Civil Trial
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:
(i) 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 pp310G-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 Rule 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
p215F-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 Rule 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 Rules 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 Rule 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.
(ii)
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
1.8L to 2L. 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 100,000kms 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
238-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,
LCB 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 BT50 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 BT50
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) SA 210 (D). At pp222-3 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 p23.”
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) SA 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 assess 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 BT50 as it
is the vehicle nearest to the Ford Ranger 1.8L 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 1.8L from South Africa.
The Mazda BT50I 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 BT50 I.
In the premises I will order as
follows:
IT IS HEREBY ORDERED:
1.
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.
2.
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
1.
Salomon v Salomon & Co. Ltd [1887] A.C. 22
2.
Tamarillo (Pty) Ltd v B N Aitken (Pty) Ltd 1982 (1) SA 398
