CHAREWA J: The plaintiff,
through a series of offer letters commencing 30 March 2009 to 25 July
2011, advanced overdraft and loan facilities to Stir Crazy Group of
Companies (Annexures D, E, G, H, J and L to its particulars of claim
refers).
It is an undisputed fact that
Stir Crazy Group of Companies does not exist.
It was not put into contention
that the benefits of these overdraft and loan facilities were in fact
enjoyed by Stir Crazy Investments (Private) Limited (the principal
debtor in so far as the plaintiff is concerned). As a consequence of
these loan agreements;
1. 3rd defendant purportedly
provided security to the plaintiff, through an unlimited guarantee
dated 4 May 2009, in favour of Stir Crazy Group of Companies, for the
loan advances.
2. 2nd defendant provided similar
security, but with respect to Stir Crazy Investments (Private)
Limited, a legal entity, on 23 February 2010.
3. On 23 February 2010, 2nd
defendant gave power of attorney to any duly authorised employee of
plaintiff to pass a surety mortgage bond over its property, being
Stand 2729 Salisbury Township Lands, held under deed of transfer
number 11285/2002 dated 04 October 2002 in favour of plaintiff as
security for facilities granted to Stir Crazy Group of Companies
(Private) Limited, the non-existent entity aforesaid.
4. Under power of attorney in
favour of dated 31 March 2009 plaintiff registered a surety mortgage
bond on 5 November 2010 against both 3rd and 2nd defendants to secure
Stir Crazy Investments (Private) Limited's indebtedness to
plaintiff in the amount of $300,000 under.
5. 1st defendant also provided
security, passed under power of attorney dated 28 January 2010,
amounting to $1,050,000.00, by way of a Surety Mortgage Bond,
registered against Stand 9064 Salisbury Township Lands held under
Deed of Transfer number 8776/03 dated 31 October 2003, with respect
to Stir Crazy Investments (Private) Limited.
The plaintiff issued summons on 9
January 2014 against the defendants, as sureties and co-principal
debtors, for payment of outstanding capital and interest arising out
of advances made on 30 March 2009, 22 February 2010, 27 October 2010
and 3 August 2011, to Stir Crazy Investments(Private) Limited, which
had gone into voluntary liquidation. The summons was served on 17
January 2014. The plaintiff itself was subsequently taken over by
Afrasia Bank Limited which has, after the commencement of this
litigation, also since gone into liquidation.
A notice of substitution in these
proceedings was filed for Afrasia Bank Limited (in liquidation).
Three preliminary points of law
arising out of these facts were raised and argued before me as
follows:
1. Whether plaintiff's claims have prescribed:
2. Whether plaintiff has locus
standi in view of the fact that it went into liquidation after the
close of pleadings viz-a-vis the provisions of section 221(2) of the
Companies Act [Chapter 24:03].
3. Whether plaintiff has a cause
of action in view of the fact that of the guarantees and surety
mortgage bonds that it relies on are premised on loan agreements with
Stir Crazy Group of Companies, a non-legal entity.
To its credit, the plaintiff did
not contest that these points were properly taken. Rather, it
confined its arguments to the fact that they lacked merit. Indeed, it
is trite that points of law can be raised at any stage of the
proceedings, provided that they go to the root of the matter and were
not required to be specifically pleaded. See Muchakata v Netherburn
Mine 1996 (1) ZLR 153 (S) at 157A, Muskwe v Nyajina & Ors SC
17-12, and Gold Driven Investments (Private) Limited v Telone
(Private) Limited & Anor SC9-13. I will deal first with the issue
of locus standi, because if the plaintiff has no standing before the
Court, it will not be necessary to determine whether it has a valid
cause of action or whether its claims have prescribed, except for
purposes of tying up all loose ends.
DOES PLAINTIFF HAVE LOCUS
STANDI BEFORE THE COURT?
The defendants argued that legal
proceedings on behalf of a company in liquidation must be brought by
the liquidator with leave of the Court, the absence of such leave
being a bar to the proceedings. Where a company went into liquidation
after the commencement of the legal proceedings, the liquidator must
associate himself with the proceedings and asserts that he continues
with them himself, with the appropriate authority, which is the leave
of the court. In the absence of the liquidator's express
association with the proceedings, supported by the proper authority,
the matter ought to fail. That the directors or anyone else may have
filed a notice of substitution in terms of Rule 85, or the Master may
have authorised continuation of litigation does not dispense with the
requirement for the leave of the Court in these particular
circumstances. They concluded by arguing that the provisions of
section 221(2) of the Companies Act are peremptory, and create no
exception.
