PATEL
JA: This
is an appeal against the judgment of the High Court granting an
application for specific performance lodged by the first respondent
against the appellants. Apart from granting the relief sought,
including the payment of damages in the alternative, the court a
quo
also ordered the appellants to pay costs of suit on an attorney and
client scale.
Background
The
first respondent is an association of residents of the
Knowe Housing Development based in the town of Norton.
These residents purchased stands on the development site from the
first appellant whose business is to develop and sell housing stands.
The
second appellant is apparently the only active director of the first
appellant.
The
second respondent is the Norton Town Council. It did not appear at
the hearing of this appeal, having filed heads of argument indicating
that it would abide by the decision of this Court.
The
first appellant, as the owner and seller of Lot 2 of Knowe Suburb,
entered into sale agreements with the first respondent's members in
1998 (Phase 2) and later in 2003 (Phase 3). The Phase 2 residents
complied with their respective agreements by paying the first
appellant in full over a period of 30 months. The Phase 3 residents
also duly complied by paying the first appellant in full within the
agreed period of 60 months that ended on 1 February 2008.
The
first respondent averred that the first appellant had breached its
contract of sale with the Knowe residents. It filed an application
for specific performance or the payment of damages in the
alternative.
The
appellants opposed the application on the merits and also raised
three points in
limine
at the hearing a
quo.
High
Court judgment
The
court a
quo
dismissed all three points in
limine.
As
regards the first point relating to prescription, the court found
that the permits granted to the first appellant did not give any time
limit within which the infrastructural development was to be
completed and that the contracts with the residents did not specify
any time limits for suing the first appellant. Whatever was to be
done by the first appellant was to be done within a reasonable time.
With
respect to the second point, the court found that there were no
material disputes of fact and that, therefore, it was proper for the
first respondent to proceed by way of application rather than by way
of action.
Lastly,
the court dismissed the third point objecting to the citation of the
second appellant in his personal capacity on the basis that he was
responsible for the first appellant's administrative affairs.
On
the merits, the court a
quo
found that the members of the first respondent had duly performed
their part of the agreements. Conversely, the first appellant had
performed some part of the agreements but had not fully complied with
the agreements and development permits. The court was not satisfied
that this failure to perform was mainly because of inflation. The
court further found that the first appellant had failed to establish
that performance was now impossible in the era of dollarisation.
If
the first appellant had serviced the stands at the time the purchase
prices were paid between 1998 and 2008, there would have been no
difficulty in the performance of the contracts. The court rejected
the defence of impossibility of performance on the basis that any
hardships now encountered by the appellants were self-created.
Finally,
the court held that, if the appellants were unable to comply with an
order for specific performance, they must in the alternative pay
damages.
In
the event, the court ordered the appellants to fully service the
stands in Phases 2 and 3 within 90 days to the second respondent's
satisfaction and specifications. The latter was ordered to ensure
that the relevant statutory requirements were met. Alternatively, the
appellants were ordered to pay the sum of US$192,901,995.00 to the
first respondent's members within 30 days. If they failed to pay,
the Sheriff was authorised to attach and sell the appellants'
property in execution in satisfaction of the damages awarded. Lastly,
the appellants were ordered to pay the costs of suit on an attorney
and client scale.
Grounds
of appeal and relief sought
The
10 grounds of appeal hereunder are unduly prolix and repetitive. They
attack the judgment a
quo
on the following broad bases:
(i)
The appellants were not in breach of their obligations in the absence
of a finding as to the time when performance was due and, therefore,
the application a
quo
was premature and not enforceable.
(ii)
The claims in
casu
were prescribed following the execution of their obligations by the
residents and, in that respect, the court misconstrued the first
appellant's contractual obligations and its duties in terms of the
permits issued by the second respondent.
(iii)
The claim for damages required the quantification of damages by way
of action and, consequently, the claim for damages was not proven
according to law.
(iv)
The court erred in ordering the second appellant to pay damages
personally and, in so doing, it misapplied the doctrine of piercing
the corporate veil.
