PATEL
J: The applicant herein is a
limited liability company incorporated in the United Kingdom. The three
respondents companies are incorporated in Zimbabwe. BP Africa Limited (BP
Africa) and Shell Petroleum Company Limited (Shell Petroleum) are corporate
entities based in the United Kingdom. They are equal shareholders in both the second
and third respondents, while the latter companies are equal shareholders in the
first respondent.
The applicant seeks interim relief
prohibiting the sale or other dissipation of the assets of and/or shares in the
three respondent companies, pending the finalisation of arbitral proceedings
between the applicant and the first respondent. The final relief sought, in
addition to this prohibition against sale or disposal, extends to the issuance
of a declaratory order to the effect that the contractual dispute between the
applicant and the first respondent has been properly referred to arbitration.
The respondents resist the applicant's
entitlement to the interdict and declaratur
sought. Due to constraints of time, they have not as yet filed opposing papers
but have advanced their case through a letter of opposition containing various
submissions put forward by counsel on their behalf. Counsel for the applicant
has no objection to this procedure and the letter of opposition and its
contents are accordingly admitted for present purposes.
Background
The background facts giving rise to
this application, as set out in the founding papers, are generally not in
dispute. In December 2007 the applicant and the first respondent entered into a
Supply Agreement for the supply of refined petroleum products to the first
respondent. This agreement was revised by an addendum in June 2009, and the revised
agreement was verbally extended until December 2009.
At
some stage a dispute arose between the parties revolving around reconciliation
of the amount of fuel supplied over a certain period of time. Both parties then
appointed their own auditors to conduct a forensic audit of the applicant's
claim. According to a report compiled by the applicant's auditors, the first
respondent has not paid or accounted for approximately 19.5 million litres of
fuel (valued at circa US$20 million). The applicant has endeavoured to refer
the dispute to mediation and then arbitration in terms of clause 12 of the
Supply Agreement. The issues identified for arbitration relate to the
applicant's claim for fuel supplied and the first respondent's counterclaim for
storage charges. For reasons that are presently not entirely clear, the dispute
has not as yet proceeded to arbitration as anticipated by the applicant.
Impending
Sale
As
appears from a letter emanating from BP Southern Africa (Pty) Ltd, which is
dated 26 June 2010, BP Africa and Shell Petroleum intend to sell their business
interests in Zimbabwe. An on-line data room has been opened for that purpose
and there have been 20 offers or bids ranging from US$20 million to US$32
million. The data room was initially due to be closed by 25 June 2010 but the
deadline was recently extended to 6 July 2010. The selection of the successful
bidder is likely to take place on or soon after that date. However, it is not
clear when the actual sale transaction will be negotiated and finally
concluded.
The opening paragraph of the letter
that I have alluded to reads as follows:
“BP Africa
Limited and the Shell Petroleum Company Limited and their affiliates
(collectively, 'the Sellers') have jointly elected, subject to mutually
acceptable terms, to sell their downstream business in Zimbabwe through the
sale of 100% of the issued and outstanding share capital in Shell (Zimbabwe)
(Private) Ltd and BP Zimbabwe (Private) Ltd (the 'Business'). The Sellers
intend to sell the entire Business in a single share sale transaction (the
'Proposed Transaction').”
On the third page of the letter, it
is stated that the sellers may at their sole discretion:
“manage the
Proposed Transaction in any manner as they consider appropriate, whether in the
form of private negotiations, tender process or otherwise, and at any time and
without notice may change or discontinue the Proposed Transaction (including
modifying the scope of the Proposed Transaction) and/or the process
contemplated in this letter.”
The applicant has also furnished a
draft Share Purchase Agreement dated 10 July 2009 which, according to the
applicant, substantially approximates the final agreement that will be adopted
by the sellers and the successful bidder. The cover page of this draft is entitled:
“SHARE PURCHASE
AGREEMENT RELATING TO THE SALE AND PURCHASE OF 100% SHAREHOLDING IN SHELL
ZIMBABWE (PRIVATE) LIMITED AND 100% SHAREHOLDING IN BP ZIMBABWE (PRIVATE)
LIMITED”.
