MTSHIYA J: This is an urgent
application filed on 2 February 2011 and the applicants seek the following
relief:
“Final
Order
1. That the first respondent revokes the
appointment of Wesley Militala as Provisional Judicial Manager of David
Whitehead Textiles Limited for failure to give security for the proper
performance of his duties in terms s 302(1)(b)(i) of the Companies Act [Cap 24:03] and appoints in his place a suitable person as
the Provisional Judicial Manager of David Whitehead Textiles Limited.
2. That the first and second respondents
pay the costs of suit at an attorney – client scale
INTERIM ORDER
1. That pending the finalization of this
matter the first respondent forthwith suspends his appointment of Wesley
Militala as Provisional Judicial Manager of David Whitehead Textiles Limited
and that in his place he appoints an interim Provisional Judicial Manger with
the same powers as granted to the Provisional Judicial Manager by the order of
BHUNU J of (sic) the 1st December 2010.
2. That the first and second respondent (sic) pay the costs of suit at an
attorney –client scale”.
On
1 December 2010 this court granted a consent order (i.e. the provisional order
yet to be discharged) in the following terms:-
“A.
Respondents and an (sic) interested party shall show cause
to this Court sitting
at Harare on the 2nd day of March
2011 why an order should not be made in the following terms.
1.
The
first, second, third, fourth, fifth and sixth respondents are hereby placed
under Judicial Management for an indefinite period.
2.
Subject
to the provisions of s 299 of the Company Act [Cap 24:03] the Master shall appoint WINSLEY MILITALA of Petwin
Executor and Trust Co (Private) Limited as Judicial Manager of first, second,
third, fourth, fifth and sixth respondent companies with the powers and duties
set out in s 302 and 303 of that Act, and subject to the supervision of this
court.
3.
From
the date of that appointment and upon completion of a bond of security in
accordance with s 274 of the Company Act [Cap
24:03], the Judicial Manager shall forthwith take over the management of
the first, second, third, fourth, fifth and sixth respondents companies and
shall prepare and submit reports in accordance with s 303 (c) of the Act.
4.
The
Judicial Manager shall have the powers set out in sub-para(s) (a) to (m) of s
306 of the Act [Cap 24:03] and,
without the consent of creditors or the shareholders, may raise money on the
security of the first, second, third, fourth, fifth and sixth respondent
companies assets, or with the consent of the Creditors and Shareholders dispose
off (sic) part of the assets of the
respondent companies to raise working capital or to enter into a scheme of
arrangement to resuscitate the companies.
5.
All
actions and applications and the executions and of all writs, summonses and
other process against the first, second, third, fourth, fifth and sixth
respondent companies shall be stayed and not proceeded without the leave of
this Court.
6.
The
Judicial Manager shall be entitled from the assets of the respondent companies,
to the payment of remuneration at a rate to be determined by the Master of the
High Court and to reimbursements for all out-of pocket expense (sic) incurred by him in the course of
his duties.
7.
The
Judicial Manager shall pay both applicant's and respondents' costs of thee
proceedings out of the assets of the Company.
B.
Pending
the grant of an order in terms of para (A) or the discharge this order.
1.
The
first, second, third, fourth, fifth and sixth respondents companies are hereby
placed under provisional Judicial Management and subject to the supervision to (sic) this court, shall be under the
management of a Provisional Judicial Manager Appointed in terms of s 299 of the
Companies Act [Cap 24:03] subject to
s 300 of this Act. (sic)
2.
The
Master of High Court is hereby directed to appoint WINSLEY MILITALA of Petwin
Executor and Trust Co (Private) Limited who is a suitably qualified and
experienced person, as Provisional Judicial Manager of the first, second,
third, fourth, fifth and sixth respondents.
3.
Sub-paragraph
2-7 of para (a) of the draft order shall apply mutatis mutandis in relation to first, second, third, fourth, fifth
and sixth respondents have been finally placed under Judicial Management.
4.