(v)
The court failed to deal with and pronounce upon the defence of
currency nominalism and ordered the payment of damages in the
currency of circulation and not the currency of performance.
(vi)
The court improperly failed to consider the feasibility of
performance against the defence of supervening impossibility.
The
appellants pray that the appeal be allowed with costs and that the
judgment a
quo
be set aside and substituted with an order dismissing the application
with costs.
At
the hearing of the appeal, counsel for the appellants moved an
amendment to the relief sought, substituting the prayer for dismissal
with one for remittal to the court a
quo.
Counsel for the first respondent had no difficulty with the prayer
being substituted as amended. The prayer was accordingly amended by
consent to provide for the remittal of the matter rather than the
dismissal of the application a
quo.
Material
disputes of fact relating to performance
Mr
Hashiti,
for the appellants, submits that the matter should not have been
dealt with on motion but as a trial case to resolve the material
disputes of fact. Evidence was required in relation to prescription,
damages and specific performance.
In
the latter respect, the first respondent has not identified the
specific work that still remains to be performed and the extent of
the works yet to be done remains in dispute. The appellants did
comply with some of the conditions stipulated in the subdivision
permit. It was on this basis that the second respondent issued title
deeds to almost 90 per cent of the first respondent's members in
Phase 2.
Ultimately,
so it is submitted, the court a
quo
did not make any findings on what works remained to be carried out.
Ms
Mahere,
for the first respondent, submits that a suit for specific
performance does not have to proceed by way of trial. There is no
material dispute of fact that the appellants have failed to perform.
The works outstanding to be performed are clearly set out in the
founding affidavit.
In
dealing with this, the opposing affidavit does not dispute those
averments but raises issues relating to prescription and currency
nominalism.
At
paragraph 7 of the founding affidavit, the first respondent sets out
the nature of the application a
quo,
i.e.
to compel the first appellant to service Phases 2 and 3 of Knowe
Suburb and to complete such servicing within a reasonable time as per
the agreements of sale between the first respondent's members and
the first appellant.
The
servicing that is required is specifically identified as including
the grading and tarring of roads, the construction of a proper water
drainage system, the laying of a proper water reticulation system,
the erection of street lights, and the handing over of serviced
stands to the first respondent's members. Such servicing, so it is
averred, must all meet the requirements and specifications of the
second respondent, the Norton Town Council, as the supervising
authority.
In
response, at paragraph 21 of his opposing affidavit, the second
appellant avers that the claims of the first respondent's members
had prescribed in three years after each member completed his or her
own obligations under his or her respective agreement of sale.
It
is further averred that the first respondent is demanding performance
in United States dollars, which is not the currency of
performance in terms of the agreements of sale, contrary to those
agreements.
Lastly,
it is averred that the Phase 2 residents have received title to their
properties, which is proof that the second respondent was satisfied
that work had been done.
The
opposing affidavit is deafeningly silent on the specific servicing to
be performed as identified in the founding affidavit. Again, the
nature and extent of the works to be carried out are not refuted and
there is no denial of the averment that they have not in fact been
carried out.
In
paragraph 10.6 of the founding affidavit, the first respondent avers
that the Phase 2 residents have complied with their part of the
contract by paying the first appellant in full over 30 months. At
paragraph 10.7, it is averred that the first appellant has not
fulfilled its obligations in respect of the Phase 2 properties
relating to the grading and tarring of roads, the connection of a
proper water reticulation system, the construction of a proper water
drainage and sanitary system, and the erection of street lights.
Similarly,
in paragraph 15.3, the first respondent avers that the Phase 3
residents have made full payment to the first appellant within the
agreed period of 60 months.
Again,
at paragraph 15.4, it is averred that the first appellant has
breached the contracts of sale by failing to finance the project and
develop the suburb, i.e.
by failing to construct tarred roads, connect water reticulation,
drainage and sanitary systems, erect street lights, and construct
public facilities and amenities as agreed.
In
response, at paragraph 27.3 of his opposing affidavit, the second
appellant relates to the use of 150mm instead of 350mm water pipes
and the use of septic tanks as opposed to a sewer reticulation
system. He further contends that “the roads are there but they have
not been tarred because the funds for that purpose were obliterated”.
