PATEL JA: At the beginning
of the hearing
of this matter,
counsel for the appellant sought to introduce a point of law, pertaining to the
validity of the proceedings in the court below, as a new ground of appeal. For
the reasons given at the hearing, we declined the application.
Thereafter, following argument on the merits of the appeal, the
Court unanimously dismissed the appeal
with costs, except in relation to the fifth ground of appeal. The reasons for our decision are as follows.
BACKGROUND
This is an appeal against the whole judgment of the High Court in Case
No. HC 9257/12 handed down on 5 June 2013. Prior to that judgment, on 8
November 2011, the High Court granted an order by consent in Case No. HC
3159/11. In terms of that order, the
company known as Coldrac (Pvt) Ltd t/a Tacoola Beverages (hereinafter referred
to as “Coldrac”) was required to pay the first
respondent its outstanding rentals, operating charges and wasted costs,
totalling US$112,000.00, in 13 monthly instalments commencing in December 2011.
The appellant, who was a party to those proceedings, was absolved from the instance.
Following the failure by Coldrac to meet its payment obligations, the
first respondent applied to the High Court for an order, in terms of s 318 of the
Companies Act [Cap 24:03], declaring the appellant personally liable for the
judgment debt of Coldrac. The appellant admitted that he was a director of
Coldrac between 2003 and 2007, in what he described as an unofficial capacity,
and that he had acquired 80% of the shareholding in Coldrac. However, the
relevant CR 14 forms filed with the Registrar of Companies did not reflect his
directorship in Coldrac.
The court a quo found that the
appellant held himself out as a director of Coldrac both through the earlier
consent order and by virtue of the continuing tenancy with the first
respondent. He was therefore estopped from relying on the failure to comply
with the relevant statutory requirements
to furnish proper updated records and returns. Moreover, he had failed to notify
the Registrar of Companies and Coldrac itself of any
resignation as a director and was therefore still bound
by his duties as director in terms of s 187(7) of the Companies Act.
Consequently, because he carried on the business of Coldrac recklessly and with
intent to defraud, the court held that he was not protected by limited
liability and was liable for the
company's debts under s 318(1) of the Act. He was accordingly ordered to
pay the claimed amount of US$112,000.00 together with interest and costs on a
legal practitioner and client scale. In the
event of his failure to pay, the first
respondent was entitled to execute the order for payment against his two
immovable properties.
ISSUES FOR DETERMINATION
The notice of appeal filed of record contains five grounds of appeal. At
the hearing of the matter, counsel for
the appellant conceded that the second ground of appeal referred to the wrong section of the
Companies Act and that the third ground, as it was framed, was utterly
nonsensical. Therefore, he quite properly abandoned both grounds of appeal.
In the event, the principal issue for determination is whether the court a
quo misdirected itself by finding that the appellant was a director
of Coldrac at the material time. The remaining two issues relate to the
propriety of the order for special execution
of the appellant's
properties and the award of costs on a higher
scale.
DIRECTORSHIP
OF COMPANY
In paragraph 6 of
his opposing affidavit, the appellant admits that he was a director of Coldrac
between 2003 and 2007 “although
unofficially”. The import
of this
qualification is not at all clear for the simple reason
that it is not recognised in company law or corporate parlance. Be that as it
may, it is common cause that there is no CR14 return confirming the appellant's position as a
director of Coldrac. However, the relevance of that omission appears to be
outweighed by the documentary evidence adduced in the court below. Firstly, there
is a letter dated 17 May 2010 from Tacoola Beverages to the first respondent's estate agent,
setting out a payment plan for the repayment of its outstanding debt.
Secondly, there is a company resolution dated 10 June 2011 made by Coldrac
(Pvt) Ltd t/a Glendale Springs. Both documents clearly identify the appellant
as a company director. This accords with the requirements of s 188(1) of the Companies Act with respect to the details
of directors names to be included on all corporate business letters.
On the available evidence, therefore, there can be no doubt that the
appellant represented or held himself out as a director of Coldrac and its
trading subsidiaries at the relevant time. Consequently, third parties dealing
with him were entitled to rely upon that representation for the
purposes of legal liability in terms of s 12 of the Companies Act (which
codifies the long established Turquand rule).
