Akim Chirwa and Ors v Mini Mart Development Corporation Company Limited (APPEAL No. 68/2021) [2022] ZMCA 164 (15 December 2022)

IN THE COURT OF APPEAL OF ZAMBIA~ - ~ AP. PEAL No. 68/2021 HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: ACKIM CHIRWA LEVY JOSEPH NGOMA U-FUEL (Z) LIMITED AND MINI MART DEVELOPMENT CORPORATION COMPANY LIMITED RESPONDENT CORAM: CHISHIMBA, SIAVWAPA AND SHARPE-PHIRI, JJA On 17th February and 15t h December, 2022 FOR THE APPELLANTS: MR. F. BESA OF MESSRS FRIDAY BESA AND ASSOCIATES FOR THE RESPONDENT: MR. M. CHISUNKA AND MISS N. MESSRS BOTH NALOMBA NKUSUWILA NACHALWE ADVOCATES OF JUDGMENT SIAVWAPA, JA, delivered the majority opinion Cases referred to 1. 2. 3. 4. 5. Kekelwa Samuel Konga v Nkhata (2017) ZMCA 33. Dunlop Pneumatic Tyre Company Limited v Selfridge and Co, [1915} AC 847 Percival v Wright (1902) 2 Ch. 421. Gerardus Adrianus Van Boxtel v Rosalyn Mary Kearney (a minor by Charles Kearney her father and next friend) 1987 ZR 63. Bank of Zambia v Chibote Meat Corporation Limited SCZ Judgment No. 14 of 1999. r \ 6. 7. John Paul Mwila Kasengele and Others v Zambia National Commercial Bank Limited SCZ Judgment No. 11 of 2000. Friday Mwamba v Sylvester Nthenge and Two Others SCZ Judgment No. 5 of 2013. Legislation referred to 1. The Companies Act No. 10 of 2017 Other Works 1. 2. 3. Gower's Principles of Modem Company Law London, Sweet and Maxwell Six Edition by Paul L Davis 1997 pages 15 to 17. The Companies Act No. 10 of 2017. Farrar's Company Law 4 th Edition Butter Worths, London 1998 Chapter 26, page 378 paragraph 2 and not 13. 1. 0 INTRODUCTION 1.1 This is an appeal against the Judgment of Lady Justice W. S. Mwenda delivered on 17th December, 2020, in the Commercial Division of the High Court. 1.2 By the said Judgment, the learned Judge upheld the foreclosure of the 1st and 2 nd Appellants' shares by the Respondent, which they held in the 3 rd Appellant as majority shareholders. 1.3 The Judgment in effect, made the Respondent the majority shareholder in the 3rd Appellant leaving th e 1st and 2n d Appellants without any stake in the 3 rd Appellant. 1.4 This Judgment represents the op1n10n of the majority members of the panel namely; Mrs Justice F. M. Chishimba J2 ., and Mr. Justice M. J. Siavwapa. The third member of the panel Mrs. Justice N. A. Sharpe-Phiri opted to render a dissenting opinion. 2.0 BACKGROUND TO THE DISPUTE 2.1 In June 2014, the 1st and 2nd Appellant opened negotiations with an American registered Company called U-Fuel International (hereinafter referred to as UFI) with a view to registering a Company called U-Fuel Zambia Limited in Zambia (hereinafter referred to as UFZ). 2.2 The two Appellants reached agreement with UFI to the effect that the 1st and 2 n d Appellants would hold 31 % and 30% shares respectively while UFI would hold 10% shares in UFZ. 2.3 The two Appellants became the promoters and subsequently incorporated UFZ, whose main line of business would be to deal in petroleum products in Zambia. 2.4 During the construction of UFZ's first filing station, the shareholders ran out of funds to complete the project. The two Appellants engaged in discussion with the Director of U Fuel International, a Mr. Svedarsky on how to raise additional financing for the project. 2.5 Prior to the engagement with Mr. Svedarsky, UFZ had a pplied for a loan from the Citizen's Economic Empowerment J3 Commission (hereinafter referred to as CEEC) and the same had already been approved but not yet disbursed. 2.6 In the wake of the Agreement with UFI, Mr. Svedarsky issued a Memorandum dated 14th August 2015 to the 1st and 2nd Appellants appearing at page 4 72 of volume 2 of the Record of Appeal. 2.7 The Memorandum was an embodiment of the Loan Agreement and the conditions thereof. The Memorandum into culminated the execution of Loan Agreements individually by the 1st Appellant and the 2nd Appellant with the Respondent dated 2nd November 2015. 2.8 It is also noted that the Memorandum from Mr. Svedarsky earlier referred to in Paragraph 2.6 of this Judgment, advised the cancellation of the Loan Agreement between the 3rd Appellant and UFZ. 2.9 The loans were to be disbursed by the Respondent, a Company which was incorporated in 2015 by the majority shareholders in UFI. Victor Makuza was appointed as its Chief Executive Officer. 2. 10 The loans were subsequently disbursed to the 1st and 2nd Appellants in their individual capacities in accordance with the Agreements they signed in the sums of USD90 , 000 each. J4 2.1 1 When UFZ started its business, in 2016 , the 1st Appellant served as its Managing Director while the 2 nd Appellant served as its Company Secretary and Finance Manager. 