As
regards the Phase 3 development, the first appellant's broad
retort, at paragraph 36, is that “the purchase price paid by
Applicant's members for purposes of development was obliterated and
rendered valueless”.
Having
regard to the pleadings, it is abundantly clear that the first
respondent did identify the specific work that still remained to be
performed and that the extent of the works yet to be carried out was
not in dispute. In this respect, the court a
quo
correctly found that the first appellant had not fully complied with
the agreements of sale and relevant permits and that most of the
terms and conditions in respect of Phases 2 and 3 had not been
complied with.
The
court accordingly quite correctly ordered the appellants to fully
service the residential areas in Phase 2 and 3 to the second
respondent's satisfaction and specifications. Furthermore, in its
order, the court clearly particularised the specific services to be
provided by the appellants.
To
conclude this aspect of the matter, I am unable to discern any
material dispute of fact relative to the appellants' failure to
perform their obligations in respect of Phases 2 and 3. Moreover, I
cannot find any fault with the findings of the court a
quo
in this regard or its consequent order of specific performance in
favour of the first respondent and its members.
Given
the absence of any contractually stipulated period for the
performance of the first appellant's contractual obligations, it
was obviously not possible for the court to make any finding as to
when such performance was due. By the same token, it cannot be said
that the application a
quo
was premature and not ripe for enforcement. It follows that the first
and second grounds of appeal are devoid of merit and cannot be
sustained.
Prescription
of Claims
Mr
Hashiti
submits that the question of prescription is also one that raises
issues requiring evidence.
The
cause of action of each member of the first respondent would vary
according to individual circumstances pertaining to questions of
demand of performance and the placing of the first appellant in
mora.
There was, so he contends, no evidence on these issues in the
proceedings a
quo.
He
further submits that the first respondent's members could have
become aware of the alleged breaches upon exercising reasonable care
within the contemplation of s16(3) of the Prescription Act [Chapter
8:11].
This was also a factual issue requiring further evidence.
I
note that, in motivating the prescription argument, Mr Hashiti
appears to have sidestepped the stated grounds of appeal premised on
the position that the claims in
casu
were prescribed, in terms of s15(d) of the Prescription Act, three
years after the first respondent's members had executed their own
obligations to pay the purchase price in full.
In
any event, Ms Mahere
submits that there is no merit in the prescription argument. All the
pleadings, including the opposing affidavit of the second appellant,
are clear that the contracts of sale do not stipulate any time frames
for the completion of works by the first appellant. She further notes
that the second appellant appears to equivocate as to the running of
prescription.
It
is trite that for prescription to commence running regard must be had
to the date when the cause of action first arose. This ordinarily
occurs when the claimant becomes aware of all the relevant facts
grounding his or her claim. Additionally, the claimant must make a
demand for performance placing the other party in
mora.
See Brooker
v Mudonda
SC 5/2018.
In
casu,
the first respondent wrote a letter dated 12 March 2015, addressed to
the appellants, bemoaning the lack of activity on their part and
enquiring when they would attend to the servicing of the stands in
Phases 2 and 3.
The
contents of this letter obviously served to place the appellants in
mora.
The
response from the appellants' lawyers, dated 20 April 2015,
purported to raise various evidently disingenuous queries as to the
current status of development at Knowe Suburb.
On
15 May 2015, the first respondent's lawyers replied to those
queries and, additionally, sought a commitment date from the
appellants, failing which the first respondent would deem such
conduct as an unwillingness to comply on the part of the appellants
and proceed to enforce its rights in terms of the law.
In
my view, it was at this stage that the first respondent's cause of
action arose against the appellants.
The
court a
quo
relied on this correspondence to find, quite correctly, that the
first respondent's claim, having been instituted on 15 December
2017, had not prescribed.
In
the premises, I am satisfied that the third and fourth grounds of
appeal also lack merit and must therefore be dismissed.
Quantification
of Damages
As
regards the quantification of damages a
quo
(calculated in the sum of US$192,901,995.00), Mr Hashiti
submits that the court did not properly deal with this aspect
inasmuch as it required the determination of factual issues. The
matter should therefore be remitted for trial on this aspect.