In any event, even if it were to be accepted that the appellant was not a
director of Coldrac, this would not absolve him from personal responsibility for the company's debts and
liabilities under s 318(1) of the Companies Act. This is because that
provision extends personal liability not
only to “the past
or present directors of the company”
but also to “any other persons who were knowingly parties to the
carrying on of [its] business”
recklessly or with gross negligence or with intent to defraud.
It follows from
all of the foregoing that the principal ground of appeal is utterly devoid of
merit and cannot be upheld.
EXECUTABILITY
OF IMMOVABLES
As I have already indicated, the court a quo granted
an order entitling the first respondent to execute the order for payment in the
sum of US$112,000.00 against the appellant's
immovable properties, in the event that he failed to pay that sum. For
the appellant, Mr. Magwaliba argues that
an order for special execution against immovables is normally only granted for
preferential or secured creditors, such as mortgage bond holders. His further
submission in that regard is that execution must first be applied against the judgment debtor's
movables before it can be effected against his immovables. He relies for
this proposition on Rule 326 of the High Court
Rules.
In the present matter, it is common cause that there was no nulla
bona return in respect of the assets of Coldrac and no attempted
attachment of the
appellant's movables. The order of the court a quo,
so it is contended, entitles the first respondent, without any qualification, to execute
against the appellant's immovables, thereby circumventing the
requirements of Rule 326.
I am unable to agree with that contention for the simple reason that the
order for execution granted by the court a
quo only comes into operation in the event that the appellant fails to pay
the judgment debt. The order is clearly conditional and contingent upon such
failure. Therefore, the appellant is
perfectly at large to tender his movables in
satisfaction
of the judgment before any process for the execution of his immovables is
initiated.
In any event, the interpretation of Rule 326 propounded by Mr. Magwaliba is clearly not supported by
the wording of that rule. It deals
with the attachment of immovable property in the following terms:
“It shall not
be necessary to obtain an order of court declaring a judgment debtor's immovable property
executable or to sue out a separate writ of execution in order to attach and
take in execution the immovable property of any judgment debtor, but where so
desired the judgment creditor may sue out one writ of execution for the
attachment of both movable and immovable property:
Provided that the sheriff or his deputy shall not proceed to attach in
execution the immovable property of the judgment debtor unless and until he has
by due inquiry and diligent search satisfied himself that there is no or
insufficient movable property belonging to the judgment debtor to satisfy the
amount due under the writ.”
First and foremost, the rule patently does not, as is contended for the
appellant, differentiate as between secured and unsecured creditors. It applies to both without distinction.
Secondly, the plain meaning of this rule is that the judgment creditor has the
option to sue out a separate writ of execution for the attachment of immovable
property or a single writ for the attachment of both movable and immovable
property. In either event, before proceeding to attach immovable property, the
sheriff or his deputy is enjoined to satisfy himself that the judgment creditor
does not own any or has insufficient movable property to satisfy the judgment debt.
For the above reasons, the fourth ground of appeal cannot be sustained
and must be dismissed.
SCALE OF COSTS
The fifth and final ground of appeal is that the court below erred in
ordering the first respondent to pay the costs of suit on a legal practitioner
and client scale. In this regard, the court relied upon the fact that the
parties had already agreed to an award of costs on a higher scale as against
the first respondent in the earlier order by
consent.
That order, granted in Case No. HC 3159/11 on 8 November 2011, clearly
cannot be applied in respect of any subsequent costs incurred by the first
respondent in later proceedings. More pertinently, the award of costs is
imposed as against Coldrac per se and
does not extend to the appellant himself. In
the premises, as was properly conceded by Mr. Moyo for the first respondent, the punitive award of costs made by
the court below was improper and cannot
be sustained. It must therefore be set aside.
For all of the above reasons, the appeal was dismissed with costs, except
in relation to the fifth ground of appeal. Accordingly, the decision of the
court a quo is upheld in its
entirety, save for para 3 of the court order, which is set aside and
substituted as follows:
“3. The first respondent shall pay
the costs of this application on the ordinary scale.”
ZIYAMBI JA: I agree.
HLATSHWAYO
JA: I agree.
Bvekwa Legal Practice, appellant's legal practitioners
Scanlen &
Holderness, first respondent's legal practitioners
