UCHENA JA: The appellant was through two separate
applications, appointed provisional liquidator of Archer Clothing Manufacturers
(Pvt) Ltd and Lasker Brothers (Pvt) Ltd, companies duly registered in terms of
the laws of Zimbabwe. The applications
were for the winding up of each of the two companies. Subsequent to his appointment he in the course
of his duties ranked the Commercial Bank of Zimbabwe (first respondent) a
concurrent creditor of Archer Clothing Manufacturers (Pvt) Ltd.
The
first respondent was grieved by the appellant's decision. It in terms of s 222 (3) of the Companies Act
[Chapter 24:03] applied to the
court a quo for the setting aside of
the appellant's decision. It
alternatively sought the rectification of the first mortgage bond registered
against Lasker Brothers (Pvt) Ltd on the basis of which the appellant had made
his decision, from a first mortgage bond against Lasker Brothers (Pvt) Ltd, to
a surety bond securing the first respondent's loan to Archer Clothing
Manufacturers (Pvt) Ltd.
The
second respondent is the Registrar of Deeds. He was cited in his official capacity. He did not take an active part in the Court a quo and before this court.
The
Commercial Bank of Zimbabwe (hereinafter called the first respondent) loaned
US$2 500 000-00 to Archer Clothing Manufacturers (Pvt) Ltd. It purportedly secured that loan by
registering a first mortgage bond against stand 42 Plumtree Road, Belmont, Bulawayo
owned by Lasker Brothers (Pvt) Ltd. The
bond gave the impression that a loan had been granted to Lasker Brothers (Pvt)
Ltd.
The
bond was registered on 1 March 2011, contrary to an inter creditor agreement of
11 February 2011 entered into by the first respondent, BancABC Botswana
Limited, Interfin Banking Corporation Limited, Kingdom Bank Limited and Archer
Clothing Manufacturers (Pvt) Ltd. The
inter creditor agreement prohibited the registration or perfection by any
participating creditor of its security against Archer Clothing Manufacturers
(Pvt) Ltd.
It
was on the basis of these facts that the appellant, ranked the first respondent
a concurrent creditor of Archer Clothing Manufacturers (Pvt) Ltd.
The
court a quo granted the orders sought
by the first respondent. The appellant
believing that he had correctly performed his duties as a provisional
liquidator appealed against the decision of the court a quo to this court.
The appeal raises the
following issues for determination by this court:
1. Whether or not the decision of the appellant
to treat the 1st respondent
as a concurrent creditor was correct?
2. Whether the rectification of the first
mortgage bond to a surety bond was procedurally and correctly ordered.
3. Whether the court a quo erred in ordering the appellant to pay the costs of the
application.
Whether
or not the decision of the appellant to treat the first respondent as a concurrent
creditor was correct?
Mr
Collier for the appellant submitted that the appellant was appointed
provisional liquidator for the two companies through two applications. He thus had to deal with them as two different
companies. He further submitted that the
two companies' veil of incorporation had not been lifted therefore the
appellant could not have dealt with them as a single economic entity. He submitted that the s 222 (3) application
should have been dealt with on its own to determine whether the appellant had
correctly ranked the first respondent as a concurrent creditor of Archer
Clothing Manufacturer's (Pvt) Ltd. He
argued that the reliance on the alternative application for the rectification
of the first mortgage bond registered against the property of Lasker Brothers
(Pvt) Ltd, to a surety bond securing the indebtedness of Archer Clothing Manufacturers
(Pvt) Ltd is a factor the appellant could not have taken into consideration as
it was not in existence at concursus
creditorium.
Miss
Moyo, for the first respondent, while
conceding that the appellant's decision was prima facie correct, submitted that
the appellant should have treated the two companies as one single economic
entity and held the first mortgage bond against Lasker Brothers (Pvt) Ltd as a
basis for finding that the first respondent was Archer Clothing Manufacturers
(Pvt) Ltd's preferential creditor. She
further submitted that the court a quo
correctly rectified the first mortgage bond against Lasker Brother's property
to a surety bond securing Archer Clothing Manufacturer's indebtedness to the
first respondent. She argued that the
rectification of the bond justified the setting aside of the appellant's
decision. I do not agree.
