This is an appeal against a decision of the High Court
sitting at Harare in which that court dismissed an application for the setting
aside of a final order for the liquidation of the first respondent granted by
that court on 8 May 2013….,.
The first appellant averred that he was the first
respondent's largest creditor, which entity he alleged owed him USD486,818=48.
He averred, further, that the first respondent also owed the second appellant
the sum of USD241,616=61.
Until its liquidation, the first respondent was engaged in
the manufacture of specified food items under a contract with the World Food
Program. It owned an extruder plant for the process.
It is common cause that in order to enable it to perform
its obligations under the contract, the first respondent obtained a loan, from
the second respondent, in the sum of USD200,000=. The date and the instrument
in terms of which the loan was advanced is a matter of dispute between the
parties. The first respondent made payments towards the settlement of the debt
but failed to extinguish the debt in full. The parties subsequently entered
into negotiations in an attempt to restructure the debt but these failed. Those
negotiations are not germane to the resolution of the dispute.
In the meantime, the first respondent's landlord, the fifth
respondent herein, sought and obtained judgment against the former in respect
of arrear rentals, and, as a consequence, an order for its ejection from the
premises where the extruder plant was situate. The fifth respondent, in
execution of the order for arrear rentals, caused the attachment of the first
respondent's extrusion plant. It was at that juncture that the second
respondent sought to protect its interest based on the loan agreement.
On 20 March 2013, the second respondent obtained an order
for the provisional liquidation of the first respondent. The first respondent
did not oppose the application. On 8 May 2013, the provisional order for
liquidation was confirmed - again, it was unopposed.
On 20 December 2013, the appellants filed an application in
the High Court in terms of which they sought an order pursuant to the
provisions of section 227 of the Companies Act [Chapter 24:03], “the Act”,
for the setting aside of the final order for the liquidation of the first
respondent. The basis upon which the order was sought was premised on an
allegation that the second respondent was not, at law, entitled to seek the
liquidation of the first respondent. They alleged that the second respondent
was a shareholder in the first respondent. They alleged, further, that as a
shareholder, the second respondent lacked the requisite locus standi as only a
creditor is entitled, under the law, to apply for such relief. Consequently,
the appellants contended that the order for the liquidation of the first
respondent was invalid by virtue of the lack of standing by the second
respondent to seek it.
The court a quo dismissed the application with a punitive
order of costs. The court concluded that the application was mala fide thus
warranting an order of costs to show the displeasure of the court.
This appeal is against the dismissal of the application as
well as the level of costs awarded against the appellants.
The first ground of appeal raised by the appellants was
that the court a quo erred by concluding, mero motu, that the application had been brought in breach of Rule 63 of the
High Court Rules, and that, the court erred further in finding that the Rule
applied in the determination of the application before the court.
The court said:
“The ordinary rules that govern applications for rescission
of judgment apply. Order 9 Rule 63 of the Rules of the High Court 1971 provides
that such an application must be made within one month of acquisition of
knowledge of the judgment. This application was filed in December 2013. The
judgment or order that is sought to be set aside, the final liquidation order
is dated May 2013. No explanation was given for the delay in bringing this
application in terms of the rules of this court and no application for
condonation was placed before the court. It is my view that, s 295 of the
Companies Act does not assist the applicants because it expressly relates to
dissolution of a company, not the granting of a final liquidation order, which
is only the first step towards dissolution. It follows that the two-year time
period allowed in terms of s 295 does not apply to the applicants, it being
common cause that the first respondent has not yet been dissolved.”
The appellants contended that the court a quo clearly
misunderstood the matter that it had to determine and that, as a result, it did
not have recourse to the written submissions filed by the parties. It was
contended, further, that Rule 63 did not apply and that due to the error by the
court in considering the application in the light of the provisions of the said
Rule, the court could not have come to the correct conclusion on the matter.
The record reveals that the first respondent filed an
opposing affidavit deposed to by the liquidator. She did not oppose the relief
sought and chose to abide by the decision of the court. However, she sought an
order of costs against the unsuccessful party. The second respondent mounted a
spirited opposition to the relief being sought. The second respondent did not,
however, advert to the provisions of Rule 63 of the High Court Rules. It seemed
that the second respondent accepted that the application had been properly
brought in terms of section 227 of the Companies Act [Chapter 24:03]. The fifth
respondent also chose to challenge the merits of the application. It did not
raise any procedural issues.
