On
19 May 2016 we dismissed the appellant's appeal with costs. The
appellant requested for reasons for judgment as early as 19 May 2016
but the request was not brought to our attention until 20 March 2017,
this explains the delay. The reasons for our dismissal of the appeal
are hereby furnished.
The
appellant had its claim to property in interpleader proceedings
instituted at the Magistrates' Court dismissed with costs. The
appellant filed an appeal on the following grounds:
That
the court a
quo
erred in:
1.
Failing to appreciate that the appellant is the owner of the
equipment/machinery and motor vehicles attached by the nineteenth
respondent;
2.
Failing to appreciate that the appellant and the eighteenth
respondent are two different corporate and legal entities;
3.
Disregarding the judgment of Hon Justice Bhunu
(vide
HC2136/13) wherein the High Court found that the appellant is the
owner of the attached equipment/ machinery and motor vehicles;
4.
Finding that the appellant's claim over the property was merely
designed to defeat the judgment creditor's claim;
5.
Finding that the Equipment Sales Contract and Short Term
Loan/Financing Agreement between the appellant and the eighteenth
respondent was fraudulent or a sham;
6.
Failing to appreciate the grounds upon which the corporate veil
should be pierced;
7.
Failing to appreciate that the appellant and the eighteenth
respondent are not wholly owned subsidiaries of NJZ Group Holdings
Limited;
8.
Failing to appreciate that NJZ Group Holdings Limited has no
controlling interest in the eighteenth respondent, with its 49%
shareholding therein;
9.
Failing to appreciate that the operations of the eighteenth
respondent were being run by its local directors, Charles Chisango
and Kevin Makoni not their foreign counterparts;
10.
Failing to appreciate that Minemills Trading (Pvt) Ltd, Charles
Chisango and Kevin Makoni signed resolutions returning the
equipment/machinery and the motor vehicles to the appellants because
they had not paid anything for the same;
11.
Finding that the resolutions signed by the eighteenth respondent,
Charles Chisango and Kevin Makoni, returning the equipment/ machinery
and the motor vehicles to the appellant, were fraudulent or sham;
12.
Failing to appreciate that the attached equipment/machinery and the
motor vehicles were sold to the eighteenth respondent by the
appellant, and the former failed to pay the purchase price resulting
in the latter taking legal action in the High Court;
13.
Finding that the attached equipment/machinery and motor vehicles are
liable to be sold in execution in respect of the judgement to which
the appellant was not a party;
14.
Failing to appreciate that the appellant is not liable to pay the
salaries of the employees of the eighteenth respondent;
15.
Failing to appreciate that the 1st-
17th
respondents were not employed by, nor serving the interest of, the
appellant, and that the appellant had not hidden the assets of the
eighteenth respondent;
16.
Failing to appreciate that the appellant instituted legal action in
the High Court against the eighteenth respondent, claiming ownership
of the equipment/machinery and the motor vehicles in March 2013, long
before the salary dispute between the 1st
- 17th
respondents and the eighteen respondent had arisen;
17.
Piercing the corporate veil; despite its finding that the appellant
was not formed with deceptive intent; and
18.
Piercing the corporate veil solely on the basis that Michael Lai and
Thormahlen are directors for the appellant and eighteen respondent,
and co-founders of NJZ Group Holdings Ltd and the appellant when it
had found that the appellant was not formed with a deceptive intent.
WHEREFORE
the appellant prays that:-
1.
The judgment of the court a quo be set aside and substituted with the
following:
“The
claimant's claim of ownership over the attached equipment/machinery
and motor vehicles be and is hereby granted with costs.”
2.
The respondents shall pay costs of suit on a legal
practitioner-client scale.
I
find the grounds to be unnecessarily long, repetitive and not concise
and precise as is demanded by the Rules. Most of the grounds could
simply have been crystalised.
It
seems that a change of lawyers by the appellant brought about
realization that the grounds of appeal were unnecessarily extensive.
The new lawyers crystallised the grounds of appeal in the heads of
argument. The condensed grounds narrowed the issues for determination
by the Appeal Court and were put as follows:
1.
Whether or not the court a
quo
erred and misdirected itself in failing to appreciate that the
attached equipment belonged to the appellant and therefore could not
be sold in execution to satisfy a judgment debt against the 18th
respondent.
2.
Whether or not the court a
quo
erred and misdirected itself in failing to appreciate that the
appellant and the respondent were separate legal entities.
3.
Whether or not the court a
quo
erred and misdirected itself in piercing the corporate veil where no
such grounds for such a course of action existed.
The
background facts of this matter are as follows:
The
1st
- 17th
respondents are employees of the 18th
respondent, Minemills Trading (Private) Limited (hereinafter called
“Minemills Co.”).
The
said employees, who are the judgment creditors, got an award for the
payment of their salaries, and, in seeking execution, motor vehicles,
machinery/equipment in the possession of the 18th
respondent, Minemills Trading (Private) Limited, were attached by the
Messenger of Court. The appellant, through inter-pleader proceedings,
claimed the assets but the court a
quo
dismissed the claim.
Ad
Grounds 1, 3, 10, 12, 13, 16
These
grounds pertain to averments on ownership.