The
draft agreement cites THE SHELL PETROLEUM COMPANY LIMITED and BP AFRICA LIMITED
as the “Seller” and defines two key terms as follows:
·
“Shares” means the shares owned by Seller in the
issued share capital of the Company
·
“Company” means Shell Zimbabwe (Private) Limited and
B.P. Zimbabwe (Private) Limited, certain particulars of which are set out in
Part A & B of Schedule 1
[Part C of
Schedule 1 sets out the particulars of the 1st respondent, while
Part D of the same Schedule lists certain joint venture companies].
The
Arguments
The applicant avers that that the
intended sale by BP Africa and Shell Petroleum, either expressly or impliedly,
encompasses the disposal of the assets of and/or shares in the second and third
respondents as well as the first respondent. The applicant apprehends that this
sale will take place without settlement of the first respondent's liabilities
to the applicant. This fear is founded on the terms of the offer letter quoted
above and the first respondent's Balance Sheet, as at 31 December 2009, which does not
fully and clearly account for the applicant's claim, except as a contingent
claim. It is further averred that the eventual purchaser of the first
respondent, depending on the terms and conditions of sale, may not be legally
accountable for the applicant's claim. This would occasion extreme prejudice to
the applicant and the possibility of irreparable harm in the absence of any
effective remedy as against BP Africa and Shell Petroleum as well as the
purchaser. Therefore, the balance of convenience favours the stoppage of the
intended sale pending the arbitration of the applicant's claim and the first
respondent's counterclaim. Finally, although BP Africa and Shell Petroleum have
not been joined initially, it is submitted that service of the Provisional
Order upon them will enable them to contest the final order sought.
For the respondents, it is submitted
that the present application is entirely misdirected in that it is BP Africa
and Shell Petroleum who are selling their shares in the second and third
respondents and who should have been joined in this matter from the outset.
Moreover, the reason for the application is stated in the founding affidavit
(at paragraphs 28 and 29) as being the imminent sale of the first respondent.
However, on the papers before the Court, no such sale of shares or assets in
the first respondent is presently envisaged. The applicant's claim lies
exclusively against the first respondent and will therefore not be prejudiced
or affected in any way by the sale of shares in the second and third
respondents. It is further submitted that the relief sought is ill-founded in
that the second and third respondents cannot be interdicted from selling shares
in themselves. Only the holders of those shares, BP Africa and Shell Petroleum,
can be so interdicted. Additionally, the second and third respondents cannot be
interdicted from selling the first respondent's assets, as distinct from their
shares in it, as those assets are owned by the first respondent itself as a
separate corporate entity. As for the balance of convenience, the prohibition
of the intended sale might cause the potential purchasers to withdraw and
thereby occasion irreversible prejudice to BP Africa and Shell Petroleum. In
short, the applicant has failed to establish any prima facie right or prospect of irreparable harm entitling it to
the interdict that it seeks. Finally, as regards the declaratory order sought,
it is submitted that this is incompetent as any dispute as to the arbitrator's
jurisdiction must be resolved by the arbitrator himself.
Disposition
The terms of the draft Share
Purchase Agreement, as I perceive them, make it abundantly clear that the
intended sale relates solely to the shares held by BP Africa and Shell
Petroleum in the second and third respondents. This appears not only from the
cover page of the draft agreement but also from the citation of the “Seller” (i.e. BP Africa and Shell Petroleum) and
the definition of the “Shares” to be sold as those in the “Company” (i.e. the second and third respondents).
The inclusion of the first respondent in Part C of Schedule 1 and the joint
venture companies in Part D of that Schedule seems to have been designed to
provide a comprehensive picture of the business interests of the “Group” in
Zimbabwe.
Turning to the offer letter from BP
Southern Africa (Pty) Ltd, this declares that what is to be sold by BP Africa
and Shell Petroleum and their affiliates (i.e.
“the Sellers”) is their downstream business in Zimbabwe, through the sale of
100% of the share capital in the second and third respondents (i.e. the “Business”), by way of a single
share sale transaction (i.e. the
“Proposed Transaction”). This appears to confirm that the intended sale is
confined to the shares in the second and third respondents and does not extend
to the shares in or assets of the first respondent. In any event, the
conditions stipulated in the offer letter entitle the sellers, at their sole
discretion, to change or discontinue the proposed transaction, including the
scope thereof, as well as the process contemplated in the letter. The applicant
contends that this reserved right would enable BP Africa and Shell Petroleum,
if they are so inclined, to enlarge the scope of the intended sale to include
the shares in and assets of the first respondent. However, this contention is
not factually supported by any concrete evidence in the founding papers and is
essentially speculative without such evidence. Equally significantly, in my
view, the contention is legally untenable for the following reasons.