Ms
Mahere
concedes that the quantification of damages raises questions of
evidence and that the approach of the court a
quo
in this respect was erroneous. She agrees that the matter be remitted
for trial but only on this narrow issue.
I
fully agree with both counsel.
The
quantification of damages payable to the first respondent's members
clearly required the adduction of relevant evidence. It should not
have been dealt with on motion but by way of action. Consequently,
this is an aspect that must be remitted to the court a
quo
for trial.
In
the premises, the fifth and sixth grounds of appeal are obviously
meritorious and must therefore be upheld.
In
light of the remittal of this aspect, the ninth ground of appeal
challenging the grant of damages in United States dollars, becomes
redundant and must fall away.
Supervening
Impossibility
The
appellants impugn the exercise of discretion by the court a
quo
for its failure to consider the feasibility of specific performance
against the defence of supervening impossibility. They contend that
this failure to inquire into the first appellant's ability to
perform or to pay the damages claimed led to a shocking award of
damages. In this connection, Mr Hashiti
submits that once supervening impossibility is pleaded, the court
must then interrogate the matter.
In
his opposing affidavit, the second appellant avers that the first
appellant did what it could under the economic circumstances
prevailing at the material time and that the period of hyperinflation
was subsequently superseded by the multi-currency system. It is
further averred that all these developments were not caused or in any
way influenced by the first appellant.
In
short, the changes in the economy affected the first appellant's
ability to perform.
In
its answering affidavit, the first respondent counters that, once its
members had paid in full all the funds required to carry out the
development work, there was no vis
major
or any act of God that rendered performance impossible. To allege
that dollarisation made performance impossible is unsustainable and
it was the appellants alone who failed to perform their obligations.
In any case, an unpaid debt or unperformed obligation is not wiped
out by a change in the currency in use at the time the obligation to
perform arises.
In
my view, the appellants have failed to crisply articulate their
defence of supervening impossibility.
They
have clearly not succeeded in adequately substantiating that defence.
I fully concur with the sentiments of the court a
quo
in this regard. It cannot be said that the first appellant failed to
perform mainly because of inflation. The bulk of the payments by the
first respondent's members were made years before any significant
inflation took effect. There was no explanation as to why the first
appellant failed to service the stands between 1998 and 2009. If it
had performed its obligations at the time when payments were made and
received, there would have been little difficulty in fulfilling those
obligations.
Having
regard to the evidence adduced a
quo,
I cannot find any fault with the finding of the court that this was
not the sort of scenario that the defence of supervening
impossibility of performance was designed for.
Moreover,
I am unable to perceive any misdirection, whether of fact or law, in
the conclusion of the court that the first appellant had failed to
discharge the onus of establishing that performance was rendered
impossible in the era of dollarisation.
Accordingly,
the tenth ground of appeal cannot be sustained and must be dismissed.
Personal
Liability of Second Appellant
The
remaining seventh and eighth grounds of appeal impugn the judgment a
quo
for having misapplied the doctrine of piercing the corporate veil
and, consequently, visiting personal liability on the second
appellant to pay damages as an alternative to the order for specific
performance.
Mr
Hashiti
submits in this regard that questions of fraud or dishonesty are
relevant to lifting the corporate veil. The only basis for citing the
second appellant was that he is the director of the first appellant
and responsible for the administrative affairs of the company. There
was no evidence whatsoever to justify the citation of the second
appellant in his personal capacity or lifting the corporate veil to
render him personally liable.
Ms
Mahere
submits
that the courts can pierce the corporate veil in the interests of
justice.
The
founding affidavit clearly lays out the basis for piercing the
corporate veil in casu
and there is no specific attempt to contradict this in the opposing
affidavit. The second appellant was the administrator of the company
who took all the monies paid by the first respondent's members. The
failure to hold him accountable would result in manifest injustice.
In
response, Mr Hashiti
reiterates that there is no basis for imputing liability to a
director as opposed to a shareholder. It is only if the company was
run grossly negligently that a director can be held personally
liable. In
casu,
the doctrine of piercing the corporate veil simply does not apply.