It
is common cause that when the appellant ranked the first respondent a
concurrent creditor there was no mortgage bond registered between the first
respondent and Archer Clothing Manufacturers (Pvt) Ltd. The bond which was in existence was a first
mortgage bond registered against the property of Lasker Brothers (Pvt) Ltd, in
favour of the first respondent. Lasker
Brothers (Pvt) Ltd was not indebted to the first respondent. The first mortgage bond against Lasker
Brothers (Pvt) Ltd was therefore not based on any obligation by Lasker Brothers
(Pvt) Ltd to the first respondent.
The first respondent's
application to the court a quo was
triggered by the appellant's letter to the first respondent's legal
practitioner's dated 29 January 2014 in which he said:
“On
the issue of CBZ's status they are as pointed out to yourselves, a concurrent creditor. They have no
security as against Archer Clothing Manufacturers. You will note from the
papers, copies of which you have that a credit facility, was extended to Archer
Clothing Manufacturers (Pvt Ltd on the 23rd December 2010. The
same document states clearly that a mortgage bond against 42 Plumtree Road
Belmont in the name of Archer Clothing (Pvt) Ltd will be registered.
On
I March 2011, a mortgage bond was registered, not against Archer Clothing
Manufacturers (Pvt) Ltd, as the recipients of the money, but Lasker Brothers (Pvt)
Ltd. This clearly was not valid as Lasker Brothers (Pvt) Ltd never got any
money from CBZ your clients.” …… (emphasis added)
This is a correct
statement on how Archer Clothing Manufacturers (Pvt) Ltd was granted the loan
facility and a first mortgage bond was registered against the property of
Lasker Brothers (Pvt) Ltd. The position
is supported by the identity of the parties to the mortgage bond, and what is stated
at p 33 of the record, which reads:
“And
the Appearer declared that whereas the mortgagor has been granted certain loan,
credit and/or facilities by CBZ Bank limited.”
It is common cause that
Lasker Brothers (Pvt) Ltd was not granted any facility by the first respondent.
The facility was granted to Archer
Clothing Manufacturers (Pvt) Ltd against which it sought to be declared a
secured creditor on the basis of a mortgage bond which the first respondent
registered against the property of Lasker Brothers (Pvt) Ltd. The appellant had no authority to rectify the
bond. He could not have changed things after concursus creditorium. He
had to make a decision on the basis of the facts as they were, at concursus creditorium. Concursus creditorium occurs at the time
of liquidation. In the case of Ward v. Barret, N. O &
Another N.O 1963 (2) SA 546 which was relied on by the appellant, STEYN CJ at
p 552 D-G said:
“In the result, creditors enjoy as from that
date, the protection which is necessary to ensure payment according to
recognised priority of claims and to prevent the satisfaction of one creditor
to the prejudice of another. In Walker v. Syfret NO 1911 AD. 141 at p. 160 Lord
De Villres, CJ, held that the effect of
an order winding up a company is to establish a concursus creditorium, and nothing can thereafter be allowed to be
done by any of the creditors to alter the rights of the other creditors.
Innes JA (at p. 166), after stating that a sequestration order crystallises the
insolvent's position went on to say:
'the hand of the law is laid upon the
estate, and at once the rights of the general body of creditors, have to be
taken into consideration. No transaction can thereafter be entered into with
regard to estate matters by a single creditor to the prejudice of the general
body. The claim of each creditor must be dealt with as it existed at the issue
of the order.'” (emphasis added)
In terms of s 112 of the
Companies Act all creditors and contributories are brought under concursus creditorium when a liquidation
order is granted. Section 112 provides
that:
“An order for winding up a company shall
operate in favour of all the creditors
and of all the contributories of the company as if the petition had been
presented by all creditors and contributories jointly.” (emphasis
added)
In my view the order operates in favour of each
creditor as per the facts of his or her case on the date of the order. The order cannot act in favour of all
creditors if some creditors are allowed to improve their status after the
granting of the order. The liquidator
must therefore act on the facts as they were at concursus creditorium.