Counsel for the second respondent argued that the court a
quo was correct in its approach as it would have been “acutely aware of the
need to bring the litigation between the parties to finality.”
Without a doubt, the procedure adopted by the court a quo
of raising a technical issue, determining it, and pronouncing judgment on it,
without hearing submissions from the parties, was highly irregular.
In Proton Bakery (Pvt) Ltd v Takaendesa 2005 (1) ZLR 60…,
GWAUNZA JA, said:
“The appellant argues, in the light of all this, that the
action of the court a quo in reaching a material decision on its own, amounted
to gross irregularity justifying interference by this court on the principles
that have now become trite.
I am, for the reasons outlined below, persuaded by this
argument.”
And later, at 63C-D:
“Fourthly, and most importantly, the court a quo had ample
opportunity, in the five days during which viva voce evidence was led on the
merits of the case, to solicit evidence on the specific issue of the
respondent's suspension, if as now appears; it considered such evidence
decisive. The court, however, did not solicit this evidence. Instead, it went
on, mero motu, and after the event, to pick on a procedural irregularity
neither raised nor argued before it, and base its determination solely on that
technicality. This it did to the exclusion of the not insubstantial evidence
placed before it on the merits of the case.”
A perusal of the submissions presented by the respective
parties before the court a quo establishes that the court was never addressed
on the issue of whether or not the application was properly before the court in
terms of section 227 of the Companies Act [Chapter 24:03] or whether or not it
would run foul of Rule 63 of the High Court Rules. And yet despite this, the
court was able to find that section 227 of the Companies Act [Chapter 24:03]
was not the appropriate section for the court to exercise its discretion as the
appellants had not brought the application in terms of the provisions of the
High Court Rules.
In my view, the court was in error when it concluded that
an application such as the one before it as in this case had to be brought
under the aegis of Rule 63, and that further to that, it had to be filed within
a month from the date on which the applicant had knowledge of the order or
judgment in question.
The court a quo was alive to the fact that the application
before it was premised on section 227 of the Companies Act [Chapter 24:03].
Notwithstanding that premise, the court went on to find that the section was
inapplicable. It is clear that the decision by the court a quo was informed by
the fact that the application had been granted unopposed. As a consequence, the
court was of the view that since this was a matter in which an order had been
obtained in default of opposition by the parties affected by the order, then
the Rules of the High Court had to be considered in determining whether or not
to grant relief.
Rule 63 of the High Court Rules 1971 reads:
“63. Court may set
aside judgment given in default
(1) A party against whom judgment has been given in
default, whether under these rules or under any other law, may make a court
application, not later than one month after he has had knowledge of the
judgment, for the judgment to be set aside.”
A simple reading of the Rule brings to the fore two issues;
(i) The first is that a party against whom a judgment had
been obtained in default, whether under these Rules or any other law, is
entitled to approach the court to have such a judgment rescinded or set aside.
(ii) The second, and most important requirement under the Rule,
is that a litigant wishing to avail himself of this indulgence from the court
must file a court application for relief not more than a month after he has knowledge
of the default judgment.
The default related to in terms of Rule 63 speaks to a
situation where a party has been served with court process and fails to either
respond to it or attend a scheduled hearing in relation thereto.
The respondent cited in the application for liquidation is
the first respondent. This was the party upon whom the application was served,
against which party specified relief was sought, and, as a consequence, the
party that could technically be said to have been in default. From a perusal of
Rule 63, it is obvious that the first respondent, as the party against whom a
judgment has been entered in default is the one permitted to make an
application for the rescission of that judgment within a month of learning of
the same.
As against that, the appellants did not have a judgment
entered against them in default. Neither appellant was a party against whom a
judgment was entered in default in relation to the orders for the liquidation
of the first respondent. No relief was
ever sought against either of them by the second respondent. Despite having an
interest in the proceedings relating to the liquidation of the first
respondent, they were never cited at all.
The appellants, therefore, were not the parties that the Rule
is aimed at.
In addition, the provisional order issued by the court
called upon interested parties to respond to the order by a specified date if
they so wished. The court a quo did not specify, however, that a failure to
respond to the same would be a default as envisaged in the Rule, and, as a
consequence, warranting an application in terms of Rule 63.