First and foremost, it is trite that
the shares of a company vest in its shareholders and are subject to their
ownership and control, to the exclusion of any other person or entity. In the
case of a holding company, it is entitled to control and dispose of its shares
in its subsidiary company, but it cannot alienate the shares held by that
subsidiary in any other company. The divide between the two levels of
shareholding and ownership is legally unbridgeable. Secondly, it is a firmly
grounded principle of company law, dating back to the decision of the House of
Lords in Salomon v Salomon & Company
Limited [1897] AC 22, that a company is a corporate body that exists as a
separate juristic entity distinct from its members and shareholders. This principle was affirmed in Dadoo Ltd & Others v Krugersdorp Municipal
Council 1920 AD 530. See also Tett & Chadwick: Zimbabwe Company Law (2nd ed. 1986) at pp. 12-13.
Consequently, while the shares in a company may be owned and controlled by its
shareholders, its assets vest exclusively in the company itself and are not
subject to the ownership and control of its shareholders. Of course, one cannot
discount the possibility of either or both of these principles being clouded or
circumvented by well-orchestrated mercantile machination. Although this might
justify “piercing the corporate veil” in appropriate circumstances, viz. where there is evidence of fraud,
it cannot dilute or detract from the fundamental legal distinction between the
company on the one hand and its members or shareholders on the other.
The implications of legal principle
for the instant case are as follows. Firstly, only BP Africa and Shell
Petroleum can dispose of their shares in the second and third respondents,
while only the latter can divest themselves of their shares in the first respondent.
The three respondent companies obviously cannot sell shares in themselves.
Secondly, BP Africa and Shell Petroleum cannot sell the assets of the second and
third respondents, while the second and third respondents cannot sell or
dissipate the assets of the first respondent, for those assets are exclusively
owned and controlled by the three respondent companies respectively.
The principal interim relief sought
by the applicant is to prohibit the sale or other dissipation of the assets of
and/or shares in the first, second and third respondents, pending the
arbitration of the dispute between the applicant and the first respondent. As
regards the shares held by BP Africa and Shell Petroleum in the second and third
respondents, the former companies should have been joined as parties hereto ab initio as having a direct and
substantial interest in the matter. On the facts of this particular case, it
does not suffice to simply serve a provisional order upon them without having
afforded them the opportunity to be heard in the first instance. Quite apart
from this procedural omission, the intended sale of the shares in the second
and third respondents does not entail the disposal of the shares in and assets
of the first respondent and therefore cannot impinge upon the dispute between
the applicant and the first respondent and the resolution of their respective
claims against each other. As for the supposed sale of the shares in and assets
of the first respondent, there is nothing on the papers to show that this is
actually contemplated at the present juncture or in the foreseeable future. In
any event, the proposed sale by BP Africa and Shell Petroleum of their shares
in the second and third respondents cannot, as a matter of law, be modified in
its scope of coverage by the former companies to embrace the disposal of the
shares in and assets of the first respondent.
It follows from all of the foregoing
that the applicant has failed to establish a prima facie right entitling it to the interdictory relief that it
seeks. The application for a provisional order therefore cannot succeed on the
papers before me.
Costs
On
the question of costs, the respondents claim costs on a higher scale on the
basis that they should never have been brought to court at all. However, the
founding papers show that the first respondent has been somewhat dilatory in
bringing the dispute between itself and the applicant to arbitration or other
satisfactory resolution. Moreover, all three respondents have shown marked
reticence in disclosing to the applicant the full nature and extent of the
intended sale of shares in the second and third respondents. It seems to me
that there is considerable substance in the applicant's submission that these
factors have prompted the present application. Accordingly, I am unable to find
any justification for making a punitive award of costs as against the
applicant.
In the result, the application is
dismissed with costs on the ordinary scale.
Dube,
Manikai & Hwacha, applicant's legal practitioners
Atherstone & Cook, respondents' legal practitioners