For its part, plaintiff argued
that section 221 does not apply to the continuation of litigation
that is pending, but only to the “bringing or defending” of fresh
proceedings. Rather section 213(a) is applicable and in any event,
since para 3 of the order of the court placing the plaintiff in
liquidation authorised the liquidator to bring and defend legal
proceedings, it was not necessary to seek leave of the Court again.
The plaintiff further averred that even assuming that section 221(2)
also encompasses the continuation of pending proceedings, the winding
up order suffices to give authority to continue with litigation. In
any event, since it filed a notice of substitution which the
defendants did not object to, the liquidator was properly joined to
the proceedings. At any rate, the plaintiff asserted, the Master did
authorise the continuation of legal proceedings at a creditors'
meeting, rendering it unnecessary to go back to Court to seek leave.
The Law
Section 221(2) provides as
follows:
“(2) The liquidator shall have
power, with the leave of the court or with the authority mentioned in
subsection (4) or in paragraph (a) of subsection (4) of section two
hundred and eighteen—
(a) to bring or defend in the
name and on behalf of the company any action or other legal
proceeding of a civil nature and, subject to any law relating to
criminal procedure, any criminal proceeding: Provided that
immediately upon the appointment of a liquidator or a provisional
liquidator the Master may authorize upon such terms as he thinks fit
legal proceedings for the recovery of any outstanding accounts, the
collection of which appears to him to be urgent;”
For its part, section 221(4)
provides that:
“(4) He may, with the authority
of a resolution of creditors and contributories, duly passed at a
joint meeting thereof, do any act or exercise any power for which he
is not by this Act expressly required to obtain leave of the court.”
Section 218(4)(a) provides as
follows:
“(4) Where no name of any
person has been submitted to the Master for appointment as liquidator
as a result of the summoning of a meeting of creditors or
contributories in terms of section two hundred and twenty-one the
Master may—
(a) appoint any fit person as the
liquidator of the company and may authorize such liquidator to
exercise such of the powers set out in subsection (2) of section two
hundred and twenty-one as the Master may think fit; “
Section 213(a) provides that:
“In a winding up by the court -
(a) no action or proceeding shall
be proceeded with or commenced against the company except by leave of
the court and subject to such terms as the court may impose;”
According to M.S. Blackman et.al
in the Commentary on the Company's Act Volume 3 @ p.14:
“It is clear that a company
being wound up never has standing, the locus standi is always
conferred on the liquidator who litigates on the company's behalf.”
To my mind, these provisions
infer that there must always be a conscious and deliberate decision
by the liquidator to pursue legal proceedings. In my view,
distinction must be made between the issue of locus and that of
citation, i.e. how a party is named in legal proceedings.
The position with regard to
citation is aptly summed up in Herbstein & van Winsen's The
Practice of the High Courts in South Africa 5th Ed Volume 1 p.179
which states:
“When a company is in
liquidation and the liquidator sues on the company's behalf for
debts owing to the company, the company should be cited by its name
with the subjoined expression 'in liquidation'. However, where
the liquidator is enforcing rights as liquidator, then the name of
the liquidator should be cited as nominee offices.”
In casu, I understand the main
argument of the defendant to be that the liquidator, in exercising
his power to sue on behalf of the company, did not seek the leave of
the court as required by law. The secondary argument is that in
seeking to substitute the plaintiff in liquidation, such substitution
cannot be a unilateral act by the plaintiff, but a decision of the
liquidator. Consequently, the plaintiff lacks locus standi.
In my view therefore, there is
thus no issue raised by the defendants regarding citation.
Application of the law to the
facts
I am of the view that the purport
of the provisions of the Companies Act are that nothing can be done
for, and on behalf of a company in liquidation by the liquidator
unless the leave of the Court has been obtained. Alternatively, where
the leave of the Court is not expressly required, the creditors and
contributories must have resolved that the liquidator should carry
out any act or exercise any power for and on behalf of the company.
Further, where the meeting of creditors or contributories has not led
to the submission of the name of any person for appointment as a
liquidator, the Master is at liberty to appoint any fit person as
liquidator and authorize him to exercise the powers set out in
section 221(2). In casu, it is not necessary to concern myself with
the provisions of section 221(4) as this provision deals only with
situations where the leave of the Court is not required. Nor is it
necessary to deal with the provisions of section 218(4)(a) as it has
not been argued that the liquidator was appointed in terms thereof by
the Master.