The appellants contend that the applicable law in this case
is section 227 of the Companies Act [Chapter 24:03] which reads as follows:
“227 Court may stay
or set aside winding up
The court may, at any time after the making of an order for
winding up, on the application of the liquidator or of any creditor or
contributory and on proof to the satisfaction of the court that all proceedings
in relation to the winding up ought to be stayed or set aside, make an order
staying or setting aside the proceedings on such terms and conditions as the
court deems fit.”
In direct contrast to Rule 63, section 227 of the Companies
Act [Chapter 24:03] does not provide for a timeframe within which such
application may be made. It provides that the “court may, at any time after
the making of an order for the winding up” stay or set aside such order….,.
The contradiction in the provisions of section 227 of the
Companies Act [Chapter 24:03] and Rule 63 is obvious.
Whilst the latter places a limitation on the time frame
within which an application for rescission of a default judgment may be
brought, section 227 of the Companies Act [Chapter 24:03] grants the court
latitude in so far as when such an order may be granted; regard being had
always to whether or not the period in which relief is sought can be considered
as being reasonable. Therefore, in placing a limitation on the time that the
appellants ought to have made their application to have the proceedings set
aside the court was guilty of serious misdirection.
Section 227 of the Companies Act [Chapter 24:03] avails an
applicant a unique remedy for the setting aside of a winding up order and is
not related to an application for rescission of a default judgment. The
provision does not confine itself to orders granted in default of any party
affected by it. In concluding that the application had to comply with Rule 63
of the Rules of the High Court, the court a quo was seeking to limit the rights
of parties affected by the winding up order without regard to section 227 of
the Companies Act [Chapter 24:03].
The legal basis of the application itself was not in issue
between the parties to the dispute. The parties confined themselves to the
question whether or not the appellants had met the requirements attendant upon
an application of the nature confronting the court a quo.
The misdirection is clear.
When the affairs of a company have been completely wound
up, the Master of the High Court is obliged to make an application to the court
for an order that the company be dissolved. The court a quo invoked the
provisions of section 295 of the Companies Act [Chapter 24:03] in finding that
the application was not merited on the premise that the first respondent had
not yet been wound up. The provision reads:
“295 Power of court
to declare dissolution of company void
When a company has been dissolved, the court may, at any
time within two years of the date of the dissolution, on an application by the
liquidator of the company or by any other person who appears to the court to be
interested, make an order, upon such terms as the court thinks fit, declaring
the dissolution to have been void and thereupon such proceedings may be taken
as might have been taken if the company had not been dissolved.”
In my view, the court
a quo applied the wrong law in deciding whether or not the application
should have been brought within a specified time. The company had not been
wound up, and, clearly, section 295 of the Companies Act [Chapter 24:03] did
not apply. The court should simply have asked itself if the application met the
requirements in the Act as outlined in section 227.
However, notwithstanding the errors alluded to above, the
court a quo correctly captured the issue before it, viz; whether or not the second respondent was a creditor or a shareholder of
the first respondent.
The resolution of this issue would determine the standing
of the second respondent in seeking an order for the liquidation of the first
respondent.
The second respondent contended that it had standing but
that in any event, there was a material dispute of fact which was incapable of
resolution on the papers and that the appellants ought to have anticipated this
dispute of fact which could not be resolved on the papers. The second
respondent prayed that on that basis alone the application should be dismissed
with costs.
The position of the appellants was that the first and
second respondents had entered into an agreement on 12 September 2009
wherein the latter lent to the former the sum of USD200,000=. In terms of the
agreement, repayment had to be effected within 45 days failing which shares
equal to 25 per cent of the equity in the first respondent must be transferred
to the second respondent.
It is not in dispute that one Casper Mombeshora did deliver
to the second respondent Share Certificates in transferable form representing
such shareholding in the first respondent. The second respondent admits
receiving such certificates, has not returned them, but avers that the delivery
of the shares without a concomitant notation in the company register and Share Certificates
in its name does not make the second respondent a shareholder in the first
respondent. The position taken is that the second respondent remains but a
creditor. It reiterates that as such it is entitled to seek the order it
obtained for the liquidation of the first respondent.
