MALABA
DCJ: At the end of hearing argument for both
parties, the Court allowed the appeal with costs. It was indicated that the reasons for the decision would
follow in due course. These are they.
The appeal is from the decision of the High Court which
upheld a point in limine that the
appellant which was placed under liquidation in the course of proceedings had
no locus standi 'to continue' with proceedings
brought at its instance without the leave of the court.
The facts of the case are as follows. The appellant
entered into an agreement with Onclass Investments (Pvt) Ltd (hereinafter
referred to as 'the principal debtor') in December 2012, in terms of which it
lent and advanced monies on a credit facility to the principal debtor. The
respondents bound themselves as sureties and co-principal debtors under a
continuous surety with the principal debtor. They guaranteed to the appellant
that they would pay all amounts which may be due and owing to the appellant by
the principal debtor should the principal debtor fail to pay. The principal
debtor breached the agreement by failing to repay the amount lent and advanced
within the stipulated period in terms of their agreement. The principal debtor
was placed under provisional liquidation.
As a result of the principal
debtor's status the respondents were liable to repay the sum owed by the
principal debtor to the appellant in terms of the surety agreement. The appellant
demanded the payment of the money from the respondents. They refused to pay.
In 2013 the appellant issued
summons against the respondents in the High Court claiming the money lent and
advanced to the principal debtor together with interest. After summons was issued the respondents
entered an appearance to defend and filed a plea. In the plea they raised a
special plea of prescription and pleaded over. When the pleadings were closed
the parties held a Pre-trial Conference. Before the matter was set down for
trial and on 4 March 2015, the appellant was placed under liquidation. After
the appellant was placed under liquidation, the appellant's legal practitioners
filed with the registrar of the High Court a notice of change of status in
terms of r 85A(1) of the High Court Rules, 1971.
The matter was set down
for trial. The respondent's legal practitioner
wrote to the Registrar of the High Court saying that since the appellant was
under liquidation, the matter could not proceed to trial without the liquidator
getting the leave of the court to proceed with the proceedings. The letter was
copied to the appellant's legal practitioners, who in response requested the
Registrar not to remove the matter from the roll. On the date of trial the
respondents raised the preliminary point that the appellant had no locus standi 'to continue' with the
proceedings in the absence of the leave of the court. The respondents also
argued that the notice of change of status which was filed pursuant to r 85A of
the High Court Rules was improperly filed because that rule does not relate to
juristic persons.
The appellant opposed the
point in limine on a number of
grounds. Firstly, it was argued on its behalf that an objection to locus standi should have been raised as
a special plea in terms of r 137 and r 139 of the High Court Rules. The appellant
contended that it did not lose locus
standi. All that had changed was its
status. It was argued further that there
is no provision in the Companies Act [Cap.
24:03] barring the appellant from
continuing litigation against its debtors.
The appellant's argument was that the leave of the court is not required
when a company is placed under liquidation after the commencement of proceedings. It prayed for the dismissal of the point in limine.
The court a quo found in favour of the
respondents. It held that an objection to
locus standi can be raised without
following the special plea procedure where the issue arose during trial. The
court a quo held that the words 'to
bring' in s 221(2) of the Companies Act also mean 'to continue'. It came to
the conclusion that the appellant could not continue with the proceedings
against the respondents without the leave of the court. The matter was struck
off the roll.
The appeal is premised on the following grounds:
1.
The court a quo erred in relating to what was effectively a special plea in
circumstances in which it had been taken and argued contrary to the rules of
court.
2.
The court a quo erred in failing to come to the conclusion that the objection
taken on the liquidator's locus standi
was misplaced since the litigant before the court had not changed.
3.
The court a quo erred in concluding that a company placed under liquidation
after the commencement of proceedings instituted at its instance is required to
seek the leave of the court for the continuation of the proceedings.
The Court holds in
respect of the first ground of appeal that although the respondents could raise
the question of locus standi (if the question
arose at all) at any stage during the proceedings, they had to raise it in a
formal way by giving notice to the other party. On the second issue the Court holds
that the question of locus standi did
not arise in the circumstances of this case. It is the court's view that the
change of status of the appellant in the course of proceedings did not arise in
the relationship between the cause of action and the relief sought by the
appellant for it to lose locus standi.
On the last issue the court finds that
the court a quo misdirected itself in
interpreting s 221 of the Companies Act [Cap. 24:03]
to include the words “to continue”. The
following are the reasons for the court's decision.