The
appellant had no authority to rectify or change the facts as they were at concursus creditorium. His
decision was therefore guided by the facts which existed at that time.
I am aware that, in terms
of s 222 (3) the court is entitled to make such order as “it thinks”. Section 222 (3) reads:
“(3)
Any person aggrieved by any act or decision of the liquidator may apply to the
court after notice of motion to the liquidator and therein the court may make
such order as it thinks.”
The
meaning of the words “as it thinks” must be ascertained from the power the High
Court exercises in terms of s 222 (3).
The
court cannot think anyhow. It must think judiciously. A court thinks judiciously when its thinking
is guided by the law. It must think
within the parameters of the powers given to it by the law. Section 222 (3) does not entitle a court to
think outside the provisions of the law as set out by statutes and common law. The thoughts of a court must be guided by the
facts found proved and the law applicable to such facts.
The
applicant should therefore establish a basis for the court to interfere with
the decision of the liquidator. If the
applicant fails to do so the court must confirm the decision of the liquidator.
If it cannot confirm the decision for
some defect in the decision making process it can make an order in terms of its
review powers. The court's entitlement
to make such order as “it thinks” does not mean it can make any order it thinks
fit even if such order cannot be justified by the facts of the case and the law.
A court order is a product of the facts
of the case and the law applicable to such facts. The court should therefore judiciously make an
order as can be justified by the facts and the applicable law.
An
application in terms of s 222 (3) of the Companies Act is a review of the
decision of an administrative authority. Such a review should be based on the
facts which informed the appellant's decision. In this case the court a quo improperly allowed itself to be guided by the application to
rectify the mortgage bond. Section 222
(3) does not entitle the High Court to hear another application as a court of
first instance for purposes of enabling it to determine a review placed before
it.
A
review should be confined to the facts on which the administrative authority
made its decision. If those facts justify his decision, that should be the end
of the inquiry. An application in terms of s 222 (3) is intended to assess the correctness
or otherwise of the Liquidator's decision. The reviewing judge should simply determine
whether or not the applicant's grievance is based on any errors made by the
Liquidator. It cannot be based on things
the liquidator had no authority to do and were not in existence when he made
the decision against which the application is made.
In
determining such applications courts must exercise judicial deference to the
complexity of the task that confronted the administrative authority. In the
case of Logbro Properties CC v Bedderson
N.O & Ors 2003 (2) SA 460
(SCA) at p 471 A-C CAMERON JA commented on judicial deference as follows;
“It
is in just such circumstances that a measure of judicial deference is
appropriate to the complexity of the task that confronted the committee.
Deference in these circumstances has been recommended as
'—a
judicial willingness to appreciate the legitimate and constitutionally ordained
province of administrative agencies; to admit the expertise of those agencies
in policy-laden or polycentric issues; to accord their interpretation of fact
and law due respect; and to be sensitive in general to the interests
legitimately pursued by administrative bodies and the practical and financial
constrains under which they operate. This type of deference is perfectly
consistent with a concern for individual rights and a refusal to tolerate
corruption and maladministration. It ought to be shaped not by an unwillingness
to scrutinise administrative action, but by a careful weighing up of the need
for …… and the consequences of …… judicial intervention. Above all, it ought to be shaped by a conscious determination not to
usurp the functions of administrative agencies; not to cross over from review
to appeal.
I
agree. The conclusion is unavoidable that the committee in 1997 acted
unimpeachably in considering that the increase in property values might point
away from immediate disposal of the property, and, albeit for somewhat
different reasons, I agree with Skweyiya J's conclusion.'” (emphasis added)
In
this case the court a quo set aside
the decision of the appellant because it factored in its own power to rectify
the mortgage bond which informed the appellant's decision. The court a
quo thus took into consideration factors which the appellant could not have
taken into consideration. It failed to
defer to the dictates of the facts which the appellant had to consider in
arriving at the decision he did. It
failed to confine itself to its review powers. It thus went beyond the reviewing of the
appellant's decision and relied on its own power to rectify the mortgage bond.