According to para 5 and 8.5.1 of
plaintiff's heads of argument, it seems that this was a liquidation
ordered by the Court. In so far as section 213(a) is concerned, I do
not agree with plaintiff that it is at all relevant as this section
prescribes situations where litigation is being brought against a
company in liquidation, rather than the circumstances of this case
where a company in liquidation is bringing legal proceedings.
I align myself fully with the
views of Muremba J in Zimbabwe Allied Bank Limited v Caleb Dengu &
Anor HH583-15 @ p 3 when she stated:
“The import of this section is
that a company which is in liquidation cannot be sued without the
person seeking to sue it first obtaining leave of the court. Even if
proceedings are commenced before the defendant company is placed
under liquidation, once it is placed under liquidation those
proceedings cannot continue without the plaintiff first obtaining the
court's leave.”
She went on to quote Uchena J (as
he then was) in Thirdline Trading (Pvt) Ltd & Anor v Boka
Investments (Pvt) Ltd & Anor HH130-11 when he said:
“There is no doubt in my mind
that section 213(a) of the Companies Act deals with the proceedings
with or commencement of actions against the company. This means
actions by the company itself are not covered under section 213(a).”
I will also make short shrift of
the argument that, since the Master, at a meeting of creditors,
authorised the liquidator to continue with legal proceedings it was
not necessary to seek leave of the court.
It is trite that the Master is
not a court nor does he sit as a judicial officer. He can never be
substituted for a court, where the leave of the Court is required.
This is why the legislature made separate provisions for when the
Master may make decisions and give directions, and reserved certain
areas for the leave of the court to be obtained. Ergo, the Master
and the court are not interchangeable where leave of the court is
required. By making provision requiring leave of the court to be
obtained, the legislature must have intended this to refer to a judge
or magistrate, as these are the only persons authorised to preside in
court.
I am of the view that reference
to leave of the court meant that the legislature intended that the
court should retain its general power to authorise litigation to
protect creditors and any other party, entity or person dealing with
an entity in liquidation. (See also Millman & Sternub NO v
Koetter, 1993 (2) SA 749). By a process of elimination therefore, the
only provision which deals with proceedings brought by a company in
liquidation which remains to be resolved can only be section 221(2).
While it seems clear on the face
of section 221(2) that whenever the liquidator intends to commence
legal proceedings on behalf of a company under liquidation, he must
obtain the leave of the court, the question that arises is, when
Afrasia Bank went into liquidation, was it necessary for the
liquidator to obtain the leave of the Court to proceed with the
litigation?
The plaintiff argues that the
order placing the plaintiff into liquidation, in para 3 thereof,
granted the liquidator the power to bring and defend legal
proceedings. In that regard, it was not necessary to go back to Court
to seek leave to continue with this particular litigation. I note
however, that the order placing plaintiff into liquidation was not
discovered, nor was the case reference provided. It is therefore
unclear on the record when Afrasia Bank went into liquidation, but I
surmise that it was subsequent to the pre-trial conference. At any
rate it was before the heads of argument were filed, hence the point
of law on locus standi raised therein remains valid.
I understand the defendants
argument to be that, a general order authorising the liquidator to
bring or defend proceedings is not enough for purposes of section
221(2), but that the liquidator must expressly associate himself with
proceedings that commenced before his appointment, and, secondly, he
must have the specific leave of the Court to continue with such
litigation. In that regard, they argue that a unilateral “Notice of
Substitution” is not adequate to show that the liquidator expressly
associates himself with the litigation and has obtained the leave of
the Court to continue therewith, as it is not clear who authorised
such notice of substitution: the directors, whose power terminated
upon the granting of the winding up order, or the liquidator who has
not sought the requisite authority of the Court.
In answering the question whether
or not the liquidator requires leave to proceed with litigation which
commenced prior to litigation, I cannot do better than to quote
Muremba J in the Zimbabwe Allied Bank Limited case (supra) at p 6-7
when she said:
“….one has to consider that
the effect of a liquidation order is to freeze the affairs of the
company with a view to preserve its assets. Any disposal of the
assets of the company without the leave of the court is void (section
213(c) of the Companies Act). When the affairs of the company have
been frozen it means that that they have been stopped or rendered
motionless. The assets of the company are prevented from being used
for that time. So when a liquidator is appointed, he starts running
the affairs of the company. I believe that if he wants to bring any
legal proceedings to court on behalf of the company, be they fresh
legal proceedings or proceedings which commenced before liquidation
he has to seek the leave of the court. In my view the whole idea for
seeking the court's leave even in proceedings which commenced
before liquidation is to protect the company assets and prevent
unnecessary expenditure of what would otherwise be available to
satisfy the demands of the creditors. As correctly submitted by
Advocate Matinenga, litigation involves costs and sometimes the costs
that are involved can be disproportionate to the company's
resources. Some legal proceedings may even result in prejudice to
creditors. As such I do not believe it was the intention of the
legislature to let the liquidator simply proceed with actions which
commenced before liquidation without obtaining leave of the court.”