This
order shall be published one (sic) in
the Government Gazette and once in the Herald newspaper. Publication shall be
the short form annexed to this order.
5.
Any
person intending to support or oppose the application on the return day of this
order shall:-
(a)
Give
due notice to the applicants at Gasa Nyamadzawo & Associates.
(b)
Serve
on the applicant (and on the respondent) a copy of any affidavit which he files
with the Registrar of the High Court”.
The parties to the above consent
order were:-
Zimbabwe
Textile Workers Union Applicant
and
David
Whitehead Textiles Limited 1st
Respondent
DWT Holdings (Pvt) Ltd 2nd
Respondent
DWT Spinning (Pvt) Ltd 3rd
Respondent
DWT Cotton Wools (Pvt) Ltd 4th
Respondent
& 4 Ors
In
line with clause B(2) of the interim order, the second respondent, Winsley
Militala, (Mr Militala) was duly appointed Provisional Judicial Manager of:-
1.
David
Whitehead Textiles Limited
2.
DWT
Holdings (Pvt) Ltd
3.
DWT
Spinning (Pvt) Ltd
4.
DWT
Cotton Wools (Pvt0 Ltd and 2 Other companies (only referred to as fifth and
sixth respondents in the consent order)
According to the founding affidavit
filed with this application Mr Militala was
appointed as provisional judicial
manager on 21 December 2010. Prior to his appointment the first respondent
herein had requested him to provide security to cover an amount of Twelve
Million United States Dollars (US$12 000 000). This request, according to the
founding affidavit, was made in terms of s 302 of the Companies Act [Cap 24:03] (“the Act”). In order to
satisfy that requirement, Mr Militala obtained a bond of security from Allied
Insurance Company. However, after he was already appointed, it transpired that
Messrs Allied Insurance Company did not have he capacity to cover the full risk
(i.e. US$12 000 000). The said insurance company subsequently withdrew its bond
of security. That left Mr Militala
without any form of security at all.
In
addition to the absence of security, it was averred in the founding affidavit
that Mr Militala as Provisional Judicial Manager had proceeded to allow a
disputed claim of US$3000 000. It was stated that the confirmation of that
claim between Eastway Agritech Investments Limited exhibited gross negligence
on the part of Mr Militala. The disputed claim was still a subject to
determination by this court in case No. HC 705/10
Furthermore,
the first applicant alleged that Mr Militala had proceeded to sign a lease agreement
between David Whitehead Textiles Limited and Kithra for no compensation
(rental) except for a management fee of US$15000 payable to Mr Militala
himself. The first applicant had advised the first respondent of his concerns
about Mr Militala but no action had been taken.
The first applicant also alleged
that a break-in had occurred at the industrial property of David Whitehead
Textiles Limited resulting in a loss of property.
Due to the foregoing it was therefore the first applicant's view that
speedy action was required to remove Mr Militala from the position of
Provisional Judicial Manager. It was argued that to allow him to continue
without cover of a security bond would endanger the interests of David
Whitehead Textiles Limited and all Stakeholders. In order to deal with that
situation the first applicant deemed it necessary to file this urgent
application.
The
application first came before me on 3 February 2011. At the first hearing I
urged the parties to seek a practical and amicable settlement. To allow for
discussions, I postponed the matter to 7 February 2011.
On
7 February 2011 the parties reported that no progress had been made towards a settlement and Mr Mlotshwa, for the second respondent, then applied for a day's
postponement, indicating Mr Militala was travelling from South Africa and would be in the
country on 8 February 2011. I allowed the postponement to 8 February 2011.
On
8 February 2011, Mr Ranchod, representing
the third respondent also appeared before me and indicated that the third
respondent had an interest in the matter. Mr Mlotshwa for the second respondent also indicated that there were
many creditors interested in the matter. He said those creditors would like to
be heard. Mr Nhemwa for the applicant
had no objection to the matter being postponed so that interested creditors
could be served with the application.