2.12 This Management set up changed on 9 th September 2016 by Power of Attorney granted to UFI by the Zambian shareholders in exception of the 1st Appellant. 2.13 Notwithstanding the fact that the loans were contracted by the 1st and 2 nd Appellants in their individual capacities, repayments were being made by UFZ to the Respondent even after UFI took over the Management through Victor Makuza. This was on the understanding that the loans were procured for the benefit of UFZ and not the Appellants. 2.14 However, sometime between September 20 16 when UFI was granted the Power of Attorney and January 2017, no loan repayments were remitted to the Respondent. 2 . 15 In a bid to avert a looming foreclosure on the shares of the 1st and 2nd Appellants pursuant to the Loan Agreements, the Zambian shareholders passed a resolution dated 26th January 20 17 transferring liability on the loans from the 1st and 2 n d Appellants to the 3 rd Appellant. 2.16 At a meeting of shareholders held on 31 st January 2017, it was resolved to discontinue servicing the 1st and 2 nd Appellants' loans from the 3 rd Respondents proceeds unless JS the shareholders recommended so in writing. One of the shareholders, Mr. Christopher Besa was tasked to draft the recommendation in his capacity as a lawyer. 2 . 17 However, on 7 th February 2017, barely a week after the resolution, the Respondent issued demand letters to the 1st and 2 nd Appellants for the payment of the loan instalments. 2 .18 On 22n d February 2017 the Respondent issued foreclosure notices on the shares of the 1st and 2 nd Appellants. 3.0 THE ACTION BEFORE THE HIGH COURT 3.1 Five days after the foreclosure Notices, the Appellants commenced an action in the High Court against the Respondent. 3.2 The writ of summons and statement of claim were filed into Court on 27th February 2017. 3.3 The Appellants made the following claims in the Court below; (i) A declaration that the total loan amount of USD 180,000 which was contracted by the Plaintiffs was done for and on behalf of the 3 rd Plaintiff (ii) A declaration that the repayment of the USDIBO, 000 from the proceeds of the 3 rd Plaintiff is lawful and in accordance with the wishes of the majority shareholders. J6 I \ (iii) A declaration that the purported foreclosure of the 1st and 2 nd Plaintiffs' shares in the 3rd Plaintiff Company by the Defendant or any of its shareholders is illegal, null and void and of no legal effect or consequence whatsoever. (iv) An order of injunction restraining the Defendant or any of its servants or agents from removing the 1st and 2nd Plaintiffs from their positions as Directors and shareholders of the 3rd Plaintiff Company on the purported premise that they have individually defaulted in the repayment of the loans. (v) Damages for inconvenience. (vi) Any other relief the Court may deem fit (vii) Costs. 4.0 DECISION OF THE HIGH COURT 4.1 The learned Judge considered all the arguments advanced in support of and in opposition to the claims after which she formulated the following questions for her determination; 1. Whether or not UFZ was a party to the Loan Agreements. 11. Whether or not the provision in the Loan Agreements that the loans were advanced solely and exclusively to be used as capital on UFZ places a legal obligation on it to settle the loans. 111. Whether or not the Personal Liability Transfer Agreement is legally enforceable J7 1v Whether or not the foreclosure of the Plaintiffs' shares by the Defendant was illegal, null and void and of no legal effect or consequence. 4.2 After analysing the evidence before her, the learned Judge answered the questions as follows; 1. UFZ was not a party to the Loan Agreements because the Agreements name the borrowers as Ackim Chirwa and Levy Joseph Ngoma and the Lender as MMDC. Further that the fact that tying of the commencement of repayment to operations of the filling station did not imply that repayment were to be made by UFZ. 11. That the provision in the Agreements directing the use of the loans solely and exclusively as capital for UFZ did not place any obligation on UFZ to settle the debt. The learned Judge anchored her position on the fact that UFZ was not a party to the Loan Agreements. She further opined that the loans were an investment for the borrowers' benefit in line with Clause 2 of the Loan Agree men ts. The learned Judge was also persuaded by the Respondent's argument that the Appellants could have gone by way of novation after a Board Resolution to be signed by all parties, borrower, Lender and UFZ. J8 111. In rejecting the enforceability of the Liability Transfer Agreement the learned Judge relied on the doctrine of Privity of Contract because UFZ is not a party to the Loan Agreements. The learned Judge further relied on Clause 13. 