I am thus not persuaded by the
plaintiff's argument that section 221(2) only applies to fresh
proceedings rather than proceedings commenced by a company before it
went into liquidation when it argues that to read the words
“continue”, “complete” or “proceed” is tantamount to the
court usurping to itself legislative powers.
It is elementary that the status
of entering into liquidation has the effect of putting a company into
suspended animation. Everything freezes until the liquidator sets all
the acts of the company into motion once again. Therefore, any acts
that are done by the liquidator are being done after he has decided
that in his considered opinion they are necessary and in the best
interests of the company and its creditors. In that respect they are
his fresh decisions, be it to commence new proceedings or to continue
with proceedings that started before liquidation. For this he
requires the leave of the court, otherwise there is no locus standi.
See also Trade Bank Ltd &
Anor v Elysium Ltd & 2 Ors (2012) eKLR based on section 241(1) of
the Kenya Companies Act, which is worded similarly to section 221(2)
where the court held that:
“The liquidator …….has not
provided any evidence to this court to show or prove that he secured
the leave of the court to commence or to continue, with these
proceedings in the name of the company. (the emphasis is mine) That
being so ……..the plaintiff lacked the capacity to bring this
suit.”
In so far as the Notice of
Substitution is concerned, I am inclined to agree with the
defendants, that the notice is in itself not sufficient to show that
the liquidator expressly associated himself with the proceedings or
that he has the leave of the court to continue therewith. As I have
already stated above, a notice of substitution merely goes to show
the change in the status of the company: that it is now under
liquidation, rather than that there is authority for the liquidator
to continue with legal proceedings.
On the record before me, it is
not clear when Kingdom Bank became Afrasia Bank. What is apparent is
that Afrasia Bank went into liquidation (see para 8.5.1 of
plaintiff's heads of argument) by or before 14 October 2015 (see
paragraph 1 of 3rd defendant's heads of argument), when plaintiff
filed a Notice of Substitution to Afrasia Bank Zimbabwe Limited (in
Liquidation), well after the close of pleadings. Nothing on the
record shows that the leave of the Court was sought or obtained to
continue with the litigation, nor is there anything to show that the
liquidator associated himself with the legal proceedings. The
liquidation order that was obtained, while authorising the liquidator
to bring legal proceedings on behalf of the company in general, did
not allow the court the opportunity to exercise its judicial
discretion whether or not to allow the continuation of these
particular proceedings. (See Millman supra). In fact, I would not be
surprised if the judge who granted the liquidation order had no idea
at all that there were pending legal proceedings, and did not give a
thought as to the “amount and seriousness of the claim; the degree
and complexity of the legal and factual issues involved; the stage to
which the proceedings may have progressed; whether the claim has
arguable merit; and whether the proceedings will result in prejudice
to the creditors among other factors” (per Muremba J in Zimbabwe
Allied Bank Limited (supra)'.
In any event that liquidation
order was not sought by the liquidator. The process to put the
company into liquidation precedes the appointment of the liquidator.
Therefore, any authority in such an order for a liquidator to “bring
and defend legal proceedings” does not, in my view, render
unnecessary the requirement for the liquidator, once he is appointed,
to comply, in his own name and right, with section 221(2), and for
the court to maintain its judicial supervisory role to protect the
creditors or any other party from unnecessary litigation.
In the result I uphold the point
in limine that that the plaintiff lacks locus standi.
DOES PLAINTIFF HAVE A CAUSE OF
ACTION?
In the event that I am wrong in
finding that plaintiff lacks the locus standi to be before the court,
it is necessary to consider the second point of law: that the
plaintiff does not have a cause of action.
The first and second defendants
asserted that:
“The allegations apparent
throughout the pleadings are that the guarantee upon which the
Plaintiff sued was executed by and on behalf of a non-existent entity
who is not before the Court.” (See paragraph 7 of their heads of
argument).
The third defendant on her part
submitted that:
“…the plaintiff must in any
event fail on the merits because it bases its claim against her on an
invalid guarantee.” (See paragraph 6 of her heads of argument).
The defendants base their
positions on the fact that the plaintiff asserts that the principal
debtor is Stir Crazy Investments (Private) Limited, in circumstances
where the loan agreements and some of the guarantees upon which the
plaintiff's claims are based are all in favour or in the name of
Stir Crazy Group of Companies.