In
order to allow for other interested parties to be served with the application, I
postponed the matter to 10 February 2011 and directed the first applicant to
serve the application on all creditors appearing on the Provisional Judicial
Management Report, including Parrogate (Pvt) Ltd (i.e. third respondent).
On
10 February 2011 and upon having been served with this application, the
following companies/entities applied to be joined to the proceedings either as
applicants or respondents
(a) Zimbabwe Electricity Transmission
and Distribution Company
(b) National Social Security Authority
(c) Zimbabwe
Textiles Workers Union
(d) City of Harare
(e) Mespic Trading
(f) Zimbabwe Revenue Authority
(g) Parrogate Zimbabwe (Pvt) Ltd
(h) David Whitehead Retrenches
(i) Commercial Bank of Zimbabwe
(j) Current Employees of David Whitehead
I
granted the joinder applications in respect of the above applicants in the capacities
in which they are now cited in this judgment.
On
11 February 2011, upon realising that some of the people who had made
applications for joinder had no right of audience before me, I quickly corrected/altered
my decision with respect to the following:-
(a) Zimbabwe
Textile Workers Union
(b) City of Harare; and
(c) Mespic Trading
The
above three entities were therefore not joined to the proceedings.
At
the commencement of the hearing, Mr Mlotshwa
raised the following preliminary issues (points in limine):-
“1. The non appearance of the Master of the
High Court as a cited respondent rendered his reports inadmissible since they
were not in affidavit form.
2. The citing of the Provisional Judicial
Manager in his 'Individual' capacity was irregular.
3. The representation of the first applicant
by Messrs Nhemwa and Associates (who in
casu are instructing Advocate Uriri), when they had previously
represented David Whithead Textiles Limited, created a conflict of interest and
thus disqualifying the said legal practitioners to represent the first
applicants in casu.
4. The form of the certificate of urgency
prepared by Mr Nhemwa of Nhemwa and Associates
did not clearly spell-out the urgency in the matter.
5. The issue of urgency ((i.e. is the
matter urgent); and
6. The issue of non-joinder.
In
addition to the above preliminary issues, Mr Ranchod also raised the following
preliminary issue (i.e this shall be
the 7th point in limine).
7. The provisions of ss 302 and 305
precluded the application from being determined as applicants have not sought
to anticipate the return day of the provisional order.
After
hearing detailed arguments on the preliminary issues, I asked the parties to
also address me on the merits and indicated that my determination on the points
in limine would, however, dictate
whether or not there was need for me to proceed to the merits.
Noting
the manner in which I wanted to proceed, Mr Mlotshwa
correctly pointed out that it would be prudent for me to commence by making a
determination of those points in limine
which dealt with the issue of whether on not the applicants are properly before
the court. Indeed that is the correct approach to be taken because it would
certainly be improper to proceed to address the other issues when the applicants
are ruled to be out of court. That being the case the issues that quickly fall
for determination are the representation of the applicants by Messrs Nhemwa (issue
3) and non joinder (issue 6). I shall therefore consider those issues in the
following manner:-
1. Whether nor not the representation
of the first applicant by Messrs Nhemwa and Associates when they had previously
represented David Whitehead Textiles Limited Created a conflict of interest
capable of disqualifying the said legal practitioners from representing the
first applicant in casu.
In
addition to submitting that the preparation of the certificate of urgency by Mr
Nhemwa was undesirable, Mr Mlotshwa for the second respondent, went
on to point out that Messrs Nhemwa and Associates were in fact close to the
issues for determination. He said present and retrenched employees of David
Whitehead Textiles Limited had raised concerns of conflict of interest. This
was so, he argued, because Mr Nhemwa
had previously represented both current and retrenched employees of David
Whitehead Textiles Limited. That being the case, Mr Mlotshwa, submitted it would be improper for Mr Nhemwa's legal firm to represent Mr
Militala who is now the provisional judicial manager of David Whitehead
Textiles Limited, because that would
compromise the rights of employees.
