In
this application, the applicant prays for the following relief:
“IT
IS ORDERED THAT:
1.
The application be and is hereby granted.
2.
The purported termination of the Franchise Agreement be and is hereby
declared null and void and is accordingly set aside.
3.
First Respondent be and is hereby prohibited from offering the
franchise to another person and shall forthwith reinstate the
franchise in Second Respondent's name.
4.
Respondents shall pay applicant's costs of suit.”
According
to the applicant, the background to the relief sought is that on 1
December 2001 the first respondent and the second respondent entered
into a Franchise Agreement. The purpose of the Franchise Agreement
was for the sale and distribution of the first respondent's
specified products in designated districts….,.
The
applicant and the third respondent, as Directors, represented the
second respondent. The Agreement relied on seems to indicate that,
apart from the franchise being given to the second respondent (the
Company), it was also given to the applicant and the third respondent
in their individual capacities. It is, however, not clear whether the
agreement signed on 8 December 2012 is the one that the applicant is
relying on. To me, the agreement attached to the papers appears to be
a draft. It was not dated by the first respondent. Nevertheless, it
is clear that there was indeed an agreement between the first
respondent and the second respondent because, on 27 November 2013,
the first respondent addressed the following letter to the second
respondent:
“The
Directors
Janaways
Services (Pvt) Ltd
Stand
No.335 Lion Drive
CHIREDZI
Dear
Sir
R:
DAIRIBOARD ZIMBABWE (PVT) LTD
We
address to you at the instance of our above-mentioned client.
We
are instructed that in terms of clause 6.1.3 of your franchise
agreement with our client as read with clause 6.1.2(b), you agreed
and undertook to achieve sales levels in accordance with sales
budgets as agreed upon from time to time.
We
are further instructed that during the months between January 2013 to
September 2013 you failed to meet the agreed sales level as compared
with the sales budgets for the same period. In fact, your sales
levels for this period as compared to the same period in 2012
actually show a 59% decline.
In
August and October 2013, our client held meeting with you after
noting that your sales levels were declining as a result of the fact
that you were failing to maintain an adequate supply of stocks of the
products, among other reasons. However, despite demand by our client,
that you maintain an adequate supply of stocks of the products, which
in turn would have translated to high sales levels, you still have
failed to do so and to achieve at least 95% of the agreed budgets for
the period between January 2013 to September 2013. You therefore are
in breach of the agreement as stipulated in clause 10.2.5.
As
a consequence, we have been instructed to advise, as we hereby do,
that our client hereby cancels the franchise agreement with you. As a
result of the cancellation the amount outstanding on your credit
account is now due and payable to our client together with interest
thereon. Accordingly we demand that you immediately pay to our client
the sum of US$49,150=30 being the balance due on your account as at
27 November 2013.
In
addition, you are, in terms of clause 11 of the franchise agreement,
required to immediately cease carrying on the business, immediately
vacate from our client's premises and hand over the same to our
client together with all their equipment and the remaining
stock-in-trade accompanied with a full inventory thereof.
Unless
you comply with the above four (4) days of the date hereof, we shall
be left with no options but to institute legal proceedings against
you and your sureties without further reference to you.
We
trust this shall not be necessary and look forward to hearing from
you by return. By copy of this letter Messrs Warara & Associates
who had requested to met with our client in respect of this matter
are hereby so advised.
Yours
Faithfully,
Costa
& Madzonga
cc Client
cc
Messrs Warara & Associates Legal Practitioners, Harare (CW)
cc Mr
Kufandada, Janaways Services, Stand No.335 Lion Drive, Chiredzi
cc Mr
Musamirapamwe, Janaways Services, Stand No.335 Lion Drive, Chiredzi”
The
above letter confirms the existence of an agreement between the first
and second respondents. It is the decision contained in the above
letter that the applicant wants set aside.
In
this application, the applicant wants the franchise reinstated in the
name of the second respondent. That, in my view, further confirms
that the agreement was indeed between the first and second
respondents and not between the first respondent and the applicant
and third respondent in their individual capacities.
The
first respondent, in its opposing papers, has raised the following
points in limine:
(a)
That there was still a pending matter (HC636/14) because the
applicant had attempted to withdraw same without tendering costs; and
(b)
That the applicant has no locus
standi.
