ZIYAMBI JA:
[1]
This is an appeal against an
interdict granted by the High Court in favour of the respondents. The appellants contend that the interdict was
improperly granted and seek that it be set aside.
[2]
Briefly, the background to the
appeal is as follows:
The
first appellant (“Crown”) is a director and the alter ego of the second appellant, PORTRIVER INVESTMENTS (PRIVATE)
LIMITED (“PORTRIVER”), a limited liability company incorporated according to
the laws of Zimbabwe.
[3]
The second respondent (“ERA”) is
also a limited liability company incorporated according to the laws of
Zimbabwe. It appears from the record that its directors are DAVID MASHAYAMOMBE
(“Mashayamombe”) and one T P NTAISI (“Ntaisi”). Mashayamombe is the alter ego of ERA.
[4]
Crown and Mashayamombe came
together in 2011 for the purpose of two tenders floated by the City of
Harare. The first tender was for the rehabilitation
of the Firle Sewage works. The second
was for generation of power from the waste. The two agreed to form a consortium
of which they would be directors and ERA and PORTRIVER would be shareholders. The consortium formed in consequence of this
agreement is the first respondent (“ERAC”). It was incorporated according to
the laws of Zimbabwe on 17 February 2011. Crown is resident in South Africa.
[5]
ERAC tendered for, and won, both
projects. The value of the contracts was USD13 000 000.00. In terms of the
payment plan agreed with the City of Harare, monthly payments of US$300 000.00
were made to ERAC by the City of Harare into the account of PORTRIVER.
[6] Cracks
in the relationship between Crown and Mashayamombe became apparent in or about May
2015. Correspondence between the parties' legal practitioners shows that their
differences became irreconcilable so that in its letter dated 19 May 2015, ERA
through its legal practitioners declared:
“… ERA
hereby terminates the arrangements between the parties”
and
PORTRIVER, also through its legal practitioners, by letter dated 22 June 2015, “formally”
accepted “the termination of the parties' relationship” warning that:
“Such
acceptance, however, makes the US$423
428.66 and ZAR 24 000.00 immediately
due and payable to Portriver Investments (Proprietary) (sic) Limited (PTR)”.
[7]
On 30 September 2015, Mashayamombe,
purporting to act on behalf of ERAC, took certain unilateral actions. He approached
the Zimbabwe Revenue Authority (“Zimra”) on the last day of a tax amnesty
extended to erring companies. Having
done so, he secured an undertaking from Zimra to allow ERAC to benefit from the
amnesty if certain conditions were observed. Two of the conditions were that a new
Zimra registration form be completed by the directors and a bank account be
opened in the name of ERAC into which account all monies from the contract
would be deposited. It is not clear on
the record whether there was a time limit within which these conditions were to
be fulfilled. However, he then, unsuccessfully, sought the cooperation of Crown
to sign the registration form and furnish his personal details for the opening
of the new bank account.
He
took the view, in the face of this lack of cooperation, that an urgent
situation had arisen. He did not obtain a resolution from ERAC authorising his
conduct. Instead he turned to ERA, his alter
ego. The Board of ERA passed a
resolution which was signed by himself and Ntaisi. Armed with this resolution
by ERA, he approached the High Court, on an urgent basis, in the names of both ERAC
and ERA, seeking to compel compliance by Crown with his wishes. The order,
sought and granted, was as follows:
“Terms of the Final
Order Sought
1.
Respondents
be and are hereby interdicted from performing any action under the Contract
between City of Harare and First Applicant which in any way violates the Income
Tax Act [Chapter 23:06], the Value Added Tax [Chapter 23:12] and the Companies Act [Chapter 24:03].
2.
Respondents
shall take all steps necessary to comply with First Applicant's statutory
returns as and when they fall due.
3.
The
Respondents be and are hereby ordered to pay costs of suit.
INTERIM RELIEF SOUGHT
That
pending the determination of this matter, the Applicant is granted the
following relief:-
1.
The
First Respondent (Crown) as the
director representing the interest of the Second Respondent (Portriver) in the First Applicant (ERAC) be and is hereby ordered, upon
service of this order:
(a)
To
complete and sign the FBC Bank account application form which is required to
open a bank account for the First Applicant at FBC Bank; and
(b)
To
complete and sign a Rev 1 ZIMRA form which is required by the First Applicant
for purposes of its tax amnesty application.
2.
Pending
the determination by Zimra in First Applicant's application for tax amnesty,
First Respondent be and is hereby interdicted from receiving any income due to
First Applicant under the contracts with the City of Harare for the
rehabilitation of Firle Sewage Works or for power generation.
3.
First
Respondent shall direct City of Harare to make payments due to First Applicant
in terms of the Contracts, into the FBC Bank account to be opened by First
Applicant.”
[8] The grounds of appeal are, briefly, as
follows:
1. The
application was not urgent.
2.
The application was not
authorised.