Procedurally an
application in terms of s 222 (3) should not have been considered alongside an
alternative application for rectification as its purpose is to inquire into the
correctness or otherwise of the provisional liquidator's decision and not to interfere
with a decision duly and honestly made within the appellant's discretion. In the South African case of Shidiack v Union Government (Minister of
the Interior 1912 AD 642 Innes ACJ at pp 651 to 652 said:
“Now
it is settled law that where a matter is left to the discretion or the
determination of a public officer, and where his discretion has been bona fide
exercised or his judgment bona fide expressed, the Court will not interfere
with the result …… and if he has duly and honestly applied himself to the
question which has been left to his discretion, it is impossible for a Court of
Law either to make him change his mind or to substitute its conclusion for his
own. This doctrine was recognised in
Moll vs Civil Commissioner, Pearl (14 S.C., at p. 468); it was acted upon in Judes vs Registrar of Mining Rights
(1907, T.S., p 1046); and it was expressly affirmed by this Court in Nathalia vs Immigration Officer (1912, A.D. 23). There are circumstances in
which interference would be possible and right. If for instance such an officer
had acted mala fide or from ulterior and improper motives, if he had not
applied his mind to the matter or exercised his discretion at all, or if he had
disregarded the express provisions of a statute- in such cases the Court might
grant relief. But it would be unable to interfere with a due and honest exercise
of discretion, even if it considered the decision inequitable or wrong.”
The appellant's decision is not afflicted by any of the factors
mentioned above. It took into
consideration the facts of the case as they were at concursus
creditorium and correctly determined the
first respondent's status at law.
The
appellant had no option but to declare the first respondent a concurrent
creditor. The facts of the case and the
law demanded it. The rectification of
the bond by the court a quo to justify
interference with the appellant's decision
confirms it. There would otherwise have been no need to rectify the bond. The appellant's decision to rank the first
respondent as a concurrent creditor of Archer Clothing Manufacturers (Pvt) Ltd
is therefore correct.
The
court a quo therefore erred when it
set aside a decision the appellant correctly and lawfully made.
The
same result would in my view have been more directly arrived at if the parties
had realised that the High Court exercises civil review powers in terms of ss
26, 27 and 28 of the High Court Act [Chapter
7:06], ss 2, 4 and 5 of the Administrative Justice Act [Chapter 10:28] and common law. We were unfortunately not addressed on them. I therefore can only comment in passing on the
effect they could have had on this case.
Section 26 of the High Court Act grants the court
power, jurisdiction and authority to review all proceedings and decisions of
all inferior courts of justice, tribunals and administrative authorities within
Zimbabwe.
Section
27 provides for the following grounds of review:
“(a) absence of jurisdiction on the
part of the court, tribunal or authority concerned;
(b) interest in the cause, bias, malice or
corruption on the part of the person presiding over the court or tribunal
concerned or on the part of the authority concerned, as the case may be;
(c) gross irregularity in the
proceedings or the decision.”
Subsection (2) saves reliance on “any other law
relating to the review of proceedings or decisions of inferior courts,
tribunals or administrative authorities.”
Section 28 provides for the court's powers on review
as follows:
“On a review of any proceedings or
decision other than criminal proceedings, the High Court may, subject to any
other law, set aside or correct the proceedings or decision.”
The court's power does not include the hearing of
another application by the High Court to enable it to determine the correctness
or otherwise of the case under review.
Section 2 (d) of The
Administrative Justice Act defines “administrative authority” as:
“(d) any other person or body
authorised by any enactment to exercise or perform any administrative power or
duty; and who has the lawful authority to carry out the administrative action
concerned.” (emphasis added)
Section 2 (d) therefore brings the appellant who is
authorised by the Companies Act to exercise and perform administrative duties,
within the meaning of “administrative authority”.
The High Court's
authority to review administrative decisions is regulated by s 4 of the
Administrative Justice Act, which provides as follows:
“(1) Subject to
this Act and any other law, any person who is aggrieved by the failure of an
administrative authority to comply with section three may apply to the
High Court for relief.
