MATHONSI
J:
Some
people simply will not settle a debt. No matter how many times the
creditor runs around the walls of Jericho the walls remain
unshakeable and will simply not fall. So steadfast are they that the
debtor would rather spend so much on the legal fees of a very senior
counsel defending an unassailable claim all the way to the highest
court in the land, even if the legal fees surpass the amount of the
debt owed. It is just in their nature that they incur a debt which
they have no intention whatsoever of paying back.
Bradfield
Motors is or was a small family business run by Mr and Mrs Luwo, the
second and third respondents, through the medium of an incorporation
called Dowood Services (Pvt) Ltd which owns nothing at all. In March
2011 that company, no doubt with the Luwos firmly behind it and
pulling the strings as they had the beneficial interest in it,
entered into a consignment agreement with the applicant, a purveyor
of fuel, in terms of which the company would receive fuel for sale.
Immediately after sale, the company would pay the applicant the cost
price of the fuel and pocket the profit. Simple, easy and straight
forward if done by honest people. It however turned out to be not so
simple and easy because the company sold the fuel, made the money and
instead of paying the cost price to the applicant, it diverted it to
other uses. In the end it remained owing the applicant US$58,335-00
and has done everything possible not to pay back even as it had no
earthly defence to the applicant's claim.
In
HC499/13 the applicant sued the company for payment of the
outstanding $58,335.00.
The
company contested the action, never mind that on 17 April 2012 Mr
Luwo had penned an acknowledgment of debt on behalf of the company
even generously spelling out the terms of the consignment agreement
that had been breached.
Concluding
that the company's defence was “baseless” and that “no
conceivable injustice” could be occasioned by the grant of summary
judgment, KAMOCHA J promptly entered it.
The
company was not done yet.
Displaying
what in the circumstances could only be a never-say-die attitude, it
launched an appeal to the Supreme Court. The apex court was not
impressed and quickly dismissed the appeal with admonitory costs. By
the time the applicant returned from the long months of travail
chasing the company around all the way to the Supreme Court, to try
and execute against its property it had, according to Mr Collier who
appeared for the applicant, divested itself of all things executable.
The applicant reaped a nulla bona return.
It
is against that background that this application for an order
declaring the directors of the company personally responsible for the
debts of the company has been made.
The
application has been brought in terms of section 318 of the Companies
Act [Chapter 24:03] on the basis that the directors of the company
have acted fraudulently or been reckless or grossly negligent in
their handling of the affairs of the company which conduct should
attract personal liability.
This
is because although the company was required by the consignment
agreement to sell the fuel and forthwith pay the money to the
applicant, the directors converted the money to their own use thereby
incapacitating the company and leaving it unable to honour its
obligations in terms of the agreement. Having driven the company into
a mess the directors then spent time pursuing a doomed defence to the
applicant's claim for payment which was as ill-advised as it was
dishonest. As the directors are also the sole shareholders in the
company whose business they have conducted in that shoddy manner,
they are the alter ego of the company who should not have the benefit
of the veil of incorporation.
As
predictable as the sun rising from the east every day, the
respondents have opposed the application.
Having
exhausted all defences on the merits, they have succeeded in only
raising a volley of points in limine and apart from what Mr Sibanda
who appeared for the respondents conceded to be a bare denial, the
respondents have waded clear of the troublesome waters of the merits.
Four points in limine were taken by the respondents, namely, that;
1.
The matter is res judicata in that a judgment was delivered against
the company in HC499/13.
2.
The first and second respondents cannot be joined after a judgment
has been issued as that amounts to a breach of the audi aletram
partem rule. They should have been afforded an opportunity to be
heard.
3.
The remedy provided for in section 318 of the Companies Act [Chapter
24:03] is only available in respect of companies being wound up or
under judicial management.
4.
There are disputes of fact in this matter which cannot be decided on
affidavits. The matter should have come by summons action.
I
intend to deal with the points in limine in turn.
On
the issue of res judicata Mr Sibanda submitted that the applicant has
already secured judgment against the company, which is the first
respondent in this matter. For that reason the present suit involves
the same parties and as such it is res judicata.
In
my view that proposition cannot possibly be seriously made because
clearly the requisites for that defence do not exist.
