that
where there has been fraudulent or improper use of a company a court is
entitled to disregard the separate corporate personality of a company and
pierce the veil. The first defendant herein was the vehicle through which the
second and third defendants acquired property to enhance their estate. The two
are husband and wife and although the title of the immovable property was not
produced to court there was no denial from the defendants to the allegations in
the declaration that the plaintiff's purchase price had been used to buy luxury
items for themselves. The improper use of the money paid towards the purchase
of the vehicles is evident from the manner in which the account was virtually
depleted within a week of almost the entire sum. No reasonable explanation was
forthcoming from the second defendant and the third defendant offered no
explanation at all. An allegation of fraud is serious and it would have been in
the interests of all the defendants if the third defendant had come to court to
try and dispel the accusations by the plaintiff on the alleged use of the
money. I can therefore only go by the bank account submitted to the court which
showed improper usage of the money deposited by the plaintiff into the first
the defendant's bank account.
It would not be uncharitable to
describe the first defendant as a shell. It has no assets in its own name, this
much being admitted by the second defendant. It operates a bank account which
is at the sole disposal of the second defendant to deal with as he pleases. He
does as he pleases with money in the account, which apparently is the only
asset that could be said to be in the name of the company. But that said, even
the money does not remain long in the account as it utilized almost as soon as
it is credited to the account and such usage is not in the business of the
company but for the benefit of its shareholders. It does not have on its books
any of the vehicles it tendered to supply. It actually required payment in full
of the purchase price in advance from the plaintiff in order to source for the
vehicles and once that payment was made the second defendant dealt with it in a
manner that would result in enhancement of the estate of the second and third
defendants. This is an example of a fiction of separate corporate entity of a
registered company. The second and third defendants, in the manner in which
they make use of the first defendant might as well have described themselves as
a partnership as that is in effect what they are. The enterprise that is the
first defendant is a mere tool for their exclusive use. In my view the company
exists for the convenience of its shareholders. The fiction of a separate
corporate entity does not in fact exist in this case and it would only be just
and proper for me to order that the corporate veil be lifted and judgment
entered against all the defendants including the third defendant who is clearly
benefitting from the existence of the company. In my view the plaintiff has
therefore established a proper case for the lifting of the corporate veil in
relation to both the second and the third defendants.
I turn now to the substance of
the relief being prayed for. The plaintiff has claimed for specific performance
or in the alternative payment of the replacement cost or value of the vehicle.
It is trite that our law entitles a plaintiff to claim specific performance and
it is within the discretion of the court to decide whether or not the plaintiff
is on the facts of the matter before it entitled to an order for specific
performance. It is generally accepted that the court's discretion must be
exercised judicially upon a consideration of all the relevant facts.
Legally a seller has the
obligation to deliver the thing sold to the purchaser in a deliverable
condition. That they are obligated to do this has never been denied by the
defendants. It emerged in evidence that the vehicles which the parties had
contracted for had gone out of production. It was not in dispute that it was
possible for the manufacturer to supply the model but that it would be at a
higher cost than normal. In view of this development the defendants contended
that they were unable to comply with an order for specific performance due to
impossibility. Ordinarily, the onus to establish impossibility of performance
lies on the defendant.
The defendant must place facts before the court which may lead the court to
find that it is impossible for the defendant to perform its obligations in
terms of the contract. The defendants have not pleaded impossibility of
performance and in a plea filed on their behalf on 4 December 2007 they were
evincing a willingness to abide by the terms of the contract provided they were
allocated foreign currency by the Reserve Bank of Zimbabwe. Further to that, in a
summary of evidence filed more than a year later the defendants again aver that
they are willing to perform the contracts if the foreign currency is availed.
Yet in his evidence the second defendant claimed that he had informed the
plaintiff in letters written to the legal practitioners that the manufacturer
had discontinued the assembly of the model being pursued by the plaintiff. It
seems to me that the second defendant is not being candid with this court. It
turns out however that the plaintiff has established through independent means
that the vehicle is no longer in production and I have to accept the evidence
from the defendants that the model the parties had contracted for is no longer
in production. It is therefore quite obvious that the remedy of specific
performance is no longer available for the plaintiff the only possible remedy
now being an award of damages.
It now remains for me to
determine the question of damages. At the commencement of the trial I allowed
an amendment to the plaintiff's claim from one sounding in Zimbabwe dollars to one for United States dollars. The
plaintiff called one Israel Ukama to give evidence on the amount being sought
as damages. The witness told the court that he was employed as a manager with
Coppola Motors, a company involved in the purchase and sale of vehicles. The
company has been involved in that business from its incorporation in 1999. He
was referred to various invoices sent to the plaintiff by a number of
companies, including his own relating to prices of trucks available on the
market. He confirmed that the Ford Ranger 1.8 was no longer in production and
that it had been replaced by Ford Ranger 2.2 which had a bigger engine
capacity. He said that the nearest vehicle to the Ford Ranger 1.8 was the Mazda
BT 50 or the Ford Ranger 2.2 I single cab in terms of price and not engine
capacity, although these last two had the same engine capacity. The Mazda
however was a twin cab. He said that these were the cheapest vehicles on the
market. He was unable to give the specifics of the vehicles or technical
figures on the vehicles that he had quoted on and he said he could not as it
had not been suggested to him that he would have to do so. His evidence was
that the BT 50 was being sold at US$18 000-00 and the Ford Ranger 2.2 I at
US$20 000-00.