In response to Mr Mlotshwa's submissions Advocate Uriri pointed out that Mr Nhemwa had represented a legal entity
called Zimbabwe Textile Workers Union. This was in respect of retrenchment
packages. He said the said entity shared the same views as applicant and
therefore there was no conflict of interest. He said unlike the situation in Core Mining and Minerals Resources (Pvt) Ltd
v The Zimbabwe Mining Development Corporation and 4 Ors, HH 280/10, where
it was ruled that the legal practitioner in question had participated in the
pertinent affairs of his client at a level that precluded him from appearing
for the same client as a legal practitioner, there was no sufficient evidence in casu to justify a finding of conflict
of interest.
I now proceed to determine the point
in limine.
In
Central African Building Construction
Company (Pvt) Ltd v Construction Resources Africa (Pvt) Ltd HH 112/10,
GOWORA J made the following pertinent comments:-
“It is important that a legal
practitioner should at all times retain his independence in relation to his
client and the litigation which is being conducted …
…….. A legal practitioners' duty is
to protect the interests of his client and to give legal advice. It is not the
function of the legal practitioner to then step into the shoes of the client
and to perform acts that are materially related to the dispute before the court
in an endeavour to buttress the case of his client ….”.
I
agree with the above principles relating to the conduct of legal practitioners
and also wish to point out that in addition to the above important principles
it should always be remembered that a legal practitioner executes his duties as
an officer of court. It would therefore be unfortunate if the independent mind
of the legal practitioner is lost because of the need to win the case of
his/her client at any cost. Such a legal practitioner would, in my view, have
ceased to behave as an officer of court and consequently would render no
assistance to the court.
In casu, in the absence of detailed
evidence showing active involvement by Mr Nhemwa
in the affairs of his client, I am not persuaded to accept that his
representation of the Zimbabwe Textile Workers Union calls upon him to distance
himself from any participation in this case as the first applicant's legal
practitioner. The case cited above, namely Core Mining and Minerals Resources
(Pvt) Ltd, supra, clearly demonstrate
the need for clear evidence of activities/actions on the part of a legal
practitioner that would disqualify him/her from representing a litigant. The
facts alluded to should indeed clearly point to conflict of interest.
Admittedly the Union represented workers but
that alone, in my view, is not enough to establish conflict of interest. More
evidence was required to show that the legal practitioners independence faced
the danger of compromise.
In view of what I have said above, I
am unable to uphold this preliminary issue. Messrs Nhemwa and Company are not
barred from representing the first applicant and therefore had the legal
capacity to file this application.
2. Whether or not the failure to cite
the other parties to the provisional order granted on 1 December 2010 is fatal
(i.e Non-Joinder)
Supported
by Mr Ranchod, Mr Mlotshwa submitted that this application
was not
properly before the court because it
was not filed in terms of s 301(2) of the Act which provides as follows:-
“(2) The court or a judge may at any time and
in any manner, on the application of a creditor, a member, the provisional
judicial manager, the Master or any person who would have been entitled to
apply for the provisional judicial management order concerned, vary the terms
of a provisional judicial management order, including the date of the return
day, or discharge it.
Mr
Mlotshwa submitted that since the Court was already seized with the matter with
respect to the provisional order granted on 1 December 2010 with a return date
of 2 March 2011, the effect of the current application was to duplicate
proceedings. He said the current application could not be determined in the
absence of the companies under provisional judicial management. Those companies,
he said, have an interest in this matter. Furthermore, Mr Mlotshwa went, leave
of this court had not been obtained for the application to be filed as required
in terms of para A(5) as read with para B(3) of the provisional order of 1
December 2010.
With
the support of Mr Muchineripiri and
Ms Mpumelo, Advocate Uriri disagreed with Mr Mlotshwa's submissions arguing that it
was not necessary to involve or cite the companies under provisional judicial
management. He said those companies were already under the management and
control of the provisional judicial manager, namely Mr Militala who is cited as
the second respondent. The only interested parties, he argued, would be the
Master of the High Court and creditors. These, he said, had been cited. He said
there was therefore no question of non-joinder. Without seeking to have the
parties to the provisional order of 1 December 2010, joined to the application,
Advocate Uriri went on to submit that
this court could still proceed in terms of r 87 of the High Court Rules, 1971
which provides as follows:-
“(1) No cause or matter shall be defeated by
reason of the misjoinder or nonjoinder of any party and the court may in any
cause or matter determine the issues or questions in dispute so far as they
affect the rights and interests of the persons who are parties to the cause or
matter.