1 of the Loan Agreements which requires any transfer of liability to be by written consent of the Lender. 1v The learned Judge upheld the foreclosure on the shares of the 1st and 2 nd Appellants on account that the Respondent complied with the procedure as set out in the share pledge Agreements. The learned Judge also found Victor Makuza defiance of the Liability Transfer Agreement in order as he was exercising the powers vested in him by the power of Attorney and that he acted in the interest of UFZ. 5.0 APPEAL 5.1 The Appellants, being dissatisfied with the outcome of the case, filed a Notice and Memorandum of Appeal containing three grounds of Appeal set out as follows; 1. The learned trial Judge erred in law when she held that the Personal Liability Transfer Agreement executed by the parties herein did not comply with the requirements of Clause 13 of the Loan Agreement as no prior written consent from the Lender was obtained in line with Clause 13 of the loan Agreement when the parties executed the J9 Personal Liability Transfer Agreement in the face of irrefutable evidence that proved that the instruction to execute the Personal Liability Transfer Agreement was given by VICTOR MAKUZA in writing and signed and that the said VICTOR MAKUZA was clearly representing the Respondent who was the Lender in the Loan Agreement. 2. The learned trial Judge in the Court below erred in law when she held that the Loan Agreement did not place a legal obligation on U-Fuel to settle the loans in the face of irrefutable evidence that showed that the said loans were advanced solely and exclusively to be used as capital on U-Fuel Zambia Limited and in the face of further evidence that established that even in instances when the Appellants had paid the monthly instalments they were refunded their money by VICTOR MAKUZA from the proceeds of U-Fuel Zambia Limited. 3. The learned trial Judge in the Court below erred in law when she held that the foreclosure of the Appellants' shares by the Respondent complied with the law in the face of evidence through VICTOR MAKUZA's own admission during cross-examination that he orchestrated the default in payment of monthly instalments with the view of taking over the Appellants' shares in U-Fuel Zambia Limited despite all the parties to the Loan Agreement and the Local shareholders of the Company agreeing through the Personal Liability Transfer JI 0 Agreement that payment of the loan instalments would come from U-Fuel Zambia Limited. 6.0 ARGUMENTS IN SUPPORT 6.1 The Appellants filed their h eads of argument on 12th April 2021 in which they argued grounds one and two together. 6. 2 In arguing the two grounds, they have relied on Clause 2 of the Loan Agreements which states as follows; "The loan herein shall be advanced solely and exclusively to be used as capital on U-Fuel Zambia Limited as 50% Contribution towards capital into the Company and the other borrower will contribute the other 50% as follows; (i) Shipping containers from Dar-es-Salaam, Tanzania Lusaka- USD20, 000. Pay for cost of concrete forecourt -USD56, 000 Pay for cost of putting up drainage USD2, 500 Cost of electrical/transformer USD7, 500 Fuel Inventory USD38, 000 (ii) (iii) (iv) (v) (vi) Merchandise/ Food Inventory USD7, 500 (vii) Miscellaneous site initial operations USD48, 500 to Total USD180, 000 6.3 The gravamen of the arguments in support of grounds one and two is that the learned Judge erred when she held that the Transfer of Liability Agreement was ineffective for non compliance with Clause 13.1 of the Loan Agreements for lack of prior written consent of the creditor , the Respondent. 6.4 Their argument is that at a m eeting called and chaired by Victor Makuza, who was also the Managing Director of the Respondent, the Zambian majority shareholders resolved to J 11 transfer liability for the loans from the 1st and 2nd Appellants to the 3 rd Respondent. 6.5 They further argue that the resolution was reduced into writing by Mr. Besa, a Legal Practitioner, on the instruction of Mr. Victor Makuza representing the Respondent. 6.6 The other argument is that Victor Makuza orchestrated the default by defying the Liability Transfer Agreement and refusing to accept the instalment payments from the 3 rd Appellant considering that he had even refunded the 1st and 2 n d Appellants the personal money they had earlier used to pay the loan instalments. 6. 