(2) Upon an application being made to it in terms
of subsection (1), the High Court may, as may be appropriate—
(a)
confirm or set aside the decision concerned;
(b)
refer the matter back to the administrative authority
concerned for consideration or reconsideration;
(c)
direct the administrative authority to take
administrative action within the relevant period specified by law or, if no
such period is specified, within a period fixed by the High Court;
(d)
direct the administrative authority to supply reasons
for its administrative action within the relevant period specified by law or,
if no such period is specified, within a period fixed by the High Court;
(e) give
such directions as the High Court may consider necessary or desirable to
achieve compliance by the administrative authority with section three.
(1)
Directions
given in terms of subsection (2) may include directions as to the manner or
procedure which the administrative authority should adopt in arriving at its
decision and directions to ensure compliance by the administrative authority
with the relevant law or empowering provision.
(4)
The High Court may at any time vary or revoke any order or direction given in
terms of subsection (2).”
It
should be noted that the court's power does not include the hearing and
determining of a separate issue by the reviewing court to enable it to review
the decision of the administrative authority.
Section 5 of the
Administrative Justice Act, limits the ambit of things the High Court must take
into consideration as follows:
“For the
purposes of determining whether or not an administrative authority has failed
to comply with section three the High Court may have regard to whether
or not—
(a)
the administrative authority has jurisdiction in the matter;
(b)
the enactment under which the action has been taken authorises the
action;
(c)
a material error of law or fact has occurred;
(d)
a power has been exercised for a purpose other than that for which
the power was conferred;
(e)
fraud, corruption or favour or disfavour was shown to any person
on irrational grounds;
(f)
bad faith has been exercised;
(g)
a discretionary power has been improperly exercised at the
direction, behest or request of another person;
(h)
a discretionary power has been exercised in accordance with a
direction as to policy without regard to the merits of the case in question;
(i)
a power has been exercised in a manner which constitutes an abuse
of that power;
(j)
the action taken is so unreasonable that no reasonable person
would have taken it;
(k)
there is any evidence or other material which provides a
reasonable or rational foundation to justify the action taken;
(l)
an irrelevant matter has been taken into account;
(m)
a relevant matter has not been taken into account;
(n)
a breach of the rules of natural justice, where applicable, has
occurred;
(o)
the procedures specified by law have been followed;
(p)
any departure from the
requirements of section three is in the circumstances reasonable and
justifiable.”
Section 5 thus limits the issues the High Court can consider in
reviewing the “administrative authority's” decision. It includes, and adds to
considerations mentioned in the case of Shidiack (supra). It does not allow
the court a quo to hear and determine
an issue, not raised before the administrative authority and use such decision
to invalidate the administrative authority's decision.
It therefore seems to me that though not ventilated by counsel's
submissions ss 26, 27 and 28 of the High Court Act as read with ss 2 (d), 4 and
5 of The Administrative Justice Act set out the parameters within which the
court a quo should have thought “fit”
in terms of s 222 (3) of the Companies Act.
Whether the rectification of the
mortgage bond to a surety bond was procedurally and correctly ordered.
Mr
Collier for the appellant submitted that the rectification of the first
mortgage bond to a surety mortgage bond securing the first respondent's loan to
Archer Clothing Manufacturers (Pvt) Ltd clouded the court a quo's determination of the application in terms of s 222 (3). He further submitted that rectification where
there are disputes of fact should be instituted by action procedure. Miss Moyo
submitted that the court a quo
correctly granted rectification and correctly used it to grant the first
respondent's application in terms of s 222 (3) of the Companies Act. I do not agree.
The
rectification of the bond by the judge, before he reviewed the liquidator's
decision is not provided for by s 222 (3) of the Companies Act. As already said the application in terms of s
222 (3) is in the form of a review of the Liquidators decision or conduct. A review merely deals with the correctness or
otherwise, of the administrative authority's decision. It cannot be accompanied by some other
application whose decision is intended to influence the setting aside of the liquidator's
decision. That adulteration turns it
from a review to an application in which the reviewing court exercises its
jurisdiction both, as a court of first instance and a reviewing authority. That cannot be procedurally correct.