(2) ……
(a) …….
(b) Order any person who ought to have been
joined as a party or whose presence before the court is necessary to ensure
that all matters in dispute in the cause or matter may be effectually and
completely determined and adjudicated upon, to be added as party;
but no person shall be added as a
plaintiff without his consent signified in writing or in such other manner as
may be authorised.
(3) …….”
However,
in order to fall within the ambit of s 301(2) and also to avoid duplicity of orders, Advocate Uriri moved for an amendment of the
provisional order prayed for in this application. The proposed amendment would
result in the substitution of a provisional order with a final order.
The proposed amendment was given as
follows:-
“That it be and is hereby ordered
that the order of provisional judicial management issued out of this court on 1
December 2010 be and is hereby altered in para B(2) as follows:-
1.
The
appointment of Winsley Militala of Petwin Executor and Trust Co. (Private)
Limited as Provisional Judicial Manager of the first to sixth respondents be
and is hereby set aside.
2.
The
Master of the High Court shall forthwith appoint a suitably qualified person as
Provisional Judicial Manager of the first to sixth respondents.
3.
The
second respondent shall personally bear the costs of this application”.
I
view the proposed amendment as a clear admission that the provisions of s
301(2) of the Act were never at the fore when this application was filed.
Mr Mlotshwa opposed the application arguing that critical parties had
been excluded in
this application. He said the
companies under provisional judicial management still existed and were entitled
to be heard.
Mr Ranchoed also opposed the application stating that the provisional
order of 1 December 2010 was obtained through the consent of all the parties to
it. There was therefore need for all parties to the existing provisional order
to be heard.
In
determining this point in limine, I
shall start by stating that I agree with Mr Mlotshwa
that the companies under judicial management still exist and retain their
identies. They have only been placed under a provisional judicial manager in
terms of s 303 which provides follows: –
“A
Provisional Judicial Manager shall –
(a)
assume
the management of the company concerned and recover and take possession of all
the assets of the company
(b)
…….
(c)
…….”
I believe that a company placed
under judicial management does not automatically
shed off its ownership or
shareholding. It is the management that changes for the sole reason that, if
properly managed, the company might move out of the problems that led to
judicial management. That brings us to the purposes of judicial management.
In
Feigenbaum & Anor v Germanis Ors 1998(1)
ZLR 286 (HC), where all parties were cited, MALABA J, as he then was, in
considering the distinction between liquidation and judicial management, quoted,
with approval, from S. Cohen Ltd v Johnson
& Johnson 1970 SA 332 (SLSA)
where MULLER J said:-
“The purposes of a liquidation order
are entirely different form those sought to be achieved by an order for
judicial management. In the one case, the very object is to wind up the affairs
of a company and effect its dissolution; in the other the object is just the
opposite, namely, to avoid liquidation where there is a chance of the company
surmounting its difficulties by proper management, namely, management by a
person appointed as judicial manager to conduct the affairs of the company
subject to the supervision of the court.
There is accordingly a fundamental
difference between the function and powers of a liquidator and those of a
judicial manager and also material differences between the rights of creditors
of a company in liquidation and those of a company under judicial management”.
(my own underlining for emphasis)
In
agreeing with the above, I also take the view that the owners/shareholders of a
company under judicial management should never be ignored in court proceedings such
as these. The proceedings have a direct bearing on the operations of the
companies under judicial management. The owners/shareholders have, through a
court process, only divested management to the provisional judicial manager.
They remain the owners/shareholders of the company under provisional judicial
management and that alone sends a loud call for their involvement in any matter
related to the operations of their judicially managed companies.