7 In ground three they argue that the learned Judge erred when she held that the foreclosure of the 1st and 2 nd Appellants' shares in the 3rd Appellant was in compliance with the law. In supporting this argument, they largely repeat the orchestration factor by Victor Makuza to induce a default by refusing to take payment from the 3 rd Appellant on behalf of the Respondent. 6.8 They have equally repeated the argument that Victor Makuza defied the shareholders' Liability Transfer Agreement which he had initiated and overseen. We were accordingly invited to overturn the Judgment of the Court below. J 12 7.0 ARGUMENTS IN OPPOSITION 7 .1 In ground one it is argued that the learned Judge below was on firm ground when she held that the shareholders' Personal Liability Transfer Agreement did not comply with Clause 13 of the Loan Agreements thereby maintaining liability on the Appellants. 7.2 It is further argued that the said loans were for the personal benefit of the Appellants whose net worth increased by the injection of the funds into UFZ. 7.3 In ground two the Respondent re-iterates the point that there was no transfer of liability from the Appellants to the Respondent. 7.4 It was further pointed out that since UFZ was not a party to. the Loan Agreements and neither was it made a party thereto, it could not assume any obligation or liability on the Loan Agreements contrary to the doctrine of privity of contract. The cases of Kekelwa Samuel Konga v Nkhata1, Dunlop Pneumatic Tyre Company Limited v Selfridge and Co. 2 , were relied upon for the doctrine of privity of contract. 7.5 In ground three the Respondent simply endorses the view by the learned Judge below that the foreclosure on the Appellants' shares was in full compliance with the Loan Agreements executed by the parties and the law. J13 7.6 The Respondent has accordingly asked us to dismiss the appeal with costs. 8 .0 OUR ANALYSIS AND DECISION 8. 1 We have carefully consider ed the issues raised in this a ppeal and the arguments proffered by both sides and th e authorities referred to. 8. 2 In our considered view, there is only one issue th at is in controversy. This is the issue whether or not there was a valid transfer of liability for the loans obtained by the Appellants to UFZ. 8 .3 Our view is premised on the fact th at there is no dispute that the Appellants obtained th e loans in th eir individual capacit ies as per the Loan Agreem ents they signed. 8.4 There is further no dispute that UFZ was neither a p arty to, nor a guarantor of the said loans. In principle therefore , the doctrine of privity of contract applies as well as the separation of personality between th e Company and its owner s (Shareholders). 8 .5 We will therefore, focus our attention on ground one which expresses the Appellants' dissatisfaction with the decision by learned Judge below to dismiss the Personal Liability Tra nsfer Agreement on account that it did not meet the requirements of Clause 13 of the Loa n Agreements. J 14 ' ' ' 8.6 We will also briefly consider the real beneficiary of the loans acquired notwithstanding that they were contracted in the names of the Appellants. 8.7 The thrust of the argument on non-compliance with Clause 13 (1) (2) is that the purported transfer of liability lacked the written consent of the Lender. For ease of reference, we reproduce the said Clause hereunder; 13(i) the borrower may not assign or transfer any of his rights or obligations under this Agreement without the prior written consent of the Lender (such consent not to be unreasonably withheld or delayed). (2) The Lender may assign or transfer any of its rights or obligations (in whole or part) under this Agreement with the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed). 8.8 The Sub Clause in dispute is (i) as it is purported that the transfer of liability was at the instance of the Appellants (the borrowers) without the Respondents' (the Lender) prior written consent to the transfer of liability. 8.9 The Transfer of Personal Liability Agreement at page 184 Volume 1 of the Record of Appeal is between th e Appellants and the other Zambian shareholders in UFZ. 8.10 The Agreement essentially purports to transfer the Appellants' indebtedness to the Respondent to UFZ while the Appellants assumed the r ole of gu aran tors of the debt. 8.11 It is also important to note that the Lia bility Transfer Agree m ent was a product of the sh areholders' meeting h eld Jl 5 on 31 st January 2017 at the Respondent's premises in Roma Township, Lusaka. 