Those
requisites were succinctly set out by CHIDYAUSIKU CJ in Flowerdale
Investments (Pvt) Ltd and Another v Bernard Construction (Pvt) Ltd
and Others 2009 (1) ZLR 110 (S) 116 E where the learned Chief Justice
said;
“The
essential elements of res judicata are –
(a)
The two actions must be between the same parties;
(b)
The two actions must concern the same subject matter; and
(c)
The two actions must be founded upon the same cause of action.
See
Hiddingh v Dennysen (1885) 3 Menz 424 at 450; Bertram v Wood (1893)
10 SC 180; Pretorius v Barkly East Divisional Council 1914 AD 407 at
409; Mitford's Executors v Elden's Executors and Others 1917 AD
682; Le Roux v Le Roux 1967 (1) 446 (A), Voet 44.2.3.”
While
it is true that the company has been cited in this application as the
first respondent when it was the sole defendant in the main cause,
two other respondents have been added to this application being the
directors of the company.
The
company itself has been cited in a different context.
It
cannot be said that the two matters concern the same subject matter
as the first action concerned the question of the liability of the
company for the fuel while the gravamen of this application is to
hold the directors personally liable for the debt owed by the company
on the basis of their conduct. The two matters are certainly not
founded on the same cause of action.
But
then Mr Sibanda was not done.
He
submitted, rather strangely if one has regard to the fact that the
directors are sued in this application and accused of certain
transgressions they have to answer for, that there has been a breach
of the audi alteram partem rule. The directors have been denied an
opportunity to be heard in the main action where they were not cited.
I
have struggled to understand the thrust of that argument, not because
there is anything wrong with my thought process but because the
argument does not make sense.
The
liability of the company was the subject of the summons action in
HC499/13. It has been determined. To the extent that the company is
liable but unable to pay its debts and has divested itself of
property that could be attached to satisfy that debt, the directors
are now being accused of bringing about that situation.
They
have an opportunity to challenge the application now and the fact
that they have spurned that opportunity, content to raise technical
issues only, is their business. They have not been denied their right
to be heard.
The
audi alteram partem rule connotes that both parties must be heard
before a decision is taken nothing more and nothing else. See Decimal
Investments (Pvt) Ltd v Arundel Village (Pvt) Ltd and Another 2012
(1) ZLR 581 (H) 585 E.
This
application offers the directors the best opportunity to dispute
liability for the debts of the company. Accordingly the audi alteram
partem rule has not been breached.
Mr
Sibanda submitted that the remedy provided for in section 318 of the
Companies Act [Chapter 24:03] is not available to the applicant
because the company is not under liquidation nor is it under judicial
management.
It
is not clear why the question of liquidation and judicial management
has been roped in. Section 318(1) of the Act reads:
“If
at anytime it appears that any business of a company was being
carried on –
(a)
recklessly; or
(b)
with gross negligence; or
(c)
with intent to defraud any person or for any fraudulent purpose;
the
court may, on the application of the master, or liquidator or
judicial manager or any creditor of or contributory of the company,
if it thinks it proper to do so, declare that any of the past or
present directors of the company or any other persons who were
knowingly parties to the carrying on of the business in the manner or
circumstances aforesaid shall be personally responsible without
limitation of liability, for all or any of the debts or other
liabilities of the company as the court may direct.” (The
underlining is mine.)
I
agree with Mr Collier for the applicant that the remedy provided for
in section 318 is available to any creditor of the company at any
time and must be brought by way of an application as opposed to
action proceedings. That is what the section says and that is what
the applicant has done.
It
was also half-heartedly submitted that there is present in this
matter, disputes of fact as cannot be resolved on affidavits.
The
dispute, according to Mr Sibanda, arises from the fact that the
directors dispute being fraudulent, reckless or grossly negligent in
transacting the affairs of the company.
Mr
Sibanda was the first to concede that it is a bare denial which the
respondents had no energy to substantiate. They saw no wisdom in
presenting their own side of the story.
The
resolution of the dispute without doing an injustice to the other
party is one of the prime considerations in allowing or disallowing
the use of application procedure; Ex-combatants Security Co v
Midlands State University 2006 (1) ZLR 531 (H) 534G.
My
attention has also been drawn to the remarks of WESSELS JA in Da
Matta v Otto N.O 1972 (3) SA 858 (A) 882 I, that:
“In
the preliminary inquiry, i.e as to the question whether or not a real
dispute of fact has arisen, it is important to bear in mind that, if
a respondent intends disputing a material fact deposed to on oath by
the applicant in his founding affidavit or deposed to in any other
affidavit filed by him, it is not sufficient for a respondent to
resort to bare denials of applicant's material averments, as if he
were filing a plea to a plaintiff's particulars of claim in a trial
action. The respondent's affidavits must at least disclose that
there are material issues in which there is a bona fide dispute of
fact capable of being properly decided only after viva voce evidence
has been heard.”