Rectification
of the bond should, if it was possible for the 1st respondent to overcome
the limitations imposed by concursus
creditorium, have been applied for before the appellant's decision so that
he would take it into consideration in determining its status.
It is also common cause
that rectification was ordered on the basis of an application which was
afflicted by disputes of facts. There
was a dispute over whether or not, rectification would prejudice parties with
whom the first respondent had agreed not to “perfect or register outstanding
security in respect of its claims”. The appellant had at a creditor's meeting
been asked by one of the creditors to follow up and clarify the 1st
respondent's status.
In an inter-creditor
agreement between the first respondent, BancABC Botswana Limited, Interfin
Banking Corporation Limited, Kingdom Bank Limited and Archer Clothing
Manufacturers (Private) limited it had been agreed that:
“No
creditor Bank shall take any steps in any manner whatsoever which shall or is
likely to have the effect of preferring or improving one Creditor Bank's
position against the other Creditor Banks.”
The rectification of the
bond had the effect of preferring or improving the 1st respondent's
position against other creditor banks, which held surety bonds against Lasker Brothers
(Pvt) Ltd's properties in respect of Archer Clothing Manufacturers (Pvt) Ltd's
indebtedness to those Banks. The
appellant had at record pp 46 and 47 paras 6 (e) and 7 (c) raised the issue of
the inter creditor agreement and the raising of the first respondent's status
by other creditors at a creditor's meeting.
This should have made it clear to the court a quo that it was being asked to make a decision which would violate
the inter creditor agreement without hearing the first respondents' co-creditors.
The first respondent's
application was made in circumstances which show that it was being made in a desperate
attempt to improve its status in spite of the inter creditor agreement. This is exposed by a letter dated 10 July 2009
Annexure C, which it says was used to surrender the title deeds for the
registration of the first mortgage bond. The letter reads:
“These
title deeds are to be held as security by CBZ Bank Ltd in respect of facilities afforded Archer Clothing Manufacturers
(Private) Ltd.” (emphasis added)
The
facilities for which the title deeds were being handed over had by 10 July 2009
been already afforded. Title deeds were
not being handed over in respect of facilities still to be afforded to Archer. The facility for which the respondent purports
to register the first mortgage bond was granted to Archer Clothing
Manufacturers (Pvt) Ltd on 23 December 2010 long after the title deeds had been
handed over to it for a different debt. (See Annexure B1). This means this facility had not yet been
afforded at the time the title deeds were handed over. It therefore could not have been handed over
for a debt which was to be afforded when it specifically states that it was
being handed over for facilities already afforded. In view of the above the court a quo should have realised that it was
being misled. It should therefore have declined to determine the issue of
rectification through the application procedure and in the absence of
interested parties. It should have realised that the first respondent was
seeking to alter its status after concursus
creditorium using false information and without giving notice to those it
had entered into an inter creditor agreement with.
It
should in fact be stated that rectification was not a relevant factor in
deciding whether or not the appellant had correctly determined the first
respondent's status.
Costs
Mr
Collier for the appellant submitted that the court a quo erred when it ordered the appellant whose decision was
correctly made to pay the first respondent's costs in the court a quo.
In
spite of her earlier concession that the appellant had prima facie correctly
held the first respondent to be a concurrent creditor Ms Moyo submitted that the court a
quo correctly ordered the appellant to pay the first respondent's costs.
The
court a quo's order was made against
a back ground where the appellant had correctly held that the respondent was a
concurrent creditor of Archer Clothing Manufacturers (Pvt) Ltd. There was therefore no justification for an
order of costs against a Liquidator who had acted in terms of the law. The court a
quo misdirected itself in ordering the appellant to pay the first
respondent's costs.
The appeal has merit and
ought to succeed. It is accordingly
ordered as follows:
1. The appeal is allowed with costs.
2. The decision of the court a quo is set aside and is substituted with the following;
“The application is dismissed with costs”.
GWAUNZA JA: I agree
MAVANGIRA JA: I agree
Messers
Web, Low & Barry, appellant's legal practitioners
Messers Mawere & Sibanda, 1st
respondent's legal practitioners