8.12 The Record of the minutes occurring at page 181 volume 1 of the Record of Appeal shows that all the shareholders were in attendance at the meeting which was chaired by Victor Makuza who was the Managing Director of UFZ, Managing Director of the Respondent as well as the Representative of UFI, the American shareholder in both UFZ and the Respondent. 8.13 From the proceedings and resolutions of the shareholders' meeting Resolution 3 and the action point at page 183 Volume 1 of the Record of Appeal which read as follows; UFZ to stop making Mr. Chinva and Mr. Ngoma loan payments unless there is a written agreement by the shareholders recommending to do so. Action point - Mr. Besa to meet with 6 shareholders and draft a loan these written agreement on payments. 8.14 On the basis of the above, the Appellants' argument in ground one is that since the instruction to execute a written agreement by the shareholders was given by Victor Makuza, a representative of the Lender, then the Agreement met the requirements of Clause 13 (1) of the Loan Agreements. 8 .15 The dispute is as to whether the Respondent was party to the Liability Transfer Agreement to bring it within Clause 13 (1) of the Loan Agreements. J 16 8.16 It is not in dispute that Victor Makuza, the convenor and Chairman of the shareholders meeting of 31 st January 2017, was at the time the Managing Director of the Respondent. This is evidenced by his reply in examination in Chief as DW 1 at page 1120 Volume 2 line 15 of the Record of Appeal. When asked by Mr. Charles Siamutwa, counsel for the Respondent what his occupation was, he answered; "I am the Managing Director of Minimart Development Corporation." 8.17 However, at the shareholders' meeting of 31st January 2017, he is recorded as representing UFI, which is the majority, if not the sole shareholder in the Respondent. 8.18 In cross-examination at page 1130 Volume 2 lines 7 and 8 of the Record of Appeal, Mr. Makuza also stated that he was also the Managing Director of UFZ. He re-iterated this at pages 1132 and 1133 lines 25 and 1 respectively when he said: "I just said what I am doing now; I am running U-Fuel Zambia". 8.19 At page 1,210 Volume 2 lines 1 to 4 of the Record of Appeal, Victor Makuza concedes that the Zambian Shareholders who were at the meeting represented a total shareholding of 90% in UFZ while UFI held 10% shares. 8.20 Notwithstanding the three hats that Victor Makuza wore at the time of the shareholders' meeting, we have no problem accepting that, in calling for th e meeting, he was acting as J 17 the Director of UFZ but also representing, UFI the only foreign shareholder. 8.21 The question then is; who would be the appropriate representative of the Lender, the Respondent in this case? As earlier confirmed, Victor Makuza was the Managing Director of the Respondent making him the legitimate representative of the Respondent. 8.22 By his own averments in cross-examination, Victor Makuza admitted that prior to his taking his appointment as Managing Director; the Respondent only had a legal representative, Steven Mulengeshi. There is no evidence of any other employee of the Company who had the capacity to represent it or make executive decisions on its behalf apart from him. 8.23 In any event, it is not in dispute that he is the one who advised the shareholders, in the meeting to submit a written Agreement, hence the passing of resolution 3 which he endorsed by signature. 8.24 It is therefore; without doubt that he rendered the advice presumably in his capacity as Managing Director of the Respondent. 8.25 We state as above because, he could not do so in any other capacity as UFZ had no authority to render such advice to its Jl8 owners. It is however, within the powers of the shareholders to give policy directives to the company as we shall demonstrate later in this judgment. 8.26 But, most importantly, the advice was given on the backdrop of the sentiments earlier expressed by Mr. Makuza in Item 4 at page 182 Volume 1 of the Record of Appeal to the effect that the Loan Agreements entered into by the Appellants had no clause obligating UFZ to pay the debts from its operating income . 8.27 We are therefore, of the considered view that in rendering the advice, he had in mind Clause 13 (1) of the Loan Agreements which expressly provides for written consent of the creditor. 