To
that end, the first respondent made the following averments:
“4.1
A similar application brought by Applicant against 1st
and 2nd
Respondents
for the same relief is still pending before this Honourable Court
under case No. HC636/14. Applicant can therefore not institute fresh
proceedings against the same Respondents for the same relief before
the initial application has been determined. I beg leave to
incorporate herein by reference, the process filed with this
Honourable Court.
4.2
On 16 April 2014, Applicant withdrew the application filed under case
No. 637/2014 by filing a Notice of Withdrawal attached hereto marked
as Annexure “M”.
4.3
I aver that the said Notice of Withdrawal is incurably defective as
is therefore a nullity. It is trite that a party cannot withdraw a
matter after filing a Notice of Opposition has been filed without
tendering the wasted costs. For this reason, the Notice of Withdrawal
which Applicant purported to file on 16 April 2014 is null and void
and therefore of no legal consequence.
4.4
The present application has therefore been improperly filed and is
improper before this Honourable Court. Even if Applicant was to
subsequently file a valid Notice of Withdrawal, the present
application would remain improper before this Honourable Court for
having been filed at a time when similar application was still
pending before this Honourable Court.
4.5
Applicant, in filing these improper multiple proceedings, has done so
with the benefit of professional legal advice, and, as such, ought to
have been properly advised and known better. I therefore urge this
Honourable Court to dismiss this improper application with costs on a
legal practitioner and client scale.
4.6
Secondly, there is no privity of contract between Applicant and 1st
Respondent in respect of the Franchise Agreement in question. The
initial Franchise Agreement was concluded in 2001 between 1st
Respondent, as the Franchiser and 2nd
Respondent as the Franchisee. A copy of the 2001 Franchise Agreement
is attached hereto as Annexure “N”.
4.7
Since then, the initial Franchise Agreement was renewed over time and
the last of which was concluded in September 2012 - still between 1st
Respondent, as the Franchiser and 2nd
Respondent as the Franchisee. A copy of the 2012 agreement is
attached to the Application as Annexure “A” thereto.
4.8
Applicant and 3rd
Respondent signed the 2012 agreement in a representative capacity, as
directors of 2nd
Respondent. They erroneously inscribed their names in the face of the
2012 agreement in clause A3 instead of the line above.
4.9
At all times, it was the intention and the understanding of the
parties that the franchise agreement was entered between 1st
Respondent and 2nd
Respondent who was represented by its directors. Applicant and 3rd
Respondent and the parties conducted themselves through on this
basis. In this regard, I beg leave to refer to all correspondence
attached by Applicant filed in this matter and the one filed under
HC637/14.
4.10
In this regard, I submit that Applicant has no locus
standi
to
sue Applicant for the relief sought in this application based on a
contract in which he was never a party thereto. I therefore urge this
Honourable Court to dismiss this application with costs on a Legal
Practitioner and client scale without further ado.”
The
above points in limine
gain support from the opposing affidavit filed by the third
respondent wherein he also states:
“2.
This matter is pending before the High Court under case number
HC637/14 and I am advised that it was not withdrawn but the Applicant
has seen his mistake in taking the matter to court without my consent
and has now made himself as the Applicant citing me as the Third
Respondent and a company he co-directs as the Second Respondent. I
humbly submit that I have been improperly cited in this matter. The
reading of the applicant's affidavit shows that Applicant has a
grievance against First Respondent, albeit the latter's right to
cancel the franchise if its terms were not followed. I did not cancel
the franchise; I applied for a franchise when I saw an advertisement
in the media and I did so in my personal capacity and won the tender
not because I bought my way in but because I met the conditions. So
when the Applicant wants the franchise to be cancelled I am at loss
as to which one, the first franchise or the second one and what would
be the reasons for cancellation.
…,.
4.
I deny ever acting in convenience with the First Respondent to the
detriment of the Applicant, this could have been in breach of my
position to act in good faith as a Director of Second Respondent and
surely the Applicant should have reprimanded me for that. He did not.