In
view of the above, I find merit in the submission that all the parties to the
provisional order that the applicants want to amend/vary as permitted under s
301(2) of the Act, ought to have been cited. Failure to cite the companies
under provisional judicial management, in my view, is a fatal irregularity
which cannot be rectified by merely amending the provisional order prayed for in
this application. Indeed the amendment proposed would have avoided a situation
of having two provisional orders with different return dates on the same
subject.
It
in also correct that in terms of r 87 of the High Court rules, quoted elsewhere
in this judgment, I can proceed to determine the real issues between the
parties. I, however, believe that in casu
such a move would be a betrayal of the need to follow laid down procedures.
Our courts have always insisted that laid down procedure should be adhered to.
In
casu, not only has the applicant
failed to make a proper application as is its right under s 301(2) of the Act
and also failed to cite the relevant parties, the applicant has further
proceeded to ignore the directions given in the provisional order that it seeks
to vary. Paragraph A(5) of the
provisional order as read together with para B(3) of the said order reads as
follows:
“All actions and applications and
the executions and of all writs, summons and other process against the first,
second, third, fourth, fifth and sixth respondent companies shall be stayed and
not proceeded without the leave of this Court”.
The
above direction was given in terms of s 301(1) of the Act which states:-
“A
provisional judicial management order shall contain:-
(a) …….
(b) …….
(c) such other directions as to the
management of the company, or any matter incidental thereto, including
directions conferring upon the provisional judicial manager the power, subject
to the rights of the creditors of the company, to raise money in any way
without the authority of shareholders, as the court may consider necessary;
and may contain
directions that while the company is under judicial management, all
actions and
proceedings and the execution of all writs, summonses and other processes
against the company
be stayed and be not proceeded with without the leave of the
court. (own underlining)
“(2) …..
The above direction is
contained in the provisional order that the applicants seek to
vary.
A
variation of the provisional order of 1 December 2010 in the manner proposed
would certainly, in different ways, affect any
of the parties to it, namely the companies under provisional judicial
management. There was therefore need to seek leave of court to proceed with an
application that would certainly have an impact on the management of the
companies under judicial management.
There
would also still be a need to re-advertise the varied provisional order
reflecting the varied terms. The
original parties ought therefore to be
cited. It is those same parties who remain entitled to be heard on the return
date.
It
is further important to understand that judicial management means that the
court, through the Master of the High Court, is managing the affairs of the
entities placed under judicial management – whether provisional or final. The
provisional judicial manager only operates under the direction(s) of the Master
of the High Court. Given this scenario, it is therefore important and
reasonable that any part wishing to vary the original directions of the court
to the extent suggested in casu, must
seek leave to do so. Accordingly, in the absence of such leave being granted,
any attempt to proceed in terms of r 87 of the High Court Rules 1971 would be improper.
I am therefore not persuaded to proceed in terms of r 87 of the Rules of the
High Court. I believe such a move would amount to me assisting the applicants'
to properly reconstruct their case and yet there is no leave of court for them
to proceed with the application. This also means that the proposed amendment
would be of no consequence since it would not cure that irregularity.
All
in all, my finding, based on the issue of non-joinder as considered together
with the provisions of s 301(2), is that the applicants are not properly before
the court. That point in limine is
therefore upheld. Having upheld that point in
limine it means I am disabled from considering all the other preliminary issues
raised, including the merits of the case. I cannot proceed to do that in the
absence of a proper application before me.
I
therefore order as follows:-
The
application be and is hereby dismissed with costs.
C. Nhemwa &
Associates, 1st
applicant's legal practitioners
Muchineripi &
Associates, 2nd
& 3rd applicants' legal practitioners
Zimbabwe Revenue Authority (Legal Division)
Mlotshwa & Company, 2nd & 6th
respondents' legal practitioners
Hussein Rachod &
Co. 3rd
& 4th respondents' legal practitioners
Scanlen
& Holderness, 5th
respondent's legal practitioners