8.28 Victor Makuza conceded to rendering the said advice in cross examination at page 1207 lines 7 to 21 of Volume 2 of the Record of Appeal. For easy of reference , we hereunder reproduce the question and answer session between Mr. Besa, counsel for the Appellants and Mr. Makuza; Q It is true witness that you said the loan agreement was not very clear because it was signed in the names of Ackim Chirwa and Levy Ngoma and yet they are claiming the money was used on the company. You were not comfortable with the payment of the shares unless the local shareholders signed an agreement that would J 19 expressly give you the authority to make these payments? A. That's correct. Q You made this request of the local shareholders at the same meeting you called on 31 s t January, 2017? A. Yes my lady Q In fact, this meeting was chaired by you and you are the one that was taking notes? A. Yes my lady 8.29 We therefore, do not see how the man can distance the Respondent from the Liability Transfer Agreement by all the shareholders in UFZ. 8.30 We now turn to the question of who the intended or real beneficiary of the loans acquired by the Appellants was. In paragraph 4.2 above, we summarised the learned trial Judge's answers to the questions she formulated based on the evidence before her. 8.31 In sub paragraph (ii), we stated the learned Judge's expressed opinion as being that the loans acquired by the Appellants were an investment for the Appellants' benefit pursuant to clause 2 of the loan agreement. 8.32 We have reproduced clause 2 of the Loan Agreements in paragraph 6.2 above. The part of the clause which is of relevance to this part of our analysis states as follows; ]20 .. "The loan herein shall be advanced solely and exclusively to be used as capital on U-Fuel Zambia Limited ... .. . " 8 .33 This part of the agreement is very clear in that the loans were capital injection into the company by the Appellants. What is true about capital investment is that it benefits the company and not the investor. Ca pital investment is different from investment in equity which earns the investor shares in the company. This investment did not increase the Appellants' shareholding in UFZ. It was therefore, erroneous for the learned Judge to hold that the loans benefited the Appellants when the direct beneficiary was UFZ. Clause 13.1 8.34 Under this h ead , we consider Clause 13.1 of the Loan Agreement which is reproduced in paragraph 8 .6 of this Judgment. We however , find it compelling to reproduce it h ere so that we can examine it closely. 13.1 "The borrower may not assign or transfer any of his rights or obligations under this Agreement without prior consent of the Lender(. .......... )". (Underlining for emphasis). 8.35 The cla use expressly interdicts the borrower from assigning or transferring his rights or obligations without the prior consent of the Lender. The question then is, did the Appellants, in their capacities as borrowers, transfer the debt to UFZ? 8.36 We think that was not the case because, the transfer was by a collective resolution of the shareholders whom the Appellants wer e only part of. The clause does not and cannot J21 . . . by any stretch of imagination restrict the collective powers of the shareholders. 8.37 As the minutes of the shareholders' meeting will show from page 181 to 183, Volume one of the Record of Appeal, it was Victor Makuza who took issue with the loans under Item 4 at page 182 and declared that UFZ would no longer service the debts. Thereafter, only Mr. Malama Mwimba, one of the representatives of African Site Masters, commented on the issue but expressed the view that UFZ should continue servicing the debt. 8.38 Victor Makuza also admitted that there was no shareholder who opposed the servicing of the debt by UFZ, including UFI represented by Mr. Makuza. 8.39 It is therefore, clear that Resolution 3 was unanimously supported although it was not implemented in part, namely by not resuming the remittance of loan repayments to the Respondent by UFZ. 8.40 This brings us to the next issue; being the status of the Liability Transfer Agreement, which resulted from the unanimous shareholders' Resolution No. 3 of 31 st January 2017. 8.41 In her Judgment, at page 78, Volume 1, of the Record of Appeal, the learned Judge below formulated the questions we J22 have reproduced in paragraph 4.1 whose answers informed her decision. 8.42 The learned Judge answered all the questions in the negative, resulting in the dismissal of all the Appellants' claims. 8.43 Our interest here is the way the learned Judge treated question three relating to the status or legal enforceability of the Personal Liability Transfer Agreement. 8.44 At page 84 Volume 1 of the Record of Appeal, lines 22 to 25, the learned Judge stated as follows; "I agree with the submissions by the Defendant. Indeed the record will further show that PWl conceded under cross-examination, that the Personal Liability Transfer document was not signed by UFJ and the Defendant". 