The factual position with these
documents is as follows:
(a) Loan Agreements:
They are all in the name of Stir
Crazy Group of Companies.
(b) Unlimited guarantees:
There is none by 1st defendant.
2nd defendant's is in favour of Stir Crazy Investments (Private)
Limited. 3rd defendant's is in favour of Stir Crazy Group of
Companies.
(c) Surety Mortgage Bonds:
They are all in favour of Stir
Crazy Investments (Private) Limited.
(d) Company Resolutions to
take up the plaintiff's loan offers:
They were all on behalf of Stir
Crazy Group of Companies.
(e) Powers of Attorney to pass
security mortgage bonds:
They were all in favour of
securing the loans advanced to Stir Crazy Group of Companies.
The plaintiff does not deny that
all the loan agreements state that the principal debtor is Stir Crazy
Group of Companies, but avers that this was a non-material error
common to the parties and which does not vitiate their consensus.
Further, the defendants are the authors of the error and cannot use
it to their own benefit and in any event, one Ronald John Coumbis who
signed the agreements had the express authority of Stir Crazy
Investments (Private) Limited to do so. Except by extension of its
argument that this was a mistake common to all the parties the
plaintiff does not advance any explanation why the guarantee by the
third defendant was in favour of Stir Crazy Group of Companies, or
why surety mortgage bonds were registered on behalf of Stir Crazy
Investments (Private) Limited on the strength of resolutions and
powers of attorney in favour of Stir Crazy Group of Companies.
It is trite that a party must
have a cause of action against the party it seeks judgment against.
Case law has settled that cause
of action pertains to those facts that a plaintiff must prove to
support its right to judgment by the court. (See Peebles v Dairibord
Zimbabwe (Private) Limited 1999 (1) ZLR 41 (H). I must point out
that the first and second defendants are obviously wrong, on the
facts, when they assert that “the guarantee upon which the
Plaintiff sued was executed by and on behalf of a non-existent entity
who is not before the Court.” The first defendant did not in fact
execute any guarantee at all, and the second defendant executed a
guarantee against an existing entity: Stir Crazy Investments (Pvt)
Ltd.
However, the plaintiff's cause
of action is still fraught with challenges.
Firstly, it arises out of the
loan agreements it entered into with Stir Crazy Group of Companies,
an entity which does not exist. It then executed guarantees and
surety mortgage bonds to secure its cause as circumscribed by those
loan agreements. Some of the guarantees are in favour of the
non-existent entity (for 3rd defendant). Other guarantees (for 2nd
defendant) are in favour of an existing legal person which is not
party to the loan agreements. And the security mortgage bonds are in
favour of an existing legal person which is not party to the loan
agreements. All these issues raise real questions as to the validity
of these security documents. If a principal debtor does not exist or
has never existed, the principle debt cannot arise as against the
surety. In my view therefore, the guarantee and any security mortgage
bond based thereon is invalid. (See Muchabaiwa v Grab Enterprises
(Pvt) Ltd 1996 (2) ZLR 691 (S). See also CF Forsyth and JT Pretorius,
Caney's Law of Suretyship (4ed) p.36).
It cannot be denied that, on the
face of the documents in the record, the loan agreements were between
plaintiff and the non-existent Stir Crazy Group of Companies. I did
not see on the record, or hear a denial by the plaintiff that it was
not solely responsible for drawing up all the documents pertaining to
these loan agreements. This was therefore not a matter of an
innocent misrepresentation by the directors of Stir Crazy Investments
(Pvt) Ltd. Now, plaintiff has sued on a principal debt it alleges is
owed by Stir Crazy Investments (Pvt) Ltd, contending that by an error
common to the parties, the loan agreements and all security documents
referring to Stir Crazy Group of Companies, ought instead, to have
referred to Stir Crazy Investments (Pvt) Ltd.
In my view, what the plaintiff
seeks this court to do is to amend the agreements between itself and
Stir Crazy Group of Companies to refer to Stir Crazy Investments
(Pvt) Ltd.
Christie: The Law of Contract in
South Africa (5ed) at p. 366 has this to say on the powers of a court
to amend contracts between parties:
“The fundamental rule that the
court may not make a contract for the parties is a salutary one, the
principle of which has probably never been seriously questioned. It
is unthinkable that the courts should not only tell the parties what
they ought to have done but then makes them do it by enforcing the
court's idea of what the contract ought to have been.”
The question then is whether the
court should tell the parties that the loan agreements ought to have
been between plaintiff and Stir Crazy Investments (Pvt) Ltd, and all
the security documents, also ought to have referred to that company
and order the parties to so change the documents.
