1.
MAKARAU
JA: This
is an appeal against the whole judgment of the High court handed down
on 15 June 2016, granting a declaratory order in favour of the
respondent.
2.
The judgment declared binding and enforceable certain agreements
concluded between the Respondent and Interfin Bank Ltd and further
compelled the first and second appellants to honour the terms of the
agreements.
BACKGROUND
FACTS
3.
The respondent purchased certain bankers acceptances from Interfin
Bank Limited ("the Bank”) on a buy back basis. This was
between 2011 and 2012. As security for the payment of the purchase
price upon the maturity of the bankers acceptances, the Bank ceded to
the respondent various agreements that it had with the drawers and
issuers of the bankers acceptances. In addition, the parties
concluded two agreements in April 2012, styled Security Assignment
Agreement and Security Trust Deed respectively detailing the terms of
the transaction.
4.
In simple terms, the respondent made available to the Bank a certain
sum of money (whose amount is not disclosed in any of the written
agreements), in exchange for the Bank's debts. As security that the
respondent would recover part or the whole of its outlay, the Bank
ceded to it the agreements and rights that the Bank had against the
debtors and the debts due therefrom. Thus, it was specifically agreed
between the parties that:
(i)
The security and contracts assigned to the respondent would be
reassigned to the Bank upon repayment of all amounts due to the
respondent;
(ii)
The Bank would provide the respondent with any information or
documents concerning the security held in respect of the advance;
(iii)
The Bank would promptly commence legal proceedings against any issuer
of the bankers acceptances or assigned contracts who defaulted
thereof; and
(iv)
The Bank would, at the request of the respondent, provide all
reasonable administrative and operational support in connection with
the enforcement of any judgment or award given against a party to an
assigned contract.
5.
On 11 June 2012, the Bank was placed under curatorship by the Reserve
Bank in terms of section 53 of the Banking Act [Chapter 24:20]. This
is the law that authorises and empowers the Reserve Bank to curate a
bank which is in an unsound financial position and is not operating
in accordance with sound administrative and accounting practices or
has failed to comply with the minimum prescribed financial
requirements.
6.
A curator was duly appointed. The agreements that the Bank had
concluded with the respondent in April 2012 were brought to his
attention. He agreed to be bound by the terms of the agreements. Up
to the time when his curatorship ended in December 2014, the curator
collected on some of the debts on behalf of the Bank and remitted
these to the respondent in accordance with the terms of the two
agreements.
7.
In February 2015, the Bank was placed under final liquidation. The
second appellant was appointed as the liquidator. Once again, the
respondent brought to the attention of the liquidator the two
agreements, at the same time seeking confirmation that the second
respondent would honour the agreements. The first appellant, in his
capacity then as Chief Executive Officer of the second appellant, did
not respond to the inquiry. This prompted the respondent to file an
application with the court a
quo
four
months after making the inquiry.
8.
In the application, the respondent sought a declaratory order that
the agreements were binding on the appellants. As consequential
relief, it prayed that the appellants be compelled to honour the
terms of the agreements.
9.
The application was opposed. The appellants, as respondents a
quo,
filed a counter Application seeking an order setting aside the
agreements and compelling the respondent to refund the remittances he
had received from the curator. At the hearing of the application, the
appellants took a number of points in
limine.
These included the following:
(i)
That there were material disputes of facts which could not be
resolved on the basis of the papers filed of record;
(ii)
That there was no prior exchange control approval for the agreements;
(iii)
That the respondent, being a foreign company, was illegally trading
in the jurisdiction without a locally registered office;
(iv)
That the transactions between the Respondent and the Bank were
impeachable under the insolvency laws; and
(v)
That
the respondent had proceeded to file the court application without
the prior leave of the court.
10.
After dismissing all the preliminary points and the counter-claim,
the court a
quo,
as
stated above, granted the declaratory order and consequential relief.
Aggrieved by that a decision, the appellant noted this appeal raising
eight grounds of appeal. It is not necessary that I recite the eight
grounds in this judgment.
11.
At the hearing of the matter, Mr Matinenga for the appellant argued
and correctly so in my view, that one or more of the first three
grounds of appeal would resolve the appeal. These included the issue
raised in the last point in
limine
taken by the appellants a
quo
to the effect that the respondent had proceeded to file the
proceedings a
quo
without the prior leave of the court.
12.