8.45 On the basis of the above statement, the learned Judge invoked the doctrine of privity of contract asserting that the parties to the Agreement restricted the Defendant's (Respondent) contractual rights created by the loan Agree men ts. 8.46 At page 85, Volume 1 from line 13, the learned Judge states as follows; "Indeed, while contractual rights are assignable under Clause 13.1 of the Loan Agreements, the said clause clearly requires that before any assignment or transfer of rights or obligations by the Borrower is done, prior written consent of the Lender is obtained." 8. 4 7 As already stated in paragraphs 8. 9 and 8 .11 of this Judgment, the Personal Liability Transfer was not made by J23 the Appellants as borrowers but by the shareholders' resolution in a properly called meeting by the Managing Director of UFZ. 8.48 It follows therefore, that the Personal Liability Transfer Agreement is not impeded by Clause 13.1 of the Loans Agree men ts. Corporate governance issues 8.49 In the theory of Corporate Governance, a Company has two main organs namely, members in a general meeting and the Board of Directors. The members/ shareholders lay down policy and appoint the Board of Directors to which most of the powers of the members in a general meeting are delegated. 8 .50 The powers exercised by the members in a general meeting and those of the Board of Directors would be set out in the Articles of Association. 8.51 The members, in a general meeting, appoint Directors who exercise all the powers of the Company except those preserved by the articles to be exercised in a general meeting. See Gower's Principles of Modern Company Law London, Sweet and Maxwell Six Edition by Paul L Davis 1997 pages 15 to 17. J24 ,. 8.52 In so far as the duty of directors is concerned, Gower has this to say at page 69 paragra ph 2, "So far as concerns the wider social duties of public companies, English Law has made no movement at all. Whatever directors themselves may say the law says that their duties are owed to the Company which for this purpose and so long as the Company is a going concern means the long term interests of its members ..... " (Underlining for emphasis} 8.53 The above statement adds context to Sections 105 (c) and 106 of the Companies Act No. 10 of 2017 upon which the learn ed Judge placed r eliance in dismissing the Appellants' arguments that in r efusing to implement the shareholders' resolution to transfer lia bility, Victor Makuza acted against the interest of the shareholders. 8.54 Section 105(c) provides as follows ; "Subject to this Act a director shall- (c} When exercising powers or performing duties of a director, (i} Act in good faith and in the best interest of the Company. Exercise the degree of care, diligence and skill that may reasonably be expected of a person carrying out the functions of a director." (ii} 106. A director shall - (a} Exercise that director's power - (i} (ii} (b} (c} (d} In accordance with this Act and act within the articles; and For the purpose for which the power is conferred. Promote the success of the company Exercise independent Judgment and director's information Disclose remuneration in the financial statements of the Company. about that 8.55 To put the learned Judge 's interpretation of the two above cited sections of th e Companies Act No. 10 of 2017 in J25 context, the directors have no business with the interests of the shareholders when exercising their powers. This is made clear when she says the following at page 87 lines 19 to 25 of the Record of Appeal Volume 1 in her Judgment; "With respect to the Plaintiffs' argument that Victor Makuza acted against the interests of the shareholders to whom he reported, it is clear from Section 1 0S(c) and 106 of the Companies Act No. 10 of 2017 that a director acts in the best interests of the Company and not the shareholders, therefore, the assumption is that Victor Makuza acted in the best interests of UFZ when he stopped repayments of the loans from UFZ Sales". 8.56 In our view, this conclusion by the learned Judge falls short of the meaning of the two Sections of the Companies Act in the sense that the corollary of Gower's legal proposition is that interests of the Company should translate into benefits for both the Company and the shareholders. 8.57 It is therefore, contrary to the core of the theory of corporate governance to hold that a director can act to the detriment of shareholders in the name of acting in the best interest of the Company. 8. 