The plaintiff seems to suggest
so, while the defendants say no.
I am inclined to agree with the
defendants, as ordering such correction of the documents would in my
view amount to making of a contract for the parties. It would seem to
me the defendants were presented with papers by the plaintiff and
instructed where to sign, which they did. For all the court knows,
the defendants may have intended to group all their companies under a
yet to be formed Stir Crazy Group of Companies. Nor is it far-fetched
even to consider that they may have noticed the plaintiff's error
and decided to go ahead with a view to doing exactly what they are
doing now: claim that plaintiff had no cause of action against them
as it dealt with a non-existent company. In either case, I do not
think that this is a case where I can safely agree that there was a
mistake common to the parties and amend the various loan agreements
plaintiff entered into.
In reaching this conclusion, I am
mindful of the settled principle that the court cannot correct an
agreement between parties as if it were pleadings, as that would
amount to making a contract for the parties. (See also Dr Jane Mutasa
v Telecel International and Anor HH331-14; Delta Operations (Private)
Limited v Origen Corp (Private) Limited 2007 (2) ZLR 81 (S) 86 F-G;
Ballantyne Butchery (Private) Limited v Chisvinga & Ors SC6-15.)
Rather, it seems to me that
plaintiff was grossly negligent in the manner that it prepared its
documentation for the loans it advanced. My disinclination to amend
the loan agreements, and all subsequent security documents to
guarantee these loans is further influenced by the fact neither Stir
Crazy Group of Companies, nor Stir Crazy Investments (Pvt) Ltd are
before me. Therefore for me to interfere in agreements wherein I have
not heard some of the parties involved is not, in my view, proper.
I do not find that the fact that
Stir Crazy Investments (Pvt) Ltd is suing plaintiff on the same
agreements in HC10569/14 is a bar to the sureties and guarantors to
raise the defences that they have, particularly, since the defendants
in this case are not party to the action between plaintiff and Stir
Crazy Investments (Pvt) Ltd. These are separate legal entities
mandated to protect their separate interests. In any event, that Stir
Crazy Investments (Pvt) Ltd may have established a cause of action
against plaintiff, does not directly translate to a cause of action
by plaintiff against the defendants in this case. Plaintiff must
establish its own cause of action against the defendants, which, in
my view, it has failed to do.
WHETHER PLAINTIFF'S CLAIMS
HAVE PRESCRIBED
Whether or not I am wrong on
locus standi and cause of action, the plaintiffs claim must still
satisfy the requirements for prescription.
Plaintiff alleged that payment
was due to it as follows:
(a) Claim 1 – 11 December 2009;
(b) Claim 2 – 19 May 2010;
(c) Claim 3 – 15 January 2011;
and;
(d) Claim 4 – 31 January 2012
and 31 July 2012.
The defendants argued that,
plaintiff's claims being for debts, they were subject to extinction
three years after they became due in accordance with sections 14 and
15 of the Prescription Act [Chapter 8:11] (“the Act”).
The third defendant therefore
argued that, based on the allegation in the summons, plaintiff's
Claims 1-3 were destroyed by reason of prescription, as three years
had elapsed from the date they became due to the date of service of
summons, in accordance with section 15(d) of the Act.
The first and second defendants
took the argument further to argue that all four claims had
prescribed as they became due from the dates the loans were agreed
on, that is on 30 April 2009, 19 May 2010, 27 October 2010 and 3
August 2011. For this assertion, they relied primarily on Chiwawa v
Mitzuris & Ors 2009 (1) ZLR 72, where Makarau JP (as she then
was) held that the date of the agreement from which obligations arose
is the date upon which the cause of action arises.
The plaintiff, on the other hand,
argued that its claims had not prescribed because:
(i) They were secured by mortgage
bonds registered in favour of the plaintiff by first defendant and
another judgment debtor, which prescription period is thirty (30)
years, in accordance with section 15(a) of the Act.
(ii) Alternatively, the principal
debtor was not in mora prior to liquidation due to indulgencies the
plaintiff granted to it, which therefore precluded pursuance of the
claims against guarantors, (per Millmann and Another v Masterbond
Participation Trust Managers (Pty) Ltd (Under curatorship) and Others
1997 (1) SA 113); or
(iii) Alternatively, the
principal debtor fell in mora upon entering into liquidation, and
such placement into liquidation of Stir Crazy Investments (Pvt) Ltd
on 19 September 2012 interrupted prescription as provided for in
section 17(1)(d) of the Act; or
(iv) Finally, the issuance and
service of summons in HC589/13, though withdrawn against some of the
defendants, interrupted the running of prescription. Reliance for
this averment was put on Union Government v Willemse 1922 OPD 14 at
17.
