This is an application for a declaratory order.
This court is invited to declare that Cosira Communications Global (first respondent) and Cosira South Africa (Pty) Ltd (second respondent) which was previously known as Cosira International (SA) (Pty) Ltd are one and the same entity.
To make such declaration, this court is asked to lift the veil of corporate personality on the grounds that such corporate personality has been used as a device to cover up fraud or improper conduct.
It is contended, on behalf of the applicant, that although the first and second respondents have distinct and separate legal personas, they are in fact one economic entity.
The first and second respondents strenuously resist the order sought and argue that there is no factual or legal basis for an order that the liabilities of one corporate entity be deemed to be liabilities of another.
The first and second respondents aver that the order sought is not legally competent and that where the corporate veil is lifted the court must effectively look behind the corporate veil to establish the shareholders of the corporate entity and then attach such liability to them.
The respondents pray that the application be dismissed for lack of merit.
Background
The facts that are common cause are these:
In November 2012, Intro-wise Catering (Pvt) Ltd (applicant) entered into a contract with Cosira South Africa (Pty) Ltd (second respondent) in terms whereof the applicant was to provide catering, housekeeping, and laundry services to Cosira South Africa (Pty) Ltd (the 2nd respondent) at the mining site of Zimbabwe Platinum Mines (Pvt) Ltd (third respondent).
The said agreement was to run continuously from November 2012 until termination by either party giving the appropriate notice in accordance with the agreement.
As a result of the agreement, the applicant supplied catering, housekeeping, and laundry services to the second respondent up to May 2013.
Invoices were raised regularly and a balance of US$155,144=22 remained outstanding for the period up to the end of May 2013.
It was the belief and understanding of the parties that the applicant was being sub-contracted to provide service to a company which had a running contract with Zimbabwe Platinum Mines (Pvt) Ltd (third respondent).
It later transpired that it was Cosira Communications Global (the first respondent), instead, that had a running contract with Zimbabwe Platinum Mines (Pvt) Ltd.
It was established that Cosira South Africa (Pty) Ltd (second respondent) never had any contract with Zimbabwe Platinum Mines (Pvt) Ltd at all.
It is Cosira Communications Global (the first respondent) that had a contract with Zimbabwe Platinum Mines (Pvt) Ltd and it is Cosira Communications Global which consumed the services which were provided by the applicant.
The applicant argues that Cosira Communications Global and Cosira South Africa (Pty) Ltd (first and second respondents) were aware, at all material times, that it was only Cosira Communications Global (first respondent) and not Cosira South Africa (Pty) Ltd (second respondent) which had a contractual relationship with Zimbabwe Platinum Mines (Pvt) Ltd.
Cosira South Africa (Pty) Ltd (second respondent) has tendered into court authenticated documents which reflect, that, on the 10th July 2013, Cosira South Africa (Pty) Ltd was placed under provisional liquidation by order of the North Gauteng High Court, sitting at Pretoria, South Africa.
Cosira South Africa (Pty) Ltd (second respondent) was placed under final liquidation on the 27th August 2013.
An order of the High Court of South Africa was issued on the 30th July 2013, authorizing the liquidators to sue on behalf of, and to defend proceedings against, Cosira South Africa (Pty) Ltd (second respondent).
Cosira South Africa (Pty) Ltd's liquidators dispute liability of the outstanding amount and further state that the applicant has failed to make out a case for the piercing of the corporate veil as Cosira Communications Global and Cosira South Africa (Pty) Ltd are separate legal personalities....,.
The applicant argues that the application is not opposed by Cosira Communications Global (first respondent) and Zimbabwe Platinum Mines (Pvt) Ltd (third respondent). The only opposition before the court is on behalf of Cosira South Africa (Pty) Ltd (second respondent)....,.
The Merits
I shall deal with the merits of this matter.
In order to establish whether the applicant has succeeded in making a case for the piercing of the corporate veil I need to have regard to the following issues:
(a) Whether Cosira South Africa (Pty) Ltd and Cosira Communications Global have the same shareholding;
(b) Whether Cosira South Africa (Pty) Ltd and/or Cosira Communications Global used their company structures to avoid or conceal liabilities due to the applicant;
(c) Whether Cosira South Africa (Pty) Ltd or Cosira Communications Global was used as a device of facade to conceal some wrongdoing in terms of the contract concluded with the applicant;
(d) Whether Cosira South Africa (Pty) Ltd acted fraudulently or dishonestly in relation to the applicant;
(e) Whether there is any compelling reason as to why the corporate veil between Cosira South Africa (Pty) Ltd and Cosira Communications Global should be pierced.
I now propose to deal with the above issues ad seriatim:
(a) Whether Cosira South Africa (Pty) Ltd and Cosira Communications Global have the same shareholding
The two companies, Cosira South Africa (Pty) Ltd and Cosira Communications Global enjoy the legal personalities conferred upon them by the law.
Cosira South Africa (Pty) Ltd is a company with limited liability incorporated in South Africa. Its shareholder is FT Construction (Pty) Ltd.
On the other hand, Cosira Communications Global is an entity incorporated in Mauritus. The shareholder of this company is JOAO DA NOVA.
It is therefore clear that the shareholders of the two companies are not the same.
The applicant realised this undisputed fact and sought to argue that the two entities fall within the same economic group known as the Cosira Group of companies.
This may be so, but there is nothing to establish that the shareholding of the two separate entities is held by the same personas.