In heads of argument filed before the court a quo, the
second respondent conceded that there was a material dispute of fact on the
issue of the shares and the Share Certificates. Despite the concession by the
second respondent of a material dispute of fact on the papers, the court a quo
went on to find that there was, in fact, no such dispute. The court said:
“The court did not find this submission persuasive, being
of the view that the dispute of fact referred to was not so material or complex
as to be incapable of resolution on the papers filed of record. There was
sufficient evidence in the affidavits filed of record, and in the terms of the
three agreements alluded to by the parties, to assist the court to make a
determination of the question of which agreements governed the relationship
between the parties. It is not every apparent dispute of fact which is
incapable of ascertainment.”
The court was correct in its approach on how to resolve a
dispute of fact. Before the court were the following documents:-
(i) Agreement dated 12 September 2009 for a loan sum of
USD200,000=;
(ii) Agreement dated 14 September 2009 for a loan amount of
USD100,000=;
(iii) Agreement dated 5 October 2009 for a loan amount of
USD100,000=;
(iv) Notarial General Covering Bond dated 11 December 2009
executed by the first respondent in favour of the second respondent for the sum
of USD200,000=.
There is merit in the argument by the appellants that had
the court a quo had proper regard to the documents before it, it would have
become apparent that there was a material dispute of fact which called for
resolution. In the absence of a resolution of this dispute, it was not clear,
on the papers, whether the second respondent was a creditor or a shareholder.
Instead, it embarked on what meaning was to be ascribed to a creditor at
insolvency.
The court a quo, further, went on to consider that the
acceptance by the Master of the High Court of the second respondent's claim was
sufficient for it to find that indeed the second respondent was a creditor
instead of a shareholder. It also accepted that the two later agreements were
the basis upon which the status of the second respondent was premised.
Against this finding is the fact that the first agreement
was never cancelled by either party to the same. I say this for the following
reasons. The final clause in the Agreement provided as follows:
“In the event that Makonde Industries default on the
repayment of $230,000= within 45 days, Glen Moor will give written notice that
they have 15 days to rectify the default failing which Makonde Industries
selected shareholders agree to transfer a 25 per cent stake in Makonde
Industries to Glen Moor Trading.”
Despite denials from the second respondent, the record
shows that this Agreement was consummated by the parties. Proof of such
consummation is be found in the concession by the second respondent that Casper
Mombeshora handed over Share Certificates to the second respondent. The second
reason is that on 11 December 2009, the first respondent registered a Notarial
General Covering Bond in favour of the second respondent. The causa for the
mortgage bond was the agreement of 12 September 2009. The mortgage bond was
registered by the second respondent's legal practitioner of record…,.
Given that the mortgage bond was registered on 11 December
2009, which date was after the execution of the agreements of 14 September
2009 and 5 October 2009, it seems to me that one is left wondering as
to which of the various agreements concluded by the parties was the operative
agreement. In view of the conflicting conditions between the first agreement and
the last two, there is confusion as to the status of the second respondent in
relation to the first respondent, especially when regard is had to the
contention by the appellants that the second respondent was a shareholder of
the latter as opposed to contention by the second respondent that it was a
creditor.
Going by the facts outlined above, it is clear that the
application to have the order winding up the company set aside had merit. The
status of the second respondent, as an applicant for that order, could, at best,
be described as unclear.
It required closer scrutiny.
In my view, the material disputes of fact are incapable of
resolution on the papers. It did not seem as if the appellants ever became
aware of the two agreements that the second respondent alleges were the
agreements in respect of which the parties conducted their relationship
vis-a-vis the loan. As such, it cannot be said that the appellants should have
anticipated the existence of material disputes of fact.
Accordingly, due to the disputes of fact, the resolution of
which would clarify whether or not the second respondent had standing to make
the application for the liquidation of the first respondent, it is only proper
that the matter be remitted for trial on that aspect. It becomes unnecessary to
consider the other grounds of appeal.
In the result, it is ordered as follows:
1. The appeal succeeds with costs.
2. The judgment of the court a quo be and is hereby set
aside.
3. The matter is remitted for the court a quo to hear oral
evidence on the question of whether or not the second respondent is a
shareholder or creditor of the first respondent.
4. Thereafter, the court is to determine the
matter in accordance with the provisions of section 227 of the Companies Act
[Chapter 24:03].
