Opposed
Application
CHITAKUNYE
J:
This is an application pursuant to the provisions of Rule 205A as
read with Rule 207 of the High Court Rules, 1971.
On
23 March 2015, the judgement creditor obtained judgment against
WESTCOTT SPECIALITY CHEMICALS (PVT) LTD (hereinafter referred to as
the judgement debtor) in the sum of $24,421.00 in HC 1566/15.
Pursuant
to the judgment, the judgment creditor instructed the applicant to
attach the judgment debtor's property at its principal registered
office at number 187 Munhondo Street, Ruwa.
When
the applicant attended at the stated address he failed to attach any
property as the property he found had already been attached in
another matter. The applicant later made a nulla
bona
return the import of which was that there was nothing to attach.
The
judgment debtor had apparently ceased operating from that address
when its property was attached and had left no forwarding address.
Upon
its investigations the judgment creditor discovered that the judgment
debtor was now operating from No.5 Westcott Road Mt Pleasant, this is
the claimant's address as well.
It
also discovered that the claimant was the director of the judgment
debtor as well as its company secretary.
The
judgement creditor was of the view that the claimant was the alter
ego of the judgment debtor and so instructed the applicant to attach
the claimant's immovable property namely Stand 262 Mount Pleasant
Township 9 of Lot 50 of Mount Pleasant Harare also known as No.5
Westcott Road Mt Pleasant.
Consequent
upon the attachment the claimant advised the applicant in terms of
Rule 205A that the property was owned by him and not the judgment
debtor hence these interpleader proceedings.
From
the papers filed of record and submissions made it is common cause
that the attached property is registered in the claimant's name. It
is thus the claimant's property.
The
judgment creditor's position was that the claimant is merely the
alter ego of the judgement debtor and that it should be allowed to
realise its dues from that property as claimant and judgment debtor
are one.
The
judgment creditor thus sought the lifting of the corporate veil so
that the real person behind the company is made to account for the
debt.
The
claimant on the other hand contended that he is not an alter ego of
the debtor and that he is a separate entity from the judgment debtor
which is a registered company. He is only one of the four directors
of the company. He thus contended that there is no justification for
lifting the corporate veil.
The
claimant also contended that in terms of section 318(1) of the
Companies Act [Chapter
24:03]
the judgement creditor was required to first make an application to
the High Court for the lifting of the corporate veil wherein it must
prove that the business of the company was being carried on
recklessly; with gross negligence; or with the intent to defraud any
person or for any fraudulent purpose.
The
first issue is whether or not the judgment creditor ought to have
first sought the lifting of the corporate veil in terms of section
318(1) of the Companies Act before attaching the property as
contended by the claimant.
It
is pertinent to note that section 318(1) is under Part V of the
Companies Act. That part deals with winding-up and judicial
management of companies and it provides that:
“(1)
If at any time it appears that any business of a company was being
carried on —
(a)
recklessly; or
(b)
with gross negligence; or
(c)
with intent to defraud any person or for any fraudulent purpose;
the
court may, on the application of the Master, or liquidator or
judicial manager or any creditor of or contributory to the company,
if it thinks it proper to do so, declare that any of the past or
present directors of the company or any other persons who were
knowingly parties to the carrying on of the business in the manner or
circumstances aforesaid shall be personally responsible, without
limitation of liability, for all or any of the debts or other
liabilities of the company as the court may direct.”
Given
the above provision the claimant contended that the judgement
creditor ought to have applied separately for the lifting of the
corporate veil before attaching the property. The failure to do so
entails that this application should not be heard till section 318(1)
has been complied with.
The
judgment creditor on the other hand argued that it is not in every
case that a judgement creditor must first proceed in terms of section
318, each case must be treated on its own basis. In any case the
procedural failure to seek the piercing of the veil of incorporation
before attaching the property should not be fatal to the present
matter. The circumstances of this case warranted that the matter be
heard and be decided without the need for fresh proceedings in terms
of section 318 of the Companies Act. It must be decided on the
substance and not on the form.
The
question is thus: is it procedurally necessary for a judgement
creditor to have obtained a prior court order lifting the corporate
veil before attempting to attach claimant's property?