(b) Whether Cosira South Africa (Pty) Ltd and/or Cosira Communications Global used their company structures to avoid or conceal liabilities due to the Applicant
The applicant's case is premised on the fact, that, although it concluded a contract with Cosira South Africa (Pty) Ltd to provide catering services, it actually contracted with Cosira Global.
The applicant clearly has a dilemma in that the evidence clearly points to the fact that the contractual arrangement was entered into between the applicant and Cosira South Africa (Pty) Ltd.
The fact that some of the invoices raised by the applicant were settled by Cosira Global does not, in my view, necessarily create a contractual relationship between the applicant and Cosira Global.
The fact that Cosira South Africa (Pty) Ltd may not now be in a position to pay for the services rendered by the applicant does not create any legal or contractual obligation on Cosira Global.
(c) Whether Cosira South Africa (Pty) Ltd or Cosira Communications Global was used as a device or facade to conceal some wrongdoing
There is simply no evidence to prove that Cosira South Africa (Pty) Ltd was used as a device to conceal some wrong doing.
My view is that it is up to contracting parties to perform due diligence exercises with the companies or entities they do business with. When a company makes a free expression to contract with another legal entity it is imperative for the contracting parties to establish who exactly they are contracting with.
In the fast changing world, where contracts can be concluded via the internet and other electronic media, it is, in my view, essential that the contracting parties make themselves familiar with the real personas behind these companies.
The applicant categorically states, that, in or about 1 November 2012 it concluded a contract with Cosira South Africa (Pty) Ltd to provide catering services.
A copy of the Intro-wise Catering contract (“the contract”) is annexed to the applicant's papers as annexure “GG 7”.
The contract is not signed by Cosira South Africa (Pty) Ltd. Cosira South Africa (Pty) Ltd is not a party to that contract.
The contract was in fact signed by Cosira Construction Solutions, with its address at Brakpan, Johannesburg, South Africa, on behalf of Cosira South Africa (Pty) Ltd.
I am satisfied that there is nothing to suggest that Cosira Global was used as a device to conceal some wrongdoing.
(d) Whether Cosira South Africa (Pty) Ltd acted fraudulently or dishonestly in relation to the Applicant
The applicant contends that the two legal entities acted in connivance to defraud it.
Whilst payments for services were effected by either Cosira South Africa (Pty) Ltd or Cosira Global there is no justification to infer fraud or improper conduct. It would seem that the applicant was happy to receive and accept payment as long it was getting paid. It did not matter who was making such payment. The only problem arose when payments ceased. It would seem that is the stage when the applicant sought to establish who exactly was behind the two legal entities.
As I have stated above, fraud or improper conduct cannot be proved in this matter.
(e) Whether there is any compelling reason as to why the corporate veil should be pierced between Cosira South Africa (Pty) Ltd and Cosira Communications Global
Where the piercing of the corporate veil is sought, the court is invited to look at the two separate companies and their shareholders or controllers. The corporate veil is lifted where a company, otherwise legitimately established and operated, is misused in a particular instance to perpetrate fraud or for a dishonest or improper purpose.
The principles governing the piercing of the corporate veil were established and set out in the landmark case of Salomon v Salomon and Company Ltd [1897] AC 22.
The effect of the ruling in this case was to uphold, firmly, the doctrine of corporate personality as set out in the United Kingdom's Companies Act, 1862, so that creditors of an insolvent company could not sue the company's shareholders to pay outstanding debts.
In the decades since Salomon v Salomon and Company Ltd [1897] AC 22, various exceptional circumstances have been delineated, both by legislatures and the judiciary, in England and other jurisdictions, when courts can legitimately disregard a company's separate legal personality, such as where crime or fraud has been committed.
See the case of Adams v Cape Industries PLL [1990] Ch 433.
The other recent English case of Prest v Petrodel Resources Ltd [2013] UKSC 34 is significant in that it proposes that the piercing of the corporate veil was usually a last resort, and that remedies outside of “piercing” the veil, particularly in equity, or the law of tort, could achieve appropriate results on the facts of each case.
In the South African case of Cape Pacific v Lubner Controlling Investments (Pty) Ltd and Others 1995 (4) SA 790, SMALBERGER JA states…, as follows:
“It is undoubtedly a salutary principle that our courts should not lightly disregard a company's separate personality, but should strive to give effect to and uphold it. To do otherwise would negate or undermine the policy and principles that underpin the concept of separate corporate personality and the legal consequences that attach to it. But, where fraud, dishonesty, or improper conduct is found to be present, other considerations would come into play. The need to preserve the separate corporate identity would, in such circumstances, have to be balanced against policy considerations which arise in favour of piercing the corporate veil.”
On the facts of this matter, it is clear that the shareholders of Cosira South Africa (Pty) Ltd and Cosira Communications Global are different.
No evidence has been placed before the court to show that the two legal entities used their structures to avoid or conceal liabilities due to the applicant.
Additionally, it has not been shown that Cosira South Africa (Pty) Ltd was used as a device or facade to conceal some wrongdoing in terms of the contract with the applicant.
I am satisfied that it is not been proved that either Cosira South Africa (Pty) Ltd or Cosira Communications Global acted fraudulently or dishonestly. There is, therefore, no compelling reason why the corporate veil should be lifted.
In the circumstances, I come to the conclusion that a case has not been made for the relief sought.
The application is hereby dismissed with costs.