58 There is however, the case of Percival v Wright3 which seems to support the view that directors owe their duties to the Company and not to individual shareholders. The brief facts were that the directors purchased shares from existing s hareholders without disclosing that they were in the process of negotiating a takeover bid at a high price. The Court held that the directors owed no fiduciary duties to the shareholders; they could not be liable for the non-disclosure . J26 _ .. 8.59 While the principle holds firm, the difference is that the decision relates to individual shareholders and not shareholders as a collective in a general meeting. As a matter of fact, the facts of the case reveal that the shareholders had approached the directors and had named the price at which they wished to sell. 8 .60 The Court was further, not satisfied that the board ever intended to accept the takeover offer in any event and ultimately the negotiations were aborted. The Court's decision is restricted to its facts and has come in for heavy criticism. (See Farrar's Company Law, 4 th Edition, Butter Worths, London 1998 Chapter 26, page 378 paragraph 2 and not 13). Shareholders' power 8 .61 As already noted earlier 1n this Judgment, shareholders' powers of control of a Company are exercised through resolutions passed at either a general or extra-ordinary meeting. 8.62 The question then is, can directors overrule the shareholders' decision from a resolution of a properly constituted meeting? 8.63 The guiding principle 1s that neither directors nor shareholders can interfere in each other's duties assigned by articles of association and the statute. Outside that, the shareholders take pre-eminence in determining the affairs of the Company through a general meeting. 8.64 In our jurisdiction, the Supreme Court of Zambia has had occasion to pronounce itself on the powers of shareholders in the affairs of a Company in a number of cases. It would seem to us that a jurisprudence has been carved that preponderates decisions of shareholders over those of directors where such decisions are not in violation of articles of association and the governing statute. 8.65 The following cases illustrate the settled position of the Supreme Court as stated in paragraph 11.4 above. The first is the case of Gerardus Adrianus Van Boxtel v Rosalyn Mary Keamey4 (a minor by Charles Kearney her father and next friend). In that case, the question for determination was whether a sole shareholder, who is also the Managing Director of a Company, could bind the Company to transactions made without the consent of a non-shareholding director. The Supreme Court answered the question in the affirmative by holding that: "Shareholders enjoy, as a matter of right, overriding authority over the Company's affairs." 8.66 The next case is that of Bank of Zambia v Chibote Meat Corporation Limited5. The brief facts were that a majority shareholder of a parent Company instructed directors of a subsidiary to sign a charge document in favour of the parent Company. When the parent Company went under and was J28 seized, the Appellant sought to realise the security. The directors argued that the charge document was obtained by fraudulent concealment as to the solvency of the parent Company. 8.67 It was held that those with superior claim and title such as the beneficial owners of a Company have overriding authority over the Company's affairs, even over the wishes of the board of directors. 8.68 The next case is that of John Paul Mwila Kasenqele and Others v Zambia National Commercial Bank Limited6 . In this case, the brief facts are that the Minister of Finance who was the sole shareholder of ZIMCO gave a directive that allowances were to be merged with salaries when paying retirees. However, when paying employees, the ZIMCO board of directors guided that retirees were to be paid according to the ZIMCO conditions of service then applicable. 8.69 In affirming the Chibote Meat d ecision the Court held that the board of directors sought to modify the directive of the sole shareholder. The Court went further to state that in Corporate Law, Directors and Managers must dance to the shareholders' tune. That they have no power to fetter, change or modify a shareholder's decision. 8.70 The final case we shall advert to is that of Friday Mwamba v Sylvester Nthenqe and Two Others7. This judgment hinged J29 ,: ,: on the inte rpretation of two shareholders' agreements between the Appellant and the Respondents relating to the management of two Companies, NECOR (Z) Limited and Application Solutions (Z) Limited. 8 . 71 The issue 1n dispute was whether the Shareholders' Agreements as to who was entitled to nominate directors was contrary to the Articles of Association a nