SIMPSON ELECTRICAL (PVT) LTD
The
court a quo awarded the respondent 25% of the
shares in Simpson Electrical (Pvt) Ltd, while the appellant was awarded the
rest. The appellant is disgruntled at this order and prays that the award
of 25% to the respondent be set aside.
It
is not disputed that Simpson Electrical (Pvt) Ltd was ...
SIMPSON ELECTRICAL (PVT) LTD
The
court a quo awarded the respondent 25% of the
shares in Simpson Electrical (Pvt) Ltd, while the appellant was awarded the
rest. The appellant is disgruntled at this order and prays that the award
of 25% to the respondent be set aside.
It
is not disputed that Simpson Electrical (Pvt) Ltd was incorporated in 1989 -
before the parties' marriage. At the time, there were only two Directors
of the company, that is, the appellant and his (now) late brother. The
appellant, however, avers that following donation of his shares to his children
from a previous marriage, he was no longer a shareholder in the
company. This evidence, as indicated later in this judgment, was later
contradicted by the appellant himself. The donation, according to share
certificates dated 3 December 1995, was effected almost a year before the
parties' marriage.
The
court accepted as a trite principle of the law that a company duly incorporated
has a distinct legal persona separate from its
shareholders. The court also considered that the veil of incorporation of
that company may be lifted, where necessary, in order to prove who determines
or who is responsible for the company's activities. Based on what the
court a quo referred to as the credible
evidence of the respondent, the court was of the view that in this case, a
lifting of the veil of incorporation of Simpson Electrical (Pvt) Ltd was
justified. The 'credible' evidence was to the effect that:-
i)
At the time of the parties' marriage, Simpson Electrical (Pvt) Ltd was in fact
a small shop which the parties then moved into bigger premises in Pioneer
House;
ii)
The new premises having proved too big for the available stock, the parties
sold their cars to raise capital to buy more stock for the shop;
iii)
With both parties contributing to the running of the business, it grew in
“leaps and bounds”;
iv)
From the substantial income realised, the parties were able to carry out
extensive renovations to their property in Woodlands;
v)
From the same proceeds, they were able to buy the Hillcrest property as well as
buy and develop two other Stands in Pumula South;
vi)
From the still substantial disposable income, the parties bought an industrial Stand
in Donnington West;
vii)
The respondent also sold her house in Paddonhurst and ploughed the proceeds
into Simpson Electrical (Pvt) Ltd by way of purchasing stock; and
viii)
The appellant gave her (respondent) 25% shares in Simpson Electrical (Pvt) Ltd
while the rest remained with the appellant and his children.
While
it is accepted that there are no hard and fast rules on the circumstances that
justify the lifting or piercing of the corporate veil, with each case generally
having to depend on its own facts and merits, I find this dictum from
the case of Mkombachoto v Commercial Bank of Zimbabwe &
Anor 2002
(1) ZLR (4)…, to be apposite;
“In my view, the court
has no general discretion to disregard the company's separate legal personality
whenever it considers it just to do so. The court may 'lift the veil' only
where otherwise as a result of its existence fraud would exist or manifest justice would be denied.” (my
emphasis)
From
the 'credible' evidence listed above, it is evident, as indicated below, that
the appellant admitted he had given the respondent a 25% share in Simpson
Electrical (Pvt) Ltd. Secondly, and flowing from this, the respondent,
accepting that she owned the 25% shareholding, offered to hand the shares over
in return for their fair market value. The appellant, in an about turn, then
denied he ever gave the respondent the 25% shares. Further, in contradiction to
what he had earlier stated, the appellant averred that the shares still
belonged to him and his children. Overriding all this was the undisputed
fact that the company had grown substantially from the time the parties got
married, and that the respondent had made significant contribution to such
growth. The contribution had resulted in the family earning so much income
they were able to buy and develop several other properties.
The
evidence of both the appellant and the respondent does not suggest that the
other shareholders, to wit, the appellant's and one of
the parties' children, made any contribution to the capital or other assets of
the company, nor in any other manner. The relationships which lay behind
the corporate veil are clearly revealed as between the appellant and the
respondent. It is evident that the parties themselves were the administrators,
controllers and contributors to the growth of Simpson Electrical (Pvt) Ltd.
Had
the veil not been lifted, such a relationship would not have been revealed, to
the ultimate detriment of the respondent.
The
respondent was actively involved in moving the Simpson Electrical Shop to
bigger premises and responsible for stocking the expanded shop, for which
purpose she travelled back and forth between Zimbabwe and South Africa in order
to source such stock. As a result, the shop, in other words, Simpson Electrical
(Pvt) Ltd “grew in leaps and bounds.” Her contribution, as the court a quo found, was substantial. By arguing that no case has
been made to pierce the corporate veil of Simpson Electrical (Pvt) Ltd, the
appellant, in other words, is suggesting that all the assets, including the
share acquired through the contribution of the respondent, should remain the
property of Simpson Electrical (Pvt) Ltd. That effectively, the respondent
must walk away without anything from Simpson Electrical (Pvt) Ltd. I do not
doubt that denying the respondent any share of this company would result in
manifest injustice.
I
am satisfied, given the evidence on this matter, that the learned judge a quo properly lifted the veil of incorporation of Simpson
Electrical (Pvt) Ltd….,.
MUNTOHUHLE INVESTMENTS (PVT) LIMITED
The
court a quo lifted the veil of incorporation
of Muntomuhle Investments (Pvt) Limited and awarded a 50% share to each of the
parties, in the property known as Downings Building, Robert Mugabe Way,
Bulawayo. This building was registered under the name of this company and
constituted its main asset.
The
appellant challenged both decisions, and charged, among other grounds, that the
court erred in taking away the property of the shareholders of the company
without giving them an opportunity to be heard. The shareholders referred
to were his children, including one whose mother was the respondent.
Having
considered the evidence placed before the court a quo
as well as the judge's assessment thereof, I do not find that there is any
merit in the appellant's arguments.
The
learned judge a quo found that the appellant was not
only running the show at Muntomuhle Investments (Pvt) Limited, he and the
company had become one. Nomalanga, one of the alleged “shareholders,” in Muntomuhle
Investments (Pvt) Limited, put the correctness of the conclusion of the court a quo that the appellant was its alter ego beyond doubt when, in her evidence, she indicated
that:
i)
The Muntomuhle Investments (Pvt) Limited company never had an Annual General Meeting
or Director's meeting;
ii)
The “shareholders” had never been paid dividends;
iii) They
were never (as “shareholders”) made aware of the donation to them of shares or
company affairs; and
iv)
As far as she was aware, Muntomuhle Investments (Pvt) Limited was the
appellant's project and he could do with it as he wished or liked.
The
learned judge a quo further found that Muntomuhle
Investments (Pvt) Limited was actually an invention of the appellant, created
solely for the dissipation of the assets of Simpson Electrical (Pvt) Ltd in
order to defeat the respondent's claim. The appellant, according to the
evidence of the respondent, which was found to be more credible than that of
the appellant, not only incorporated Muntomuhle Investments (Pvt) Limited
without her knowledge, he proceeded, again without her knowledge, to register
the building in question in the name of Muntomuhle Investments (Pvt) Limited.
Against
this background, I find that the inference of an attempt by the appellant to
deceive, if not defraud, the respondent, is difficult to
escape. There is case authority to the effect that conduct of this nature
justifies the piercing of the corporate veil. In Cape Pacific Ltd v Lubrier Controlling Investments (Pty) Ltd & Ors, the
court had this to say:
“…,
when the corporation is the mere alter ego or business
conduit of a person, it may be disregarded. This rule has been adopted by the
courts in those cases where the idea of the corporate entity has been used as a
subterfuge and to observe it would work injustice.”