Unfortunately
that is what the respondents have fallen foul of. They have stuck to
a bare denial and have not disclosed any material issues from which
one could discern a dispute of fact.
A
party does not create a real dispute of fact by merely denying the
allegations made by the applicant in the founding affidavit. That
party must present a story in its defence which would lead the court
to the conclusion that indeed a dispute of fact exists as cannot be
resolved on the papers.
In
any event, even where there exists a material dispute of fact, the
court should still try to take a robust and common sense approach to
the dispute and endeavour to resolve the dispute. If it succeeds that
would be a first price. If it does not, then it still has an election
to either dismiss the application, where the dispute must have been
apparent when the applicant embarked on application procedure, or
refer the matter to trial for a resolution of that dispute.
That
is the recommendation made by GUBBAY JA (as he then was) in Zimbabwe
Bonded Fibreglass (Pvt) Ltd v Peech 1987 (2) ZLR 338 (S) 339 C–D
where the following pronouncement appears:
“It
is, I think, well established that in motion proceedings a court
should endeavour to resolve the dispute raised in affidavits without
the hearing of evidence. It must take a robust and common sense
approach and not an over fastidious one; always provided that it is
convinced that there is no real possibility of any resolution doing
an injustice to the other party concerned. Consequently, there is a
heavy onus upon the applicant seeking relief in motion proceedings,
without the calling of evidence, where there is a bona fide and not
merely an illusory dispute of fact. See Room Hire Co (Pty) Ltd v
Jeppe Street Mansions (Pty) Ltd 1949 (3) SA 1155 (T) at 1165;
Soffiantini v Mould 1956 (4) SA 150 (E) at 154; Joosab and Others v
Shah 1972 (1) RLR 137 (G) at 138 G-H; Lalla v Spafford NO and Others
1973 (2) RLR 241 (G) at 243 B; Masukusa v National Foods Ltd and
Another 1983 (1) ZLR 232 (HC).”
In
the present case there is no bona fide dispute of fact.
In
fact what we have is a situation where the facts speak for
themselves. A company run by a family, the directors are husband and
wife, received fuel on a consignment basis. It was aware that
immediately after selling the fuel it was required to remit payment
to the applicant. It did not. Instead, it diverted the money to other
uses, probably for the benefit of those, the directors, who are the
sole shareholders, who have a beneficial interest in the company. All
that cannot be disputed; and to make a bad situation worse, the
company is now wallowing in poverty with nothing executable in its
name.
I
conclude therefore that there are no disputes of fact in this matter.
It
is a cardinal principle of our company law that a company enjoys
separate legal personality quite distinct from its members and as
such that its liabilities should not be visited upon its members. The
courts have however always readily lifted the corporate veil where
the company is used as a locomotive for fraud or to justify wrong.
See Barnsley v Harambe Holdings (Pvt) Ltd and Another 2012 (1) ZLR
265 (H) 268F; Deputy Sheriff v Trinpac Investments (Pvt) Ltd and
Another 2011 (1) ZLR 548 (H); Mangwendeza v Mangwendeza 2007 (1) ZLR
216 (H) 217F.
The
provisions of section 318 of the Act in terms of which this
application is made are an embodiment of the concept of lifting the
corporate veil.
The
court will not hesitate to visit the liabilities of the company upon
a director who is using it as a front for fraud and wrong. It cannot
be right that directors syphon money belonging to a business partner
and convert it to their own use thereby rendering the company
incapable to meet its obligations. Thereafter, having benefited from
that conduct, they hide behind the corporate status of the company to
avoid paying.
Having
danced to the tune it is now time to pay the piper.
In
the result, it is ordered that:
1.
It is declared that the second and third respondents are personally
responsible, without limitation of liability, for the debt owed to
the applicant by the first respondent by virtue of the judgment of
this court in HC499/13 (Judgment number HB171/13).
2.
The respondents shall bear the costs of this application jointly and
severally, the one paying the others to be absolved on the scale of
legal practitioner and client.
Webb,
Low & Barry, applicant's legal practitioners
Job
Sibanda & Associates, respondents' legal practitioners