In
its founding affidavit, the first respondent avers that the first
appellant is a family business with the second appellant being the
sole active director for all practical purposes. According to the
history of directorship in the company, as per the records availed in
the Company's Registry, it is no more than the second appellant's
alter
ego.
It is a one-man company with all its equipment, assets and income
belonging to the second appellant. Accordingly, the court a
quo
was urged to pierce the corporate veil to ensure that justice is
done. The second appellant must not be allowed to benefit from his
improper conduct by hiding behind the first appellant's corporate
personality.
In
his opposing affidavit, the second appellant does not dispute that he
has been a director of the first appellant since 1980 and that the
other directors, at different times, were or are his personal
relations. However, he denies that these allegations constitute an
acceptable basis for lifting the corporate veil and disregarding the
separate personality of the company. He contends that the first
respondent does not cite a single incident in which the distinction
between himself and the company was diluted. Consequently, none of
the legal requirements for piercing the corporate veil have been
pleaded or established. The first respondent's averments in this
regard are characterised by nothing more than surmise and conjecture.
In
its answering affidavit, the first respondent restates the averment
that the second appellant is the sole active director of the first
appellant and is responsible for taking up its administrative
affairs. This reveals the capacity in which he was cited. In any
case, his citation was to ensure compliance with any order that the
court a
quo
might have granted.
In
Mkombachoto
v CBZ
Ltd & Anor
2002 (1) ZLR 21 (H), at 22B-C, it was observed that the courts may
lift the corporate veil and disregard the separate legal personality
of a company in limited circumstances, for instance, so as to avoid
manifest injustice.
Again,
in Cape
Pacific Ltd
v Lubner
Controlling Investments (Pty) Ltd
1995 (4) SA 790 (A), at 802, it was held that a court would be
justified in certain circumstances in disregarding a company's
separate personality and lifting or piercing the corporate veil. The
focus then shifts from the company to the natural person behind it or
in control of its activities. Personal liability is then attributed
to someone who misuses or abuses the principle of corporate
personality. Each case involves a process of enquiring into the facts
which may be of decisive importance. However, at 803-804, it was
cautioned that the courts should not lightly disregard a company's
separate personality but should strive to give effect to and uphold
it. But where fraud, dishonesty or other improper conduct is found to
be present, the need to preserve the separate corporate identity
would in such circumstances have to be balanced against policy
considerations which arise in favour of piercing the corporate veil.
A court would then be entitled to look to substance rather than form
in order to arrive at the true facts and, if there has been a misuse
of corporate personality, to disregard it and attribute liability
where it should rightly lie.
The
decision in the Cape
Pacific
case was followed in Deputy
Sheriff Harare v
Trinpac
Investments (Pvt) Ltd & Anor
HH121-11 and, more recently by this Court in Chris
Stylianou & Ors
v Moses
Mubita & Ors
SC7/17.
In
the latter case, at p.6, it was noted that no allegation of fraud,
dishonesty or other improper conduct was levelled against the first
appellant which might have justified the lifting of the corporate
veil of the other two appellants.
Indeed,
no good explanation was given to justify the citation of the first
appellant save to state that he was the owner of the two appellant
companies.
In
the instant case, the court a
quo
found that the second appellant had been properly cited in his
personal capacity because he was solely responsible for the first
appellant's administrative affairs.
On
this basis, the court proceeded to hold the former jointly liable
with the latter to fully service the residential areas in question
and, alternatively, to pay damages in the sum of US$192,901,995.00
within 30 days, failing which the appellants' property was to be
attached and sold in execution in satisfaction of the damages.
In
principle, the fact that the second appellant is the sole active
director in charge of the first appellant's administrative affairs
does not, per
se,
constitute an adequate basis for lifting the corporate veil.
There
is no clear evidence on record to indicate that the second appellant
was involved in any fraudulent or dishonest activity or other
improper conduct. In the absence of such evidence, this Court should
not lightly disregard the first appellant's separate corporate
personality.