A plaintiff seeking payment of
damages must prove his damages. Where a plaintiff fails to prove his damages
the court may grant absolution from the instance in favour of the defendant.
However, where a plaintiff has led all the evidence it is within his power to
adduce then the court must assess the damages based on the evidence placed
before it as best as it can. The court can only consider this principle if the
plaintiff shows that he has suffered some damages and that only the quantum
remains in issue. See Bowman v Stanford 1950 (2) S.A. 210 (D). At pp
222-3 SELKE J commented:
“But to make such dicta into inflexible rules applicable
in every instance without regard to the circumstances of the parties in respect
of the availability of the evidence, or to the precise nature of the claim or
the particular injury or loss claimed for, would, it seems to me, result not
infrequently in injustice. There must be many types of claims due to breaches
of contract which do not admit, for various reasons, of strict or detailed
proof in terms of so much money. For example loss of business, especially in
relation to the future, cf. Bower v Sparks,
Young and Farmers' Meat Industries Ltd 1936 NPD 1, at p
23.”
It is generally accepted that
damages for breach of contract are to be calculated at the time when
performance was due because the import behind an award of contractual damages
is to place the plaintiff in the position he would have occupied had the
contract been fulfilled. The rationale for fixing the time of assessment to the
date when performance was due is to avoid the plaintiff or defendant being unfairly
favoured through the vagaries of prices of a fluctuating market. Even where the
seller repudiates the contract before the time fixed for delivery and the buyer
accepts the repudiation as an anticipatory breach, the buyer may elect to bring
an action for damages but prima facie, damages are still to be assessed
as at the date fixed for due performance.
This is however not the issue for
determination before me. The seller in casu
did not repudiate. The seller failed to deliver on the fixed date for delivery
but promised to deliver even after summons was issued. The buyer therefore has
an option to claim for an order for specific performance or for payment of
money (ad pecuniam solvendum) in pursuance of the contract. See Bray & Edwards v Rhedesia Consolidated Ltd 1911 SR 60.
When a purchaser claims for specific performance for the item contracted for, a
purchaser chooses not to crystallize his claim. By making this election the
purchaser has shown a willingness to treat the obligation by the seller to deliver
as still continuing and to it with the value it may have at the date of trial.
Where the court awards the purchaser specific performance with damages failing
delivery, the compensation is fixed in relation to the value of the item at the
date of trial. See Radiotronics (Pty) Ltd
v Scott Lindberg & Co Ltd 1951 (1) S.A. 312; Avery v Bowden (1856) 26
LJQB 3, 119 ER 1119.
It is clear that I cannot award
specific performance as the vehicles contracted for have been phased out from
production. Even the defendants finally conceded an inability to effect
delivery in terms of the contract. The only option is to award the plaintiff
damages representing the value of the vehicles that it purchased from the
defendants. As the vehicles are no longer on the market this is no easy task. I
will have to asses the damages on the evidence that has been placed before me.
The plaintiff has submitted that damages should be assessed based on the value
of the Mazda BT 50 as it is the vehicle nearest to the Ford Ranger 1.8 L in
terms of engine capacity. Indeed, the second defendant had suggested in a
letter to the plaintiff that it, the plaintiff purchases the vehicles as
alternative whilst the parties awaited delivery of the Ford Ranger 1.8 L from South Africa.
The Mazda BT 50I is valued at US$18 000-00 per unit and is readily available in
the country. It seems to me only fitting that I award damages to the plaintiff
based on the value of the Mazda. I will therefore issue an order for payment by
the defendant of damages equal to 45 Mazda BT 50 I. In the premises I will
order as follows:
IT
IS HEREBY ORDERED:
- The defendants be and are
hereby ordered, jointly and severally, the one paying the others to be
absolved, to pay to the plaintiff the sum of US$850 000-00 (US Eight
Hundred and Fifty Thousand Dollars) together with interest thereon at the
prescribed rate with effect from the date of judgment to the date of
payment in full.
- The defendants shall,
jointly and severally, the one paying the others to be absolved, pay the
plaintiff's costs of suit on the legal practitioner client scale as
provided for in the Law Society tariff for legal practitioners.
Chinamasa, Mudimu Dondo, plaintiff's
legal practitioners
Muringi Kamdefwere defendants' legal practitioners