The Law
It is trite that the general
prescription period for all debts is three years in accordance with
section 15(d), while that for debts secured by mortgage bonds is 30
years in terms of section 15(a). It is also trite that the completion
of prescription is delayed where debts are against a company which
has entered into liquidation (see section 17(1)(d) of the Act).
Finally, it is settled law that prescription can also be interrupted
by judicial process (see section 19 of the Act).
I also agree with the plaintiff,
with regard to sureties, that the correct position is as summarised
in Millmann & Anor v Masterbond Participation Trust Managers
(Pty) Ltd (under curatorship) & Ors 1997 (1) SA 113C when
Friedman JP and Farlam J said:
“In our view, the legal
position was correctly stated by Professor JG Lots in Joubert (ed)
The Law of South Africa volume 26 paragraph 161 where the following
statement appears:
'unless the parties have agreed
otherwise, a surety's debt normally becomes enforceable as soon as
the principal debtor is in default, subject, however to the surety's
right to claim that the principal debtor first be excused. If the
surety has bound himself as co-principal debtor, his debt becomes
enforceable at the same time as the principal debt.'”
Application of the law to the
facts
From the above legal principles,
I am of the view that, as a general principle, in a matter involving
a loan or debt with agreed payment terms, as long as the principal
debtor is not in mora prescription does not begin to run, as the
debtor will be complying with the terms of the agreement and there is
no cause to bring suit against it. However, where a debt is due to be
paid on or from a particular date, and/or instalment payments are not
made accordingly, then the principal debtor is in mora as at that
date and prescription begins to run therefrom as that is the date the
cause of action arose. For instance, where a party enters into a
five year loan agreement and makes the required repayments faithfully
for the first four years, prescription does not begin to run. But
once the party defaults, then the cause of action arises and
prescription then runs from that date.
I do not understand the
provisions of the Prescription Act to mean that prescription runs
from the date of the agreement where a party is not in mora as that
would mean issuance and service of court process to interrupt
prescription where there is no cause, thus creating a bane to
commerce. For that reason, it is my view that the position in Chiwawa
v Mitzuris is distinguishable. There the judge was dealing with a
situation where a party's right to transfer was at issue. She
correctly held that the plaintiff was entitled to transfer of
property from the date the agreement was concluded, and prescription
therefore began to run from that date.
In the present case, we are
concerned with the issue of loan repayments, where a debtor can only
be in mora from the date he defaults on his repayments.
In casu, it has not been
established, on the record, exactly when the principal debtor went
into mora by dint of defaulting in repayments. The plaintiff claims
it was at the time Stir Crazy Investments (Pvt) Ltd went into
liquidation, while the defendants claim that it was at the time the
loan agreements were entered into.
Now, if the principal debtor is
Stir Crazy Group of Companies, as appears on the loan agreements,
then of course it went into mora as at the date of the loan
agreements, as that non-existent company never made any payment to
plaintiff. And since there are no security mortgage bonds to secure
its indebtedness, the plaintiff's claim had prescribed by the time
summons were issued. Chiwawa and Mitzuris being the case in point. It
is another matter if the principal debtor was Stir Crazy Investments
(Pvt) Ltd. If the parties agreed various indulgencies in its favour,
(which I assume to be debt rescheduling agreements), as alleged by
plaintiff then it only went into mora upon entering into liquidation
in 2012. Therefore, regardless of the existence of security mortgage
bonds, plaintiff's claim would still have been live as at the date
of summons; Chiwawa v Mitzuris, being inapplicable.
However, plaintiff has not
produced or proven the existence of these debt rescheduling
agreements, leaving it unproven that Stir Crazy Investments was not
in mora until it went under liquidation. Therefore, assuming that the
principal debtor is Stir Crazy Investments (Pvt) Ltd, the surety's
liability in this case did not arise at the inception of the loans,
but at the undetermined time that the principal debtor defaulted in
meeting the repayment terms, which obviously is after the dates of 30
April 2009, 19 May 2010, 27 October 2010 and 3 August 2011 for claims
1-4, as it is standard practice that loan repayments cannot be due on
the dates of the loan advances but subsequently. And from plaintiff's
own assertions that indulgencies were granted to Stir Crazy (Pvt) Ltd
prior to liquidation, then the dates of defaults were certainly
before the date the company entered into liquidation. Consequently,
with regard to Stir Crazy Investments (Pvt) Ltd, I am unable to
accept both parties' assertions that prescription began to run from
the date of the loan agreements or from the date of liquidation.