3. Second Respondent ERA had no legal interest
in the matter.
4. No justification was shown for the grant
of an interdict against receipt by PORTRIVER of payments due from City of
Harare.
5. ERAC and ERA had no rights to secure by way
of interdict.
6. The
essence of the judgment is to stop PORTRIVER from rendering service to City of
Harare which was not cited by respondents or heard by the court.
7. The
court erred in not determining who had a contract with City of Harare because no
relief could be afforded without a prior determination of this question.
[9] I proceed to consider the first three
grounds of appeal as, in the Court's view, they raise preliminary issues a
determination of which would dispose of this appeal.
GROUND 1: Urgency
[10] The question of urgency is generally a
matter for the discretion of the court. It is only in certain limited
circumstances that a superior court will be persuaded to interfere with a
decision arrived at pursuant to a discretion exercised by a lower court.
Accordingly, while this court may entertain different views as to the urgency
of the application, I do not consider that the reasoning of the learned judge
is so unreasonable as to justify interference by this court.
GROUND
2: Whether the application was authorised.
[11] The
application was purportedly brought by ERAC whose directors are Mashayamombe
and Crown. Mashayamombe, who deposed to the founding affidavit, averred that he
is a director of ERAC and ERA:
“I am a director
of the First and Second Applicant companies.
I aver that I have authority to depose to this affidavit on behalf of
both Applicants. I attach hereto the resolution of the board for the Second
Applicant as Annexure “A”.
The resolution was signed by Mashayamombe
and Ntaisi. It read:
“ENERGY RESOURCES
AFRICA (PRIVATE) LIMITED
EXTRACT FROM THE
MINUTES OF THE BOARD OF DIRECTORS
Held on 30
September 2015
It was resolved:
1.
That
the company shall institute court proceedings as advised by the company's legal
advisors to protect the interests of the company as a Shareholder in Energy Resources
Africa Consortium (Private) Limited.”
[12] No resolution from ERAC was produced. The appellants argued in the High Court, as
well as before this Court, that ERAC did not authorise the application
purportedly filed on its behalf by Mashayamombe. The learned judge rejected that argument. He found
that Mashayamombe and Crown “are directors in ERAC and ERA” and that
Mashayamombe could depose to the affidavit on behalf of the two companies.
[13]
In so finding, the learned judge
misdirected himself. Crown is not a director of ERA. Although the papers show
clearly, in particulars filed with the Companies Registry, that both Crown and
Mashayamombe are directors of ERAC, there is no evidence showing that both are
directors of ERA. The learned judge's finding that Crown was a co-director of both
ERAC and ERA is therefore not supported by the evidence. What the evidence
discloses is that whereas Mashayamombe is a director of both companies, Crown is
a director only of ERAC.
[14]
Mashayamombe admits that he unilaterally
took the decisions, on behalf of ERAC: to approach Zimra with a view to obtaining the benefit of the tax amnesty; to
institute the present proceedings; and, to order the City of Harare to halt all
payments to PORTRIVER until details of a new bank account to be opened by ERAC
were availed to it for the purpose of depositing those payments therein. The
court a quo was of the view that
Mashayamombe had acted properly. It said:
“In our view, the
first applicant (ERAC) did nothing wrong in signing the resolution in the
absence of the first respondent (Harold Crown) who is elusive. So whatever Mr
Mashayamombe did was above board and valid in terms of the duties of a
director under the Companies Act for the benefit of the companies and the other
directors. Even if he had not signed the resolution as he did we would
still have accepted his founding affidavit on the basis that as a director he
had personal knowledge of what was happening in the companies and could
positively [swear] to an affidavit touching on the affairs of the company. He
has sufficient authority to depose to any affidavit.”
[15] This
finding calls for comment. Firstly, ERAC
did not pass or sign a resolution. The only resolution on record was made by
ERA, a different entity from ERAC and an entity of which Crown is not a
director. ERA could not legally authorise the institution of proceedings in the
name of ERAC. Thus the resolution signed by ERA could not, and did not,
constitute authority to Mashayamombe to make the application on behalf of ERAC.
Further, while it is
correct that Mashayamombe, as a director of both ERA and ERAC, could depose to
an affidavit “touching on the affairs of the company” it has not been
established that he was authorised by ERAC to institute proceedings on its
behalf. This issue of authorisation to represent a company was clearly dealt with
by this Court in Madzivire & Ors v Zvarivadza
& Ors 2006 (1) ZLR 514 (S) where it was held that a company, being a
separate legal persona from its
directors, cannot be represented in a legal suit by a person who has not been
authorised to do so. At page 516 B-E CHEDA JA, delivering the judgment of the
Court, said:
“It is clear from
the above that a company, being a separate legal persona from its directors, cannot be represented in a legal suit
by a person who has not been authorised to do so. This is a well-established legal principle,
which the courts cannot ignore. It does
not depend on the pleadings by either party.