In
this regard, I am mindful of the salutary caveat
expressed in the Cape
Pacific
case, supra,
at 803, that to do so “would negate or undermine the policy and
principles that underpin the concept of separate legal personality
and the legal consequences that attach to it”.
However,
the enquiry does not necessarily end there, as “Each case involves
a process of enquiring into the facts which, once determined, may be
of decisive importance. And in determining whether or not it is
legally appropriate in given circumstances to disregard corporate
personality, one must bear in mind 'the fundamental doctrine that
the law regards the substance rather than the form of things'.
……..”. – ibid.,
at 802.
In
casu,
given the history of the first appellant's corporate directorship
from 1980 to the present, it is relatively clear that the second
respondent is its sole active director. He is quite evidently its
alter
ego
and its paterfamilias,
so to speak.
He
was and continues to be the principal protagonist in the
administrative and contractual arrangements underlying the
development of Knowe Suburb.
In
these circumstances, it becomes difficult to sustain the juridical
dichotomy between the two appellants and to uphold the façade of
their separate legal personality.
I
am persuaded to agree with the first respondent's submission that
citing the second appellant in the proceedings a
quo
was the only way of ensuring compliance with any order that might
have been granted against the first appellant. Any such order would
otherwise have constituted nothing more than a brutum
fulmen.
Moreover,
in the exceptional circumstances of this case, it would be manifestly
unjust if the members of the first respondent, having timeously
fulfilled their contractual obligations by paying the full purchase
price, were to be deprived of the ability to secure the effective
enforcement of any judgment granted in their favour.
In
the event, I am satisfied that the court a
quo,
in the exceptional situation before it, quite correctly pierced the
corporate veil of the first appellant so as to attribute its
liability jointly to the second appellant, not only for the
performance of its contractual obligations but also in respect of any
damages payable in the alternative.
It
follows that the seventh and eighth grounds of appeal cannot be
upheld. They are accordingly dismissed.
Disposition
The
appellants have succeeded in sustaining only two of their grounds of
appeal, i.e.
grounds five and six pertaining to the erroneous basis upon which the
court a
quo
proceeded to quantify and award the alternative claim for damages.
As
I have already stated, this will entail the remittal of the matter to
the court below to quantify the damages claim by way of action
proceedings. It will also be necessary for the court, after
consulting the parties, to issue specific directions on the procedure
to be followed for that purpose.
As
regards costs, Mr Hashiti
submits that, once remitted, the lis
between the parties is still alive and pending. Consequently, each
party should bear its own costs.
Ms
Mahere,
on the other hand, initially sought punitive costs on a higher scale,
but later acceded to costs on the ordinary scale since the matter was
to be remitted following the partial success of the appeal.
In
my view, the partial success of the appeal, on an aspect that was
readily conceded by the first respondent, does not warrant the latter
being deprived of its costs in respect of this predominantly
unsuccessful appeal. However, since the appellants have succeeded on
the question of quantification of damages, it seems just and
appropriate that there be an apportionment of costs in the ratio of
10:90 in favour of the first respondent.
It
is accordingly ordered as follows:
1.
The appeal is partially allowed in respect of grounds five and six,
pertaining to the quantification of damages by the court a
quo,
and dismissed on the remaining grounds of appeal.
2.
The costs of this appeal shall be apportioned between the appellants
and the first respondent in the ratio of 10:90 in favour of the first
respondent.
3.
The judgment of the court a
quo
be and is hereby varied by the deletion of paragraphs 3 and 4 of the
operative order.
4.
The matter is remitted to the court a
quo
to determine, by way of trial proceedings, the first respondent's
alternative claim for damages.
5.
For the purposes of conducting the trial proceedings referred to
paragraph 4 above, the court a
quo
shall issue such directions as may be necessary and appropriate.
BHUNU
JA:
I agree
BERE
JA:
(No longer in office)
Mtetwa
& Nyambirai,
appellants' legal practitioners
Chinawa
Law Chambers,
1st
respondent's legal practitioners
Mbidzo,
Muchadehama & Makoni,
2nd
respondent's legal practitioners