It
is pertinent to refer to the words of SMALLBERGER JA in Cape
Pacific Ltd v Lubner Controlling Investments (Pty) Ltd
1995 (4) SA 790 at 805G-806B where in dealing with the issue of
piercing the corporate veil where another remedy was available, the
learned judge stated, inter
alia,
that:
“In
principle, I see no reason why piercing the corporate veil should
necessarily be precluded if another remedy exists.…… if the facts
of a particular case otherwise justify the piercing of the corporate
veil, the existence of another remedy, or the failure to pursue what
would have been an available remedy, should not in principle serve as
an absolute bar to a court granting consequential relief.….
Whatever laxity or 'fault' there may have been on the part of the
appellant in failing to pursue its rights under the doctrine of
notice pales into insignificance compared to the impropriety of
Lubner's conduct. Yet respondents seek to rely upon such failure to
deny the appellant relief. Policy considerations dictate that they
should not be permitted to do so. In the circumstances the
appellant's failure to pursue its remedy under the doctrine of
notice does not in my view operate as a bar to the relief it seeks.”
In
Deputy
Sheriff v Trinpac Investments (Pvt) Ltd and Anor
2011 (1) ZLR 458 at 553G-H PATEL J (as he then was) alluded to the
above observations and stated that:
“… while
these observations may not be directly pertinent to the question at
hand, they certainly fortify the principle that mere procedural
technicalities should not be allowed to frustrate or impede the
effective satisfaction of a just claim. In any event, I see no logic
or practical reason in requiring the judgement creditor to institute
fresh proceedings in this court to pierce the corporate veil in
circumstances where those proceedings would entail the same
conclusion that I have reached earlier.”
In
casu,
I am of the view that the contention that the judgement creditor
should have first obtained a court order lifting the corporate veil
in terms of section 318(1) of the Companies Act is not sustainable.
If
as aptly noted in Deputy
Sheriff v Trinpac Investments (Pvt) Ltd and Anor (supra),
the facts are such as enable court to make a decision then surely why
should the judgement creditor be required to start fresh proceedings
for lifting of the corporate veil?
I
do not think that in enacting that section the legislature intended
such a scenario.
The
claimant's counsel could not cite any authority to the effect that
failure to seek the lifting of the corporate veil in terms of section
318(1) is a bar to a party seeking the lifting of the corporate veil
through another procedure.
Clearly
the issue of lifting or piercing the corporate veil can be determined
in the present proceedings.
The
next issue for determination is whether or not the corporate veil
should be lifted.
It
is a cardinal principle of company law that a company is a separate
legal entity from its members. See Saloman
v Saloman and Co. Ltd
(1897) AC 22 (HL).
It
is also trite that the courts are reluctant to pierce the corporate
veil as to do so would negate or undermine the policy and principles
that underpin the concept of separate corporate personality and its
legal consequences.
There
are however exceptions that have of late been alluded to as
justifying the piercing of the corporate veil.
The
veil of incorporation may be pierced where there is proof of fraud,
dishonesty or other improper conduct in the establishment or use of
the company or in the conduct of its affairs.
In
T
Sibanda v H M Sibanda
SC7/14 at p11 GWAUNZA JA aptly noted that:
“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 21 at p26D-C 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)
A
further illustration of the exceptions maybe noted in Deputy
Sheriff v Trinpac Investments (Pvt) Ltd & Anor (supra)
wherein court held, inter
alia,
that:
“While
the cardinal principle of company law is that a company is a separate
entity distinct from its members, there are well established
exceptions to the principle, grounded in policy considerations.
When
the notion of a legal entity is used to defeat public convenience,
justify wrong, protect fraud or defend crime, the law will regard the
corporation as an association.
When
the corporation is the mere alter ego or business conduit of a
person, it may be disregarded.
Where
a corporation is organised or maintained as a devise in order to
evade an outstanding legal or equitable obligation, the courts, even
without reference to actual fraud, refuse to regard it as a corporate
entity.
Where
fraud, dishonesty or other improper conduct is found, the need to
preserve the separate corporate identity would have to be balanced
against policy considerations which arise in favour of piercing the
corporate veil.
The
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. Each case would have to be considered on its
merits.”
Further,
in Cape
Pacific Ltd v Lubner Controlling Investments (Pty) Ltd (supra)
at 802H-J SMALLBERGER JA aptly noted that:
“The
law is far from settled with regard to the circumstances in which it
would be permissible to pierce the corporate veil.
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 — a doctrine common, one would think, to every system of
jurisprudence and conveniently expressed in the maxim plus
valet quod agitur quam quod simulate concipitur.'
