MATHONSI
J: The
applicant was employed as Group Engineering Director by the first
respondent, which represented itself as a holding company comprising
several subsidies with the second respondent as its Chief Executive
Officer.
The
letter of his appointment containing the terms of employment dated 7
May 2009 was signed by the second respondent in his capacity as the
Chief Executive Officer. It reads as follows:
“REF:
APPOINTMENT TO THE POSITION OF GROUP ENGINEERING DIRECTOR EFFECTIVE 1
JUNE 2009
Following
the initial discussion with me and the subsequent interview conducted
at our Head office, I wish to confirm your appointment to the above
position whose duties include the following:
(i)
Management of all Group Engineering Projects and Installations.
(ii)
Production Process improvements to include automation and plant
simplifications.
(iii)
Advise and liaison with divisions on safety matters.
(iv)
Advise and liaison with divisions on procurement issues.
(v)
Developing preventive maintenance programmes for all divisions.
(vi)
Building inspections for structured works.
(vii)
Introduction to best practices in all manufacturing processes.
As
a Director you will be expected to undertake full executive functions
for the group from time to time at fora and engagements inside and
outside the group.
Your
initial package will be as follows:
Basic
salary: US$3 000-00 per month
Education
Allowance: US$ 500-00 per month
Cellphone
Allowance: US$
250-00
per month
Total ___________
Salaries
are reviewed upward periodically in line with group performance.
After your 3 months probation you will be offered participation in
the share options have no doubt that you will be able to make immense
contributions given your attitude to work and vast experience and
that you will work well with our executive dynamic team that has
created a very robust and fast growing organisation.
Yours
faithfully
D.
Govere
CHIEF
EXECUTIVE OFFICER”
The
appointment letter, which was copied to Chief Operations Officer and
Chief Finance Officer clearly refers to a “Group” of entities and
“divisions” of what was presumably a family of businesses falling
under the umbrella of Harambe Holdings.
In
addition, an organogram was generated and made available to the
applicant showing the structural lay out of the group of subsidies
making up the first respondent holding company.
The
applicant remained in employment for 11 months and when he did not
receive his salary and allowances in accordance with the employment
contract, he referred the dispute to arbitration.
An
arbitral award was issued in his favour in the sum of US$61,879-00.
He
has been unable to execute against first respondent's property to
recover the judgment debt because each time an attachment of property
is made, such property is claimed by a third party.
This
has prompted the applicant to make this application seeking an order
to compel the respondents to disclose the addresses and places of
business of the subsidies of the first respondent. In the event of
failure to disclose, he wants the second respondent to be held
personally liable for what is owed to him.
The
basis of the application is that the respondents represented to him
that the first respondent was a holding company or a conglomeration
comprising inter
alia,
of The Vinyl Tile Company; Freshbak, Downings, Superbake, Ecoplastics
(Pvt) Ltd, Horeca, Household Converters, Intertec (Pvt) Ltd &
Tacoola Beverages (Pvt) Ltd.
By
such fraudulent misrepresentation he was persuaded to take up
employment as the Group Engineering Director of these entities only
for the employer to fail to pay him.
In
support of that claim the applicant has submitted, in addition to the
organogram I have alluded to, a letter-head and trading brochures of
the various entities representing each entity as “a division of
Harambe Holdings.” This, according to the applicant, shows that
both the first respondent and these other entities have been
announcing to the whole world and indeed the applicant that they are
one family.
He
would therefore want the veil of incorporation to be lifted to expose
them for what they are.
The
application is contested by the respondents on the basis that no
fraud has been established and therefore there is no basis for
lifting the corporate veil. In his opposing affidavit, the second
respondent states in para 4 as follows:
“The
correct position is that the first respondent holds shares in these
companies. I deny that I ever told him that it carries its
operations through the subsidies. These companies do their own
business and like any other shareholder the first respondent would
get a dividend whenever it is declared. This is not the same as
operating through other entities or in the name of these entities.”
Significantly,
the second respondent does not take the court to his confidence as to
the nature of the shareholding and does not even bother to produce
the respective share certificates held by the first respondent.
True
to his refusal to let out any information relating to the affairs of
the businesses, the second respondent states at para 6 that “silence
does not disclose any fraud” and that himself and the first
respondent “have no duty to make the disclosures asked for.”
The
respondents also half heartedly sought to challenge the jurisdiction
of this court to entertain the application on the basis that it is a
labour matter.
It
is now settled that this court has jurisdiction over all matters
where the cause of action and remedy are at common law while the
Labour Court retains jurisdiction on those matters provided for in
the Labour Act (Cap 28:01). See DHL
International Ltd v
Madzikanda
2010 ZLR 201 at 204B-D; Moyo
v
Gwindingwi
N.O & Anor
HB168/11 (as yet unreported).
Happily
though, Mr
Bvekwa
for the respondents abandoned that line of argument in his
submissions in court.
The
cardinal principle of our company law is that a company enjoys
separate legal personality, generally referred to as the legal
persona principle. For that reason, its property and its liabilities
should be maintained distinct and separate from those of its members.
However,
the courts have always readily lifted the corporate veil where the
company is used as a vehicle for fraud or to justify wrong.