I truly believe that he is not being truthful on that aspect. I have
already explained the history
behind securitization and how Applicant productively provided his
house as collateral. I thank him for that and Janaways (Second
Respondent) oiled to clear all the payments and restored the house to
the Applicant. I equally reciprocated but the Applicant then folded
his arms and become a spectator in a business where he expects to
derive profit. The franchise is a demanding business and does not
need people who do not see beyond signing an agreement.
It
is true the collapse of the franchise granted to Janaways is
attributable to the Applicant and no one else. The applicant filed
the current application as a self actor and not as a company (Second
Respondent) now blames First Respondent in granting me the franchise.
Why? Why would the applicant seek an order on behalf of the second
respondent whom he cites as an opponent in the proceedings. Why did
he cite Second Respondent in the first place and proceed to seek an
order to be granted in its favour? Ultimately, the Applicant, Second
Respondent and myself will be forced into the franchise and go back
to square one where Applicant becomes indigent and uncooperative. The
Applicant must be reminded to abide by his contractual obligations
than to apportion blame to other people.”
Given
the above points in limine,
it is essential to first of all establish whether or not the
applicant in casu
has
locus
standi.
A determination on that issue in the negative will dispose of this
matter.
The
applicant, in his answering affidavit, admits that the agreement was
indeed between the first and second respondents, and that, upon
withdrawal of HC637/14, on 16 April 2014, he did not tender costs as
generally required in law. The applicant avers, in part, as follows:
“2.1
Ad
Paragraph 4.1
I
aver that the contents of this paragraph are true save to state that
the Respondents in case No. HC637/14 are not the same in that the
second respondent was not a Respondent in that initial application.
2.2
Ad
Paragraph 4.2 – 4.5
2.2.1
It is true that I filed a Notice of Withdrawal with the Registrar. I
acknowledge that the initial proceedings were withdrawn without a
tender of costs. I am advised, which advice I accept as the correct
legal position, that it is trite that in a legal system in which the
procedures are driven by the parties to the suit, as opposed to a
system where the process is managed by the court, the general rule
appears to be that any party to the suit is entitled to withdraw any
of its pleadings provided this does not cause any injustice to the
other party.
2.2.6
In light of the above averments, I candidly state that I am willing
to tender First Respondent's wasted costs in accordance with the
correct legal position.
2.3
Ad
Paragraph 4.6 – 4.10
2.3.1
It is noted that the franchise agreement was made and entered into by
and between First Respondent and Second Respondent. However, I
candidly state that this is a matter in which the corporate veil must
be lifted, and, accordingly, I have locus
stadii
to sue Respondents herein for the relief sought in this application
in my personal capacity as a director and shareholder of Second
Respondent.
2.3.2
I am advised, which advice I accept as the correct position, that
courts have held that when the notion of a legal entity is used to
defeat public convenience, justify wrong, protect fraud, defend crime
or other improper conduct the law will regard corporation as an
association.
2.3.3
I aver that the separate legal personality of Second Respondent is
being used to justify wrong and improper conduct in that it is common
cause that the directors of Second Respondent are at loggerheads,
thus there is no way whatsoever I would obtain a Board resolution to
represent Second Respondent in my capacity as an agent without
consent of Third respondent, the other director of Second Respondent.
2.3.4
It is on that basis that I aver that I have locus
standii
to issue for the relief sought in the application. Moreover, I have
direct and substantial interest in this matter in that I have an
interest in the right which is the subject matter of the litigation
and my rights will be in jeopardy should the courts uphold this
technical objection because I am a shareholder of Second
Respondent.”…,.
I
have serious problems with the issue of locus
standi.
The
applicant admits he has none, but, because of his interests as a
shareholder, he believes lifting of the corporate veil will clothe
him with locus standi. This, he says, is more so because the
relationship between him and the third respondent has collapsed. That
means the two shareholders (Directors) cannot come up with a
resolution on behalf of the second respondent. A quorum cannot be
formed.
The
first respondent is, in law, correct in asserting that there must be
a distinction between the company and its shareholders/directors.
A
similar situation was dealt with in the case of L.
Piras & Son (Pvt) Ltd & Another Intervening v Piras
1993 (2) ZLR 245 (SC). In that case, one of the directors sued the
company and obtained a default judgment. A Dr Madekunye, one of the
two directors, attempted, in his personal capacity, to have the
judgment against the company set aside. He failed because he had no
locus
standi.