Counsel for the appellant
argued that the issue of locus standi
being a special plea ought to have been be raised in terms of rule 137 of the
High Court Rules, 1971. There is no question that a special plea can be raised
after litis contestatio. In Western Assurance Co v Caldwell's Trustees 1918
AD 262 INNES CJ said that,
“… Voet (44, 1, 6) states that even dilatory
exceptions might be pleaded after litis contestio if they arose thereafter, or
having existed before, the defendant satisfied the court upon oath that they
had not previously come to his knowledge. Carpzovius (Part1, cons. 6, def. 6,
par. 4) is emphatically of the same opinion. All dilatory exceptions, he says,
have this in common that where they only originate after litis contestatio, or
where they only come to the notice of the defendant thereafter, then they may
be taken during the course of the case, upon proof under oath of that special
circumstances. That seems to me not only good law but sound law”
It is clear from
authority that even if a plea can be raised after litis contestatio, there must be proof under oath that the
exception did not come to the knowledge of the respondent before the time when
it is raised. In this case, the
respondents raised the plea of lack of locus
standi after litis contestatio
without complying with the High Court Rules on the manner in which special
pleas are raised. The appellant argued that since the respondents had not
complied with the rules, they should have applied for condonation for
non-compliance with the rules. The court a quo
dismissed the appellant's contention. It
held that since the plea arose after the Pre-Trial Conference r 137 and 139 on
the manner in which pleas ought to be raised did not apply. The court went
further to hold that there was no reason why the respondents should have sought
condonation. The court a quo held that the issue raised was a
question of law which could be raised at any time in the proceedings.
The Court is of the view
that the fact that the appellant was placed under liquidation after the
Pre-Trial Conference did not entitle the respondent to ignore the rules of the
court on the procedure for raising special pleas. The issue was raised in a letter between the
parties. Such correspondence would not constitute proper pleading. Pleadings are required to be raised in a
formal manner for the court to rely on them. The respondents did not properly plead a
special plea.
The fact that the issue of locus standi was a point of law which
could be taken at any stage in the proceedings could not assist the
respondents. Although it is trite that a
point of law can be raised at any stage during proceedings, that does not mean
that the point of law can be raised anyhow. In order for one to raise a point
of law validly at any stage, notice must be given to the other party of the
intention to raise the point. There must be a formal way of raising the point.
In this case, the issue was raised in correspondence between the parties. The
issue of locus standi was not
properly pleaded by the respondent. The court a quo erred in accepting the plea of lack of locus standi which was not properly raised.
Mr Matinenga argued in the court a quo that the appellant had no locus
standi
“to continue' with the proceedings in the
absence of the leave of the court. The court a quo understood the question to be whether the appellant had locus standi. During the hearing of the
appeal Mr Matinenga shifted ground
and argued that there was no issue of locus
standi before the court a quo as
the appellant company never lost locus
standi.
It is quite clear that the question of locus standi does not arise in the present
case for the following reason. The principle of locus standi is concerned with the relationship between the cause
of action and the relief sought. Once a party establishes that there is a cause
of action and that he/she is entitled to the relief sought, he or she has locus standi. The plaintiff or applicant
only has to show that he or she has direct and substantial interest in the
right which is the subject-matter of the cause of action. In the case of Ndlovu v Marufu HH-480-15, the court had the following to say concerning
the concept of locus standi:
“It
is trite that locus standi exists
when there is direct and substantial interest in the right which is the subject
matter of the litigation and the outcome thereof. A person who has locus standi has a right to sue which is derived from the legal
interest recognised by the law. In the
case of Stevenson v Minister of Local
Government and National Housing and Ors SC 38-02, the court in outlining locus standi in judio stated that in many cases the requisite interest or
special reason entitling a party to bring legal proceedings has been described
as “a real and substantial interest” or as a direct and substantial interest.”
In this case, it
is not in dispute that the appellant company had a cause of action against the
respondents relating to the money it lent and advanced to Onclass Investment
(Pvt) Ltd under a credit facility agreement.
The appellant had a direct interest in the relief sought and the
interest could not be lost by change of status. It could not be said that
appellant's right to claim the money was lost because it was placed under liquidation.
The appellant's entitlement to the relief was based on the surety ship
agreement which continued to be binding on the respondents. What was supposed
to be an issue before the court a quo
was whether or not the appellant, having been placed under liquidation, could
exercise its locus standi without the
leave of the court? A court does not
grant locus standi. Locus
standi is a matter of law. So the contention
that the leave of the court was required for the appellant to have locus standi was misplaced.
On the question of
whether the word 'to bring' in section 221(2) of the Companies Act means the
same as 'to continue', the Court holds that s 213 of the Companies Act is the relevant
provision for the determination of the issue. The respondents had originally relied on s
213, but later abandoned reliance on the section in the court a quo. They relied on s 221(2) of the Companies
Act which provides:
“The
liquidator shall have power, with the leave of the court or with the
authority mentioned in subsection (4) or in paragraph (a) of subsection (4) of
section two hundred and eighteen-
(a) to
bring or defend in the name and on behalf of the company
any action or other legal proceeding of a civil nature and, subject to any law
relating to criminal procedure, any criminal proceedings.”
According to the
respondents the purpose behind the company bearing the obligation to seek the
leave of the Court 'to continue' with the proceedings is the protection of the
company's assets. Mr Matinenga for
the respondent argued that one needs to look at the objectives of the winding
up of a company; the need for the appointment of a liquidator and what is
sought to be achieved by the whole liquidation process to appreciate the
importance of the requirement. He went further and said that it is not part of
the liquidator's function to dissipate the company's funds in speculative
litigation, thus the need for leave to continue with the proceedings of a
company placed under liquidation during proceedings.