Mr
Kawonde,
for the applicant has strongly argued that the second respondent
represented to the applicant and produced an organogram to justify
his representation that the entities from which the applicant now
seeks relief were first respondent's subsidies. He submitted
further that both the first and second respondents stood akimbo as
all the entities masqueraded as subsidies of the first respondent
even through brochures.
For
instance, one of the entities advertised on its brochures as “The
Vinyl Tile Company is a subsidiary of Harambe Holdings, a wholly
owned Zimbabwean Company.”
Mr
Kawonde
insisted that the entities are all vehicles through which Harambe
Holdings (Pvt) Ltd fraudulently avoids its obligations including the
payment of the applicant's salary and allowances.
I
am persuaded by that argument.
This
is particularly so as both the first and second respondents have
signally failed to even produce the certificates of incorporation of
these entities and their lists of directors. They have simply
remained mum on anything to do with the status of both the first
respondent and its subsidiaries.
In
respect of holding companies my attention has been drawn to seminal
words of lord Denning in DHN
Food Distributors Ltd v
London
Borough of Tower Hamlets 1976
(3) ALL ER 462 (CA) at 467 where that celebrated law Lord said;
“Although
the companies in a group are separate legal entities, the court have
in the mercantile context dealt with the group as an economic entity.
This lifting of the corporate veil is indicated especially when a
parent company owns all the shares of the subsidiaries so much so
that it can control movement of the subsidies.”
I
am in total agreement with that pronouncement.
As
stated by CORBETT CJ in The
Shipping Corp of India Ltd v
Evdomon
Corp and Anor 1994
(1) SA 550 (A) at 566C-E which was quoted with approval by SANDURA JA
in
Van Nickerk v
Van
Niekert &
Ors
1999
(1) ZLR 421 (S) 427G-H to 428A:
“It
is of cardinal importance to keep distinct the property rights of a
company and those of its shareholders even where the latter is a
single entity and that the only permissible deviation from this rule
known to our law occurs in those (in practice) rare cases where the
circumstances justify 'piercing' or 'lifting' the corporate
veil.
I
do not find it necessary to consider, or attempt to define, the
circumstances under which the court will pierce the corporate veil.
Suffice it to say that they would generally have to include an
element of fraud or other improper conduct in the establishment or
use of the company or the conduct of its affairs.”
See
also Mangwendeza
v
Mangwendeza
2007 (1) ZLR 216 (H) at 217F and Manyathela
v
Manyathela
HB44/11.
The
second respondent purporting to be the Chief Executive Officer of the
first respondent engineered the employment of the applicant as Group
Engineering Director on the understanding that he would work within a
conglomeration of companies all of whom gave themselves out to the
whole world as subsidiaries of the first respondent.
11
months down the line he had not been sufficiently remunerated only
for the respondents to turn round and deny what they claimed to stand
for at the beginning, that is, a group of companies.
The
applicant was made to shift his position to his prejudice on the
strength of a representation that he was joining a group of
companies, complete with an organogram to that effect, as the Group's
Engineering Director. His duties also traversed all the entities
given that the employment contract made reference to “all Group
Engineering Projects and Installations”; “advise and liaison with
divisions”; “undertake full executive functions for the group”
etal.
In
my view this is a classic case for the lifting of the corporate veil
because the applicant is alleging the reliance on the legal
personality of the first respondent to defeat a lawful claim, to
justify wrong and indeed to protect fraud. If this were to be allowed
to perpetuate an injustice would occur.
It
remains for me to deal with the issue of costs.
The
respondents have been extremely un-cooperative. If indeed they were
acting in good faith and have nothing to hide, they would have no
difficulty with divulging the true status of the businesses and
proving that the applicant has no recourse to the entities. They have
however seen it fit to hedge behind incorporation while at the same
time saying nothing that would assist both the court and the
applicant to understand the dynamics of the businesses. If anything
the second respondent's declaration that “silence does not
disclose any fraud” is arrogance of a very high order.
This
conduct has put the applicant unnecessarily out of pocket. He
deserves to be compensated and in my view this is a case calling for
costs to be awarded on a higher scale.
In
the result, I make the following order; that
1.
The first and second respondents should within 7 days of the date of
this order disclose to the applicant or his legal practitioners the
incorporation status of entities which operated as subsidiaries of
the first respondent during the period extending from 1 May 2009 to
30 April 2010 namely Freshbake, Downings, Superbake, Ecoplastics
(Pvt) Ltd, Horeca, The Vinyl Tile Company, Household Converters,
Intertec (Pvt) Ltd & Tacoola Beverages (Pvt) Ltd.
2.
The first and second respondents should within 7 days of the date of
this order furnish the applicant or his legal practitioners the
addresses and places of businesses of the entities of the first
respondent mentioned in paragraph 1 above during the period extending
from 1 May 2009 to 30 April 2010.
3.
In the event of the first and second respondents' failure to comply
with para(s) 1 and 2 above, then the second respondent be and is
hereby held personally liable for the judgment debt of the first
respondent registered under case number HC6651/10.
4.
The first and second respondents shall bear the costs of this
application jointly and severally on a legal practitioner and client
scale.
Kawonde &
Company,
applicant's legal practitioners
Bvekwa
Legal Practice, first
& second respondents' legal practitioners
