Opposed
Application
MAKONESE
J: This
is an application for a declaratory order.
This
court is invited to declare that Cosira Communications Global (First
Respondent) and Cosira South Africa (Pty) Ltd (2nd
Respondent) which was previously known as Cosira International (SA)
(PTY) Ltd are one and the same entity.
To
make such declaration this court is asked to lift the veil of
corporate personality on the grounds that such corporate personality
has been used as a device to cover up fraud or improper conduct.
It
is contended on behalf of the the Applicant that although First and
Second Respondents have distinct and separate legal personas,
they are in fact one economic entity.
The
1st
and 2nd
Respondents strenuously resist the order sought and argue that there
is no factual or legal basis for an order that the liabilities of one
corporate entity be deemed to be liabilities of another.
First
and second Respondents aver that the order sought is not legally
competent and that where the corporate veil is lifted the court must
effectively look behind the corporate veil to establish the
shareholders of the corporate entity and then attach such liability
to them.
The
Respondents pray that the application be dismissed for lack of merit.
Background
The
facts that are common cause are these.
In
November 2012 Intro-wise Catering (Pvt) Ltd (Applicant) entered into
a contract with Cosira South Africa (Pty) Ltd (2nd
Respondent) in terms whereof Applicant was to provide catering,
housekeeping and laundry services to 2nd
Respondent at the mining site of Zimbabwe Platinum Mines (Pvt) Ltd
(3rd
Respondent).
The
said agreement was to run continuously from November 2012 until
termination by either party giving the appropriate notice in
accordance with the agreement.
As
a result of the agreement the Applicant supplied catering,
housekeeping and laundry services to 2nd
Respondent up to May 2013.
Invoices
were raised regularly and a balance of US$155,144.22 remained
outstanding for the period up to the end of May 2013.
It
was the belief and understanding of the parties that Applicant was
being sub-contracted to provide service to a company which had a
running contract with 3rd
Respondent.
It
later transpired that it was 1st
Respondent instead that had a running contract with 3rd
Respondent.
It
was established that 2nd
Respondent never had any contract with the 3rd
Respondent at all.
It
is 1st
Respondent that had a contract with 3rd
Respondent and it is 1st
Respondent which consumed the services which were provided by the
Applicant.
The
Applicant argues that 1st
and 2nd
Respondents were aware at all material times that it was only 1st
Respondent and not 2nd
Respondent which had a contractual relationship with 3rd
Respondent.
2nd
Respondent has tendered into court authenticated documents which
reflect that on the 10th
July 2013, 2nd
Respondent was placed under provisional liquidation by order of the
North Gauteng High Court, sitting at Pretoria, South Africa.
The
2nd
Respondent was placed under final liquidation on the 27th
August 2013.
An
order of the High Court of South Africa was issued on the 30th
July 2013, authorizing the liquidators to sue on behalf of, and to
defend proceedings against, the 2nd
Respondent.
The
2nd
Respondent's liquidators dispute liability of the outstanding
amount and further state that the Applicant has failed to make out a
case for the piercing of the corporate veil as the 1st
and 2nd
Respondent are separate legal personalities.
Point
in
Limine
The
Applicant argues that the application is not opposed by 1st
and 3rd
Respondents. The only opposition before the court is on behalf of the
2nd
Respondent. The Applicant then extends the argument to state that the
opposition before the court is a nullity for reasons set out below:
(a)
Cross-border insolvency and the recognition of foreign liquidators in
Zimbabwe
The
Applicant contends that Zimbabwe has no bilateral cross-border
insolvency treaty with South Africa. AS such, so it is argued, in
order to be recognized as such in Zimbabwe, the foreign liquidator
must apply to the High Court of Zimbabwe for foreign recognition and
assistance.
Local
creditors must be notified of such application.
Further,
the Applicant notes that granting recognition to a foreign liquidator
is at the court's discretion. This discretion is absolute but
recognition is usually granted in the interest of comity or
convenience.
My
view on the matter is simply that evidence placed before me clearly
indicates that the 2nd
Respondent has been placed under liquidation in South Africa.
There
is no legal basis for that order of liquidation to be registered in
this court, to give recognition to such an order.