Regarding plaintiff's averment that the running of prescription was
judicially interrupted, I take note that plaintiff instituted legal
proceedings in HC589/13. However, such process was withdrawn with
respect to the defendants herein after summons had been served.
I do not find favour with the
plaintiff's argument that the fact of serving the summons was
enough to interrupt prescription in terms of section 19. This is
because this provision requires that the creditor must successfully
prosecute his claim to a final judgment of the court [see section
19(3)(a)], otherwise prescription shall be deemed not to have been
interrupted. I have not been referred to nor have I found any
authority for the position that if a plaintiff successfully
prosecutes his claim against one debtor prescription is interrupted
from running as against another. In fact such a principle would
render ineffectual the entire purport of the Prescription Act.
Likewise, while it is true that prescription is delayed as against
the principal debtor once it is placed under provisional liquidation
before any of the plaintiffs' claims prescribed, I do not believe
that it necessarily follows that section17(1)(d) is always applicable
to claims against sureties (see the Law of South Africa, supra). On
the face of it, section 17(1)(d) is unambiguous: it provides for
delay in completion of prescription where “the debt … is the
subject matter of a claim filed …… against a company in
liquidation” (my emphasis).
In casu, prescription would
certainly have been delayed as against the principal debtor, but the
defendants are not companies which had entered into liquidation for
which prescription could have been delayed. Therefore had the
principal debtor defaulted long before it went into liquidation,
prescription for the defendants would have started to run as soon as
the principal debtor went into default. I do not hold that subsequent
liquidation of the principal debtor would have been a factor for the
prescriptive period of the defendants.
In so far as the security
mortgage bonds are concerned, and assuming the validity thereof,
there is no doubt that the first defendant provided a surety mortgage
bond to the plaintiff on behalf of the principal debtor to secure its
indebtedness to plaintiff. This is clear on the face of the bond at
pp 39-42 of the plaintiff's bundle of documents. Consequently, the
prescription period for the debts secured by this bond (if valid) is
30 years and thus would not have prescribed at the time that summons
was served. However, it is also clear from the record that the first
defendant did not provide any unlimited guarantee. Therefore it seems
to me that the first defendant's exposure to the principal debtor's
liability is limited to its obligations under the security mortgage
bond. At the time that summons were issued, the first defendant was
liable to the plaintiff in the amount of $1,050,000 secured by
mortgage bond number 8776/03 dated 31 October 2003 over Stand 9064 of
Salisbury Township. This is therefore the debt I would have found not
to have prescribed had I ruled otherwise on cause of action. There is
no evidence on the record that the second defendant ever provided any
security mortgage bond. It however did provide an unlimited
guarantee, in favour of Stir Crazy Investments (Pvt) Ltd, which of
course, had no effect on the running of prescription. I am, however,
unable to find that all claims against the second defendant had
prescribed or not, as neither party was able to prove to my
satisfaction the exact date when prescription started to run.
It is another matter with regard
to the third defendant.
She gave an unlimited guarantee
in favour of Stir Crazy Group of Companies and provided a surety
mortgage bond in favour of Stir Crazy Investments (Pvt) Ltd valued at
$300,000. However, I accepted her argument, on determining the
question of cause of action, that the unlimited guarantee which she
provided was in favour of a non-existent company, and was
consequently a nullity. By extension therefore, I am unable to fault
the logic that nothing can stand on nothing: once the unlimited
guarantee is a nullity, then it cannot validly ground the mortgage
bond. And since I was not inclined to amend the loan agreements
between plaintiff and Stir Crazy Group of Companies to refer to Stir
Crazy Investments (Pvt) Ltd, there is no causal connection between
the loan agreements and the security mortgage bond that the third
defendant provided. Therefore I cannot find that the prescription
period ought to be 30 years. Consequently, I cannot hold that the
plaintiff's claim against the third defendant had not prescribed.
In the event, I cannot agree with the plaintiff that the defence of
prescription was wrongly taken.
DISPOSITION
In the result, it is ordered
that:
1. The plaintiff 's claim is
struck off for failure to establish its locus standi to bring this
action;
2. The plaintiff's claim is, in
any event, dismissed for want of a cause of action against the
defendants;
3. The defendants defence of
prescription is upheld;
4. The plaintiff shall pay the
defendants' costs of suit.
Sawyer and Mkushi, plaintiff's legal practitioners
Wintertons, 1st & 2nd defendants' legal practitioners
Atherstone & Cook, 3rd defendant's legal practitioners