On
appeal, the decision of the lower court was confirmed by the Supreme
Court. Dr Madekunye then applied for leave to intervene on behalf of
the company. The application was granted. On that basis, he was then
allowed to proceed with the rescission application.
The
then Chief Justice, GUBBAY CJ, in L.
Piras & Son (Pvt) Ltd & Another Intervening v Piras
1993 (2) ZLR 245 (SC), spoke of the need of a derivative action where
a director or shareholder, such as the applicant, would intervene to
save the interests of a company such as the second respondent in
casu.
He said:
“Taking
account of the law, as I perceive it to be, it is clear to my mind
that Dr Madekunye was not empowered to resolve that the appellant
institute the application for rescission. In my view, the learned
judge was correct in concluding that it was not the appellant that
was litigating but the unauthorised Dr Madekunye on its behalf.
It
remains to consider whether the appeal should be allowed on the
ground that Dr Madekunye, as an intervening party, is entitled to
pursue the derivative action as a shareholder in his own name on
behalf of the appellant in order to protect the interests of the
latter.”
The
then Chief Justice went on:-
“The
derivative action
is an exception to the rule in Foss
v Harbottle
1843
67 ER 189 and was expounded thus by LORD DENNING MR in
Wallersteiner
v Moir
(No.
2) [1975] 1 All ER 849 (CA) at 875 d-f:
'It
is a fundamental principle of our law that a company is a legal
person, with its own corporate identity, separate and distinct from
the directors or shareholders, and with its own property rights and
interests to which alone it is entitled. If it is defrauded by a
wrongdoer; the company itself is the one person to sue for damage.
Such is the rule in Foss
v Harbottle.
The rule is easy enough to apply when the company is defrauded by
outsiders. The company itself is the only person who can sue.
Likewise, when it is defrauded by insiders of a minor kind, once
again, the company is the only person who can sue.
But,
suppose it is defrauded by insiders who control its affairs – by
directors who hold a majority of the shares – who then can sue for
damages? Those directors are themselves the wrongdoers.
If
a Board meeting is held, they will not authorise proceedings to be
taken by the company against themselves. If a General Meeting is
called, they will vote down any suggestion that the company should
sue them themselves – yet,
the company is the one person who is damnified. It is the one who
should sue. In one way or another some means must be found for the
company to sue otherwise the law would fail in its purpose. Injustice
would be done without redress.'
The
nature, then, of a derivative action is that it is a device designed
to enable the court to do justice to a company controlled by its
wrongdoers and prevents a serious wrong from going un-remedied. A
shareholder is allowed to appear as the plaintiff. He acts, not as
representative of the other shareholders, but as a representative of
the company to enforce rights derived from the company. The action is
brought by him in his own capacity to vindicate the company's
rights.
I
see no reason to deny Dr Mudekunye the right to pursue a derivative
action in his name, and in his capacity as the remaining shareholder,
on behalf of the appellant. A wrong of a fraudulent nature was done
to the appellant, the details of which I have already outlined. By
virtue of the lack of a quorum, for which the respondent was
responsible, the appellant has been unable to bring proceedings
itself to redress that wrong.”
It
is admitted the applicant could not get co-operation of the third
respondent. However, the above case tells us that the situation was
not hopeless. The applicant, instead of filing this application in
his own right should have sought leave of court to intervene on
behalf of the second respondent. He cannot approach the court
directly, as second respondent, just because the other director has
refused to cooperate. He can, in law, seek legal authority to do so.
Without such legal authority, he cannot purport to be the second
respondent.
Clearly,
therefore, the applicant can only represent the second respondent
upon being granted leave by a court of law. The existence of his
interests in the second respondent is not denied, but, unfortunately,
he cannot sue on its behalf without authority. He accepted this
position in the withdrawn matter (i.e. HC637/14). I am therefore at a
loss to understand his current attitude. The applicant, therefore, as
matters stand, has no locus
standi.
Having
upheld the issue of locus
standi,
it would be irregular to proceed to the merits of the matter because
there is no application before the court….,.
The
application is dismissed with costs.
