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.
HC9257/12 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. HC3159/11. 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
section 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
CR14 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 section 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
section 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 section 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
section 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
section 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. HC3159/11 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