There
is no merit in the argument in that the order of liquidation granted
by the court in South Africa, must be recognized in this jurisdiction
first before the Respondents can be heard. See the remarks of INNES
JP in the case of
Ex
parte BZ Stegmann
1902 TS 40, at page 52, where the learned judge comments as follows:
“But
on the other hand, the same court, acting from motives of comity or
convenience, is equally justified in allowing the order of the Judge
of the domicile to operate within its jurisdiction, and in assisting
the execution or enforcement of such order. The matter is entirely
one for its own discretion.”
In,
the circumstances therefore, and exercising my judicial discretion I
do not consider it necessary for the liquidation order relating to
the 2nd
Respondent to be recognised first in this court formally. I am
satisfied that the order is valid and that the issues for
determination can be disposed of without considerations of
cross-border insolvency and the recognition of foreign liquidators.
I
would accordingly dismiss the point in
limine.
The
other preliminary point that was raised by the Respondents is that
the Applicant adopted the wrong procedure.
It
was argued that there are material disputes of fact which cannot be
resolved on the papers, and that on that basis the matter should be
dismissed.
I
note that this point was not forcefully persued and argued by the
Respondents.
I
am satisfied that the matters before the court are capable of
resolution without leading oral evidence.
The
test on whether a material dispute exists in a matter was well set
out by MAKARAU J in Supa
Plant Investments (Pvt) Ltd v Edgar Chidavaenzi
HH92/09.
The
Merits
I
shall deal with the merits of this matter.
In
order to establish whether the Applicant has succeeded in making a
case for the piercing of the corporate veil I need to have regard to
the following issues:
(a)
whether Cosira South Africa and Cosira Global have the same
shareholding;
(b)
whether Cosira South Africa and/or Cosira Global used their company
structures to avoid or conceal liabilities due to the Applicant;
(c)
whether Cosira South Africa or Cosira Global was used as a device of
facade to conceal some wrongdoing in terms of the contract conclude
with the Applicant;
(d)
whether Cosira South Africa acted fraudulently or dishonestly in
relation to the Applicant;
(e)
whether there is any compelling reason as to why the corporate veil
between Cosira South Africa and Cosira Global should be pierced.
I
now propose to deal with the above issues ad
seriatim:
Whether
Cosira South Africa and Cosira Global have the same shareholding
The
two companies, Cosira South Africa and Cosira Global enjoy the legal
personalities
conferred
upon them by the law. Cosira South Africa is a company with limited
liability incorporated in South Africa. Its shareholder is FT
Construction (Pty) Ltd.
On
the other hand, Cosira Global is an entity incorporated in Mauritus.
The shareholder of this company is JOAO DA NOVA.
It
is therefore clear that the shareholders of the two companies are not
the same.
The
Applicant realised this undisputed fact and sought to argue that the
two entities fall within the same economic group, known as the Cosira
Group of companies.
This
may be so but there is nothing to establish that the shareholding of
the two separate entities is held by the same personas.
Whether
Cosira South Africa and/or Cosira Global used their company
structures to avoid or conceal liabilities due to Applicant
The
Applicant's case is premised on the fact that although it concluded
a contract with Cosira South Africa to provide catering services, it
actually contracted with Cosira Global.
The
Applicant clearly has a dilemma in that the evidence clearly points
to the fact that the contractual arrangement was entered into between
Applicant and Cosira South Africa.
The
fact that some of the invoices raised by the Applicant were settled
by Cosira Global does not in my view necessary create a contractual
relationship between Applicant and Cosira Global.
The
fact that Cosira South Africa may not now be in a position to pay for
the services rendered by the Applicant does not create any legal or
contractual obligation on Cosira Global.
Whether
Cosira South Africa or Cosira Global was used as a device or facade
to conceal some wrongdoing
There
is simply no evidence to prove that Cosira South Africa was used as a
device to conceal some wrongdoing.
My
view is that it is up to contracting parties to perform due diligence
exercises with the companies or entities they do business with. When
a company makes a free expression to contract with another legal
entity it is imperative for the contracting parties to establish who
exactly they are contracting with.
In
the fast changing world, where contracts can be concluded via
the
internet and other electronic media, it is, in my view essential that
he contracting parties make themselves familiar with the real
personas
behind these companies.
The
Applicant categorically states that in or about 1 November 2012 it
concluded a contract with Cosira South Africa to provide catering
services.
A
copy of the Intro-wise catering Contract (“the contract”) is
annexed to the Applicant's papers as annexure “GG 7”.
The
contract is not signed by Cosira South Africa. Cosira South Africa is
not a party to that contract.
The
contract was in fact signed by Cosira Construction Solutions, with
its address at Brakpan, Johannesburg South Africa, on behalf of
Cosira South Africa.
I
am satisfied that there is nothing to suggest that Cosira Global was
used as a device to conceal some wrong doing.
Whether
Cosira South Africa acted fraudulently or dishonestly in relation to
the Applicant
The
Applicant contends that the two legal entities acted in connivance to
defraud it.
Whilst
payments for services were effected by either Cosira South Africa or
Cosira Global there is no justification to infer fraud or improper
conduct. It would seem that Applicant was happy to receive and accept
payment as long it was getting paid. It did not matter, who was
making such payment. The only problem arose when payments ceased. It
would seem that is the stage when Applicant sought to establish who
exactly was behind the two legal entities.
As
I have stated above fraud or improper conduct cannot be proved in
this matter.
Whether
there is any compelling reason as to why the corporate veil should be
pierced between Cosira South Africa and Cosira Global
Where
the piercing of the corporate veil is sought, the court is invited to
look at the two separate companies and their shareholders or
controllers. The corporate veil is lifted where a company, otherwise
legitimately established and operated is misused in a particular
instance to perpetrate fraud or for a dishonest or improper purpose.
The
principles governing the piercing of the corporate veil were
established and set out in the landmark case of Salomon
v Salomon and Company Ltd
[1897]
AC 22.
The
effect of the ruling in this case was to uphold firmly the doctrine
of corporate personality as set out in the United Kingdom's
Companies Act, 1862, so that creditors of an insolvent company could
not sue the company's shareholders to pay outstanding debts.
In
the decades since Salomon's
case, various exceptional circumstances have been delineated, both by
legislatures and the judiciary, in England and other jurisdictions,
when courts can legitimately disregard a company's separate legal
personality, such as where crime or fraud has been committed.
See
the case of Adams
v Cape Industries PLL
[1990] Ch 433.
The
other recent English case of Prest
v Petrodel Resources Ltd
[2013] UKSC 34 is significant in that it proposes that the piercing
of the corporate veil was usually a last resort, and that remedies
outside of “piercing” the veil, particularly in equity, or the
law of tort, could achieve appropriate results on the facts of each
case.
In
the South African case of Cape
Pacific v Lubner Controlling Investments (PTY) Ltd and others
1995 (4) SA 790, SMALBERGER JA states at page 803 as follows:
“It
is undoubtedly a salutary principle that our courts should not
lightly disregard a company's separate personality, but should
strive to give effect to and uphold it. To do otherwise would negate
or undermine the policy and principles that underpin the concept of
separate corporate personality and the legal consequences that attach
to it. But where fraud, dishonesty or improper conduct is found to be
present, other considerations would come into play. 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 in favour of piercing the corporate
in favour of piercing the corporate veil.”
On
the facts of this matter it is clear that the shareholders of Cosira
South Africa and Cosira Global are different.
No
evidence has been placed before the court to show that the two Legal
entities used their structures to avoid or conceal liabilities due to
the Applicant.
Additionally,
it has not been shown that Cosira South Africa was used as a device
or facade to conceal some wrongdoing in terms of the contract with
the Applicant.
I
am satisfied that it is not been proved that either Cosira South
Africa or Cosira Global acted fraudulently or dishonestly. There is,
therefore, no compelling reason why the corporate veil should be
lifted.
In
the circumstances, I come to the conclusion that a case has not been
made for the relief sought.
The
Application is hereby dismissed with costs.
Messrs
Dube-Banda, Nzarayapenga and partners,
applicant's legal practitioners
Messrs
Webb, Low and Berry,
2nd
respondent's legal practitioners