This appeal turns on whether the proceedings a
quo
were properly before that court. Put differently, it turns on whether
leave was required before the application could be made?
13.
As indicated above, the issue whether leave was required before the
proceedings a
quo
could be brought was specifically raised before the court a
quo.
Agreeing with the argument by the respondent that the cause before it
was not against the Bank but was against the liquidator as an
administrative authority under the Administrative Justice Act
[Chapter 10:28], the court a
quo
held
that its prior leave was not necessary in the circumstances.
14.
It was of the further view that the cause before it sought to coerce
the first appellant in his official and personal capacity to respond
to the questions that the respondent had posed to him as to whether
the second appellant would recognise and honour the two agreements.
In its view, where a liquidator acts unreasonably or unfairly, he or
she can be sued without the leave of the court.
15.
It is not necessary that I determine whether the court a
quo
was correct in holding that where the liquidator as an administrative
authority is sued to respond to questions posed to him or her in
connection with the liquidation process, leave of the court is not
required before such proceedings are commenced. This is so because
the proceedings before the court a
quo
were
not to compel the liquidator to respond to the questions that had
been posed to it by the respondent or to compel the liquidator to act
reasonably and fairly. The cause before the court was against the
Bank in liquidation, founded as it was on the two contracts between
the Bank and the respondent. The cause was contractual and not
administrative in nature. This is clear from the terms of the order
that was sought and granted.
16.
Per
contra,
no order was sought against the first appellant in his personal
capacity. Whilst it is common cause that the first appellant had not
responded to the inquiry by the respondent, the draft order did not
seek to compel him to so respond.
17.
Thus, if the application was to compel the first appellant to respond
to the inquiry, as the court
a quo
held,
then the draft order would have sought a mandamus and the order of
the court would have equally been a mandamus directing the appellants
to respond to the inquiry and nothing more. It was not. Instead, the
order sought and granted required the second appellant to step into
the shoes of the Bank and apply the assets of the bank to meet the
terms of the agreements.
18.
Having found as the ratio of its decision that the application before
it sought to compel the first appellant to respond to the inquiry
made by the respondent, it stretches the mind how the court a
quo
then issued the order that it did.
19.
In making its finding that leave was not necessary, the court a quo
had this to say:
"It
is only where the company under liquidation is being asked to perform
certain functions that the leave of the court is required. But where
it is the liquidator himself or herself is the one (sic) who is being
asked to do or not to do certain things, then the liquidator can be
sued without citing the company under liquidation. The contention by
the respondent is therefore baseless and it is dismissed."
20.
As correctly observed in part by the court a
quo,
leave of the Court is required before proceeding against a company
and/or bank in liquidation. This is so because the broad purpose of
the law of insolvency and the winding up of companies is to ensure
due distribution of the insufficient assets of the debtor company
amongst the competing creditors under the watchful eyes of the court.
Thus, the position is settled at law that an order placing an estate
or a company in liquidation has the effect of creating a concursus of
the creditors of the insolvent and no creditor can thereafter do
anything that will alter the rights and interest of other creditors
without the leave of the court. Unsupervised and unsanctioned
litigation and proceedings against the insolvent will disturb the due
distribution of the insufficient assets and removes the role of the
court from the process.
21.
It may also be added that the leave of the court is necessary in such
circumstances as a broader consideration of protecting the
economically fragile company from unnecessary litigation quite apart
from merely protecting the interests of the creditors.
22.
It being common cause that leave of the court was not sought and
obtained prior to the institution of the proceedings a
quo,
the appeal succeeds on this basis alone.
It
is therefore my finding that the court a
quo
erred in construing the cause that was before it. The application a
quo
was not against the appellants in their personal capacities. It was
against the Bank in liquidation. It sought to compel the second
appellant to perform under the two agreements that the respondent had
with the Bank as if it was the Bank. Such proceedings ought to have
been with the leave of court.
23.
In view of the finding that I make above, it is not necessary that I
determine the remaining grounds of appeal.
24.
There is no reason why costs in this appeal should not follow the
cause. The respondent did not advance any for our consideration.
In
the result, I make the following
order:
1.
The appeal is allowed with costs.
2.
The judgment of the court a
quo
is
set aside and is substituted with the following:
“The
application is dismissed with costs.”
HLATSHWAYO
JA:
I agree
MAKONI
JA:
I agree
Scanlen
& Holderness, appellants legal practitioners
Atherstone
& Cook, respondent's legal practitioners