I
find this dictum to be eminently apposite given
the facts of this matter.
Having,
in addition, considered the respondent's immense contribution towards the main
asset of Muntomuhle Investments (Pvt) Limited, the learned judge a quo,
in the result, concluded that he had no option but to unmask Muntomuhle
Investments (Pvt) Limited and declare the plaintiff owner of 50% of the net
value of the building in question.
I
do not find fault with this decision.
As
for the need to hear Muntomuhle Investments (Pvt) Limited's other shareholders,
I am persuaded that the court's finding that the company was in fact the alter ego of the appellant, rendered it unnecessary to
consider any other “shareholders” in the administration and control of the
company. This, I find, is a consequence that is anticipated in the
following passage by C NKALA and TJ NYAPADI in their book, ”Company Law in
Zimbabwe”, 1995….,;
“…,.
When the courts or legislature lift the veil of separate legal persona they disregard the corporate entity and look
to the relationships which lie behind the corporate form…,.”
In
any event, at no stage did the other shareholders take any action to protect
their interest in the property, even though they were aware that the company
was to be the subject of litigation in matrimonial proceedings.
I
therefore find that the learned judge a quo correctly, and
without reference to its other alleged shareholders, disregarded the corporate
entity of Muntomuhle Investments (Pvt) Limited that the appellant and his
daughter Nomalanga alleged existed.
The
appellant challenges the court a quo's award of 50%
of Downings Building to the respondent on another ground.
In
his Heads of Argument, he concedes that the building in dispute was acquired
through income originally drawn from Simpson Electrical (Pvt) Ltd. He,
however, argues that, having awarded her only 25% shareholding in Simpson Electrical
(Pvt) Ltd, the source of the funds, the court a quo
should not have awarded the respondent a 50% share of Downings Building.
My
understanding of this argument is that if the court was to award the respondent
any share of the building, it should not have been more than 25%; a share that
would reflect her shareholding in Simpson Electrical (Pvt) Ltd.
The
evidence before the court suggests there was no direct link between the funds
drawn from Simpson Electrical (Pvt) Ltd and those eventually used to purchase
the building which is the main asset of Muntomuhle Investments (Pvt) Limited.
The
judge a quo made this clear when he said the
following regarding the acquisition of the main asset of this company, i.e.
Downings Building;
“They used money from
the business (Simpson Electrical) to pay for an industrial Stand. When the
defendant (appellant) went to pay for the Stand, he registered it in his name….,
they toiled to build a factory i.e. a double storey structure. The factory
was massive. They rented it out to a company known as Stex. The
tenants developed interest in the factory and offered to purchase it. The
parties agreed to sell it. The proceeds of the sale of the factory were used to
buy and re-construct the building in 129-130 Robert Mugabe Way, which is the
major asset of Muntomuhle Investments. This fact is admitted by the
defendant as evinced by his letter dated 5 March 2007 in the bundle of
documents.”
In
short, the funds from Simpson Electrical (Pvt) Ltd were used to purchase a
commercial Stand on which a factory was then built. The factory was
initially rented out and later sold to the sitting tenants. Funds realised
from these latter endeavours were then used to buy the building in
question. In all these developments, there was nothing to suggest that the
parties' perception of the share of their entitlement in Simpson Electrical
(Pvt) Ltd in any way determined or defined the extent of their contribution to
the eventual acquisition of the building in question.
Instead
of engaging in the type of mathematical calculations that the appellant argues
for, the judge went on to use his discretion, as required by the law, in
assessing the awards that he made. I do not find that such discretion was
improperly exercised.
I
would, therefore, dismiss this ground of appeal as having no merit.
In
the result, I make the following order.
1.
The appeal succeeds only in part.
2….,.
3. The
appeal in relation to the assets and property referred to in paragraphs 6,7,12
and 13 of the order of the court a quo, is dismissed.
4.
The appellant shall pay the costs of this appeal.