(Dadoo
Ltd and Others v Krugersdorp Municipal Council
1920 AD 530 at 547).”
What
should exercise the court's mind is whether on the facts or
evidence placed before it the corporate veil should be lifted in the
interests of justice failure of which manifest justice will be
denied.
Courts
must not be seen to be shielding proven fraudsters or deceitful
actors who seek to avoid personal liability by hiding behind the mask
of corporate veil.
The
facts which the creditor alluded to as justifying the lifting of the
corporate veil include the following:
(i)
the judgement debtor had its property attached in another matter
hence when the applicant went to attach property in the matter in
question he found nothing to attach and that the debtor had ceased
operating from its registered office. There was no notification of
change of address. There was no change of address at the companies
registry; the judgment creditor had to carry out its own
investigations to locate where the debtor was now operating from.
(ii)
The claimant, whilst being one of the four directors of the judgement
debtor, was the only director who had been dealing with the creditor;
he was the contact person and no other; besides being the director he
was also the company secretary; it is claimant who would appear in
all meetings between the parties to discuss their business dealings.
In
short, the judgment creditor only knew claimant as the representative
of the judgment debtor. Efforts to contact other directors who are
indicated on the CR14 form yielded no response. Thus the only contact
with the judgment debtor was the claimant.
(iii)
Another pointer to claimant being the alter ego is that even the
debtor's letter heads have the claimant's email address only.
(iv)
Further, in his letter of 21 September 2012 attached to creditors
papers, claimant undertook to pay the debt in these words:
“As
I stated to you, we want to have the matter settled, I am proposing
to have the full amount ($24,421.00) paid on or by October 31, 2012.”
Clearly
he was the one proposing and undertaking to pay as the one in
control.
It
is pertinent to note that most of these facts were not denied.
I
did not hear claimant to deny that in all the dealings with the
judgment creditor he was the contact person and that the debtor's
letter heads in fact only bore his e-mail address and no other.
Claimant
did not deny that when the debtor relocated from 187 Munhondo Ruwa it
did not notify anyone or change its registered office address at the
companies registry.
There
was no denial that the judgment creditor had to do its own
investigations to discover that the judgment debtor was now operating
from claimant's residential address.
The
judgment debtor was safely tucked away at claimant's address and
claimant was busy operating the company business from his residence.
There
is no doubt that claimant has been running the company even from his
residential address as his company. He is the face of the company and
is fully conversant with the goings on in the company.
The
impression one gets from the above facts is that claimant was the
company and the company was the claimant, the two were in fact and in
truth inseparable. The claimant was in full control of the company.
The separateness between the claimant and the company has not been
maintained in operating the business.
Indeed
as noted from claimant's papers and submissions no averments were
made on the whereabouts of other directors or properties for the
judgment debtor if at all it existed separate from the claimant.
The
claimant hoped to evade liability by hiding behind the guise of the
debtor being a company.
It
is my view that there is some element of dishonesty in the manner
claimant operated the company and attempted to evade liability. He
just could not own up and pay what was due to the judgment creditor.
Manifest injustice will occur if claimant is allowed to get away with
such a scheme. He clearly must be personally made to account for the
debt in question.
This
is a case where the interests of justice require that the veil of
incorporation be lifted to enable the judgement creditor to recover
its dues.
I
am of the view that the manner in which claimant attempted to avoid
liability despite the indisputable facts on his role in the company
calls for costs on the higher scale.
The
applicant and judgement creditor have been put to great expense when
the noble thing would have been for claimant to simply arrange a
payment plan for the debt and save his property from being sold.
Accordingly
it is hereby ordered that:
1.
The claimant's claim to a certain piece of land situate in the
district of Salisbury called Stand 262 Mount Pleasant Township 9 of
Lot 50 of Mount Pleasant, measuring 4144 square meters dated 11 March
1988, also known as 5 Westcott Road, Mount Pleasant, Harare placed
under attachment in execution of judgement HC1566/15 is hereby
dismissed.
2.
The Notice of Intention to Sell Immovable Property in Execution dated
7 January 2016 both of which were issued by Applicant, are confirmed
and the property stated therein is declared executable.
3.
The claimant is to pay the judgement creditor and Applicant's costs
on a legal practitioner and client scale.
Kantor
and Immerman,
applicant's legal practitioners
Mundia
and Mudhara,
Claimant's legal practitioners
Sawyer
and Mkushi,
Judgment Creditor's legal practitioners