Counsel
for the appellant argued that as the assets belonged to the
appellant, they could not be applied to satisfy the debts of the 18th
respondent, Minemills Trading (Pvt) Ltd. He argued that in another
matter, NJZ
Resources (HK) Limited v Minemills Trading (Pvt) Ltd
HH341-13, where the
applicant was seeking a provisional order, BHUNU J had found that;
“Considering
that it is not in dispute that the applicant sourced the property and
handed it over to the first respondent and it has not been paid
anything, it can safely be inferred that the applicant has
established that it is the owner of the property though the validity
of the contract of sale is subject to debate.”
A
reading of the judgment shows that Bhunu
J
found that the applicant (appellant in
casu)
had discharged the onus, on a balance of probabilities, that it had a
prima
facie
case hence he granted interim relief. In my view, this cannot be
taken to mean that the judgment bestowed or confirmed ownership.
Equally,
Case No. HC2111/13, in which ownership was an issue, was withdrawn,
which means the court never made a substantive finding on the issue
of ownership of the assets. I am conscious of the argument that the
directors and/or shareholders passed resolutions to return assets to
the appellant in HC2111/13 but the judgment creditor was not privy to
these arrangements.
I
would agree with counsel for the respondents that the resolutions
were a self-serving gesture by two of Minemills Trading (Pvt) Ltd's
directors who happen to benefit in either the appellant company or
the holding company. I find no misdirection by the court a
quo
in its finding that the dispute over ownership or the legality of the
contract was never resolved by any court as the parties decided to do
an out of court settlement.
Ad
Grounds 2, 7, 8, 13, 14 15
The
grounds speak to one issue; being the alleged failure by the court a
quo
to treat the appellant and Minemills Company as separate legal
entities, which are not wholly-owned subsidiaries of the holding
company.
As
such, the appellant argues, the appellant was not legally obliged to
pay employees of Minemills Company. Counsel for the appellant argued
that the holding company had 49% shareholding in Minemills Trading so
it had no controlling interest in the affairs of the judgment debtor.
It
is common cause that the claimant and the judgment debtors are
subsidiary companies of NJZ Group Holding Limited. The holding group
holds 49% shareholding in the judgment debtor company. The court took
cognizance of the fact that J Francios Thormahlen, a director in the
holding company and in the judgment debtor, Minemills Company,
together with Michael Lai, who is a director in the appellant whilst
also a director in Minemills were privy to the fact that Minemills
Company had a legal battle over salaries. This reasoning cannot be
faltered where the respondents got an arbitral award on 20 May 2014
and the directors of Minemills
Trading (Pvt) Ltd signed
resolutions between 15 to 23 May 2014. Given that scenario connivance
could not be ruled out.
I
find merit in the court a
quo's
finding, that, whilst the companies are separate entities the actions
of the claimant's director and his counterpart, point to the
following facts;
(i)
That directors were conflicted in the manner in which they handled
the affairs of the companies involved in this dispute.
(ii)
Third parties were prejudiced as a result of their conduct.
(iii)
The third parties were not privy to the internal arrangements between
the holding company and its two subsidiaries.
Whilst
it is accepted that a holding company cannot be held liable for the
debts of a subsidiary. See Regina Gumbo
v Steelnent Zimbabwe (Pvt) Ltd and Another
HB84-13, the court a
quo
did not advocate for the taking over or satisfying of Minemills
Trading (Pvt) Ltd's debt by the holding company of the appellant.
Its stance was simply that the assets had not been proved to belong
to the appellant.
Ad
grounds 4, 5, 6, 17, 18
These
grounds pertain to the piercing of the corporate veil. The appellant
argues that the facts, as presented, did not require piercing of the
corporate veil. Fault is found in the court a
quo's
finding that:
“Although
it cannot be stated that the company was incorporated with deceptive
intent, it is however clear that the two subsidiaries are run by one
and the same people who would obviously protect their interest at all
means.”
In
Mkombachoto
v Commercial Bank of Zimbabwe Ltd & Anor
2002
(1) ZLR 21 (H)...,
the court held that:
“The
court may 'lift the veil' only where otherwise as a result only
of its existence fraud would exist or manifest justice would be
denied. See
Botha
Van Niekeck
1983
(3) SA 513 W at 522 – 24…,.”
For
the purpose of disposing of the dispute in this matter, we did not
find it necessary to dwell on the issue of the lifting of the
corporate veil as no personal liability is sought to be imputed to
the directors or shareholders of the companies involved. Clearly,
manifest injustice was to result had the court not traversed the
intricate relationship between the appellant, the holding company and
Minemills
Trading (Pvt) Ltd, the
judgment debtor; moreso, looking at the conduct of the directors. The
holding company, owning 49% of Minemills
Trading (Pvt) Ltd, had
an obligation to the honoring of liabilities in Minemills
Trading (Pvt) Ltd to
the extent of its shareholding. Its director, privy to the
obligation, whilst wearing a different hat as director of Minemills
Trading (Pvt) Ltd, handed
over assets to the appellant. At the same time the appellant's
director, in his capacity as the judgment debtor's director, handed
over assets to his other company, the appellant.
It
is this conduct, especially where Michael Lai signed the original
agreement (where the assets are the subject matter) in his capacity
as buyer representing judgment creditor in a transaction where his
company (the appellant) was the seller, that makes the whole claim
wreak of connivance. Upholding the claim would have resulted in
manifest injustice as the behaviour of the directors clearly and
largely defied the whole essence of the sanctity of the companies'
separate legal personality. There was thus no misdirection by the
court a
quo
on this point.
It
is due to the aforegoing reasons that the appeal was dismissed with
costs.