The fact that the first appellant is the managing director of the fourth
appellant does not clothe him with the authority to sue on behalf of the
company in the absence of any resolution authorising him to do so. In Burstein
v Yale 1958 (1) SA 768(W), it was held that the general rule is that
directors of a company can only act validly when assembled at a board meeting.
There is no
evidence that there was any service of a notice of a meeting to pass the
required resolution authorising the first appellant to represent the fourth
appellant. Even if the first, second and
third appellants had agreed on the action, there is no indication that the first
respondent, who is one of the directors, was served with a notice of a meeting
of directors to pass the resolution of authority. Both the fourth appellant and the first
respondent are entitled to be served with a notice of meeting so that a
resolution be passed authorising the first appellant to represent the fourth
appellant. This was not done. Failure to do so renders the decision to
represent the fourth appellant invalid.”
[16] In
his answering affidavit, Mashayamombe sought to justify the unilateral
decisions taken by him purportedly on behalf of ERAC by relying on ss 169 (1)
and 170 of the companies Act [Chapter
24:03] (“the Act”), set out below.
“169 Directors and secretary
(1) Every company
shall have not less than two directors, other than alternate directors, at
least one of whom shall be ordinarily resident in Zimbabwe.
(2) Every company shall have at least one
secretary ordinarily resident in Zimbabwe.
(3) Every person
signing the memorandum of a company shall, until other directors are appointed,
be deemed to be a director of the company and be liable for all the duties and
obligations of a director:
Provided that
where a person signs the memorandum, whether as agent or otherwise, on behalf
of some other person who is not qualified to be a director of the company, the
first-mentioned person shall be deemed to be a director.
(4) Where
subsection (1) or (2) are not complied with in relation to any company, each
director of that company shall, unless he satisfies the court that he took all
reasonable steps that were available to him to secure compliance with the
relevant provisions, be guilty of an offence and liable to a fine not exceeding
level three.
[Section as amended by Act No. 22 of 2001]
170 Validity of acts of directors
The acts of a
director or manager shall be valid notwithstanding any defect that may
afterwards be discovered in his appointment or qualification.”
The above passages were
quoted by the court a quo without explaining
their relevance to the matter in issue. It was not explained what “duties of
Directors in terms of the Companies Act” had the effect of validating Mashayamombe's
actions nor which “other directors” would benefit from his actions.
[17] Mr
Magwaliba submitted that the
requirement that at least one of the directors be ordinarily resident in
Zimbabwe is to be interpreted as meaning that the resident director could act
unilaterally on behalf of the company. I do not agree. The provision clearly envisages a situation
where alternate directors would be appointed to act in place of the absentee
directors and would, together with the resident director, transact the business
of the company. It seems to me that s 169 was meant to ensure that not all
the directors of a company are absentee directors and that the management of
companies is not left solely to alternate directors. In other words, the
resident director would act with the alternate director in making valid
decisions on behalf of the company. The submission to the contrary, urged by Mr
Magwaliba, would not accord with a
proper interpretation of s 169 of the Act.
I conclude that the
application brought in the court a quo
was not authorised by ERAC and was therefore invalid. It ought to have been
dismissed by the court a quo for this
reason. This conclusion on its own is dispositive of the appeal. However, I
turn to consider the third preliminary matter.
Ground 3: Locus standi of ERA to make the
application
[18]
The mandate given to Mashayamombe by
ERA was to institute proceedings to protect the shareholding of ERA in ERAC. It
is not explained in the affidavits how such a shareholding was to be protected
by the proceedings instituted by the respondents. For this reason, the
appellants allege that ERA had no locus
standi in relation to the tax issue which was the subject of the
application.
[19] I
have found that the proceedings filed on behalf of ERAC against the appellant
were unauthorised and invalid. It follows that the only applicant before the
court a quo was ERA.
[20] As
submitted by Mr Mpofu, the order
sought or granted
does not speak to ERA nor was it
established on the papers that ERA had any legal interest in the tax issue
which was the subject of the application. Further, ERA, being a
separate legal entity from ERAC, has not established a legal basis on which it
sought the order granted by the court a
quo. I therefore agree with the submission advanced on behalf of the
appellants that ERA lacked locus standi
to bring the application in the High Court.
[21] In
the result, not only did the respondents fail to establish locus standi on the part of ERA to make the application, but they
did not establish that the application was authorized by ERAC. Since ERAC was
the entity allegedly seeking the remedy, the lack of authorisation was fatal to
the application.
It follows that the
appeal must be allowed.
It
is, therefore, ordered as follows:
1. The appeal is allowed with costs.
2. The judgment of the court a quo is set aside and substituted as
follows:
“The
application is dismissed with costs”.
GWAUNZA JA:
PATEL JA:
Venturas
& Samukange, appellants' legal practitioners
Dube, Manikai & Hwacha, respondents' legal
practitioners