The court was not
persuaded by Mr Matinenga's
submissions. Section 213 of the Companies Act provides as follows;
“In a winding up by
the court—
(a) no action or proceeding shall be
proceeded with or commenced against the company except by leave of the court
and subject to such terms as the court may impose;
(b) any attachment or execution put in
force against the assets of the company after the commencement of the winding
up shall be void;
(c) every disposition of the property,
including rights of action, of the company and every transfer of shares or
alteration in the status of its members, made after the commencement of the
winding up, shall, unless the court otherwise orders, be void.”
What
can be noted from the above section is that where the company is a defendant,
no action can be proceeded with or commenced against the company without leave
of the company. This section states that the only circumstance in which the leave
of the court is required 'to proceed' or 'to continue' with the proceeding is
where the company that fell under liquidation during the proceedings, is a
defendant/respondent. No mention of the words 'to continue' or 'to proceed' is
made in s 221(2) of the Companies Act in respect of a company that is a plaintiff/applicant.
Section 213 is differently worded from s 221(2) of the Companies Act which
relates to a situation where the company is a plaintiff/applicant.
On the principle of expressio
unius est exclusio alterius the fact that s 213 does
not mention that the leave of the court is required where the company is a
plaintiff or applicant means that the leave of the court is not required. The court is
of the view that had the legislature intended that the company which goes into
liquidation during court proceedings in which it is claiming money from its
debtors needs the leave of the court to continue with the proceedings, it would
have expressly provided for it. The fact that the legislature omitted the
requirement of the leave of the Court in s 213 means that the leave of the
court is not required where the company placed under liquidation during the
proceedings is the plaintiff or applicant.
It
is clear from the legal effect of liquidation addressed by section 213 that for
one to proceed against a company under liquidation, one needs the leave of the
court. The reason is that the mischief s 213 of the Companies Act seeks to
address does not affect the right of a company to recover what it is owed by
its debtors.
The
court a quo interpreted the word 'institute'
to mean 'to continue' notwithstanding the fact that the two concepts are
treated as separate and distinct concepts in s 213 of the Companies Act. Section 213 is the section dealing with the
effect of liquidation. It distinguishes
the two concepts. It shows that under s 221(2) of the Companies Act the
continuation of proceedings by a company which is placed under liquidation does
not need the leave of the court, but commencement which has the same meaning as
institution requires the leave of the court. In this sense instituting
proceedings cannot mean the same as continuing them.
Nick
Dixey and Colm Flanagan, in an article, A
Guide to the Effect of a Winding-Up Order on Existing Litigation had the
following to say concerning the question whether the company placed under
liquidation during proceedings should seek leave from the court to continue the
proceedings:
“Where the company
is the plaintiff in an action commenced prior to the winding-up, (and there is
no counter-claim made by the Defendant), there is no automatic stay, the
liquidator of the company may choose either to continue the action, or to
discontinue. In such circumstances, the
liquidator will often take advice as to whether proceedings commenced prior to
the beginning of the winding-up are likely to be successful. Typically, the decision of the liquidator is
influenced by the state of the company's assets and available funds, as well as
the prospects of success in the action”.
From the foregoing, it is
clear that the discretion is given to the liquidator to decide whether or not
to proceed with the proceedings where the company is placed under liquidation
during proceedings. The liquidator will be guided by the nature of the
proceeding to decide whether to continue or not.
It is therefore clear
that s 221(2) of the Companies Act should not be read to include the words 'to
continue'. As such, a company placed under liquidation after the commencement
of proceedings brought at its instance does not require the leave of the court 'to
continue' with such proceedings. The
court a quo's finding in this regard
cannot stand and the Kenyan case of Trade
Bank Ltd and Anor v Elysium Ltd and 2 Ors (2012) EklR should not be
followed. This case is not persuasive as it interpreted the word 'to commence'
to mean the same as 'to continue' notwithstanding that these two concepts are treated as separate and
distinct concepts.
Lastly the Court would
like to comment on the order given by the court a quo. The court a quo,
after finding that the company has no locus
standi to continue with the proceedings without the leave of the court, went
on to strike the matter off the roll. The order creates problems. Firstly, the Court made the order after
hearing arguments and finding in favour of one party. Striking off can only be done where there are
no valid proceedings. The court a quo erred
in making an order striking off the matter where there were valid proceedings
before it. The fact that the court heard arguments from
both parties and found in favour of one party means that the party in whose
favour a finding on the issues was made was entitled to an order protective of
its rights. The order by the court a quo has no legal effect and should be
set aside.
For the above reasons,
the appeal was allowed with costs and the following order given.
The appeal succeeds with
costs. The judgment of the court a quo
is set aside and substituted with following;
“The point in limine is dismissed with costs.”
GOWORA
JA I agree.
MAVANGIRA
JA I agree
Mawere and Sibanda,
appellant's legal practitioners
Honey and
Blanckenberg, respondents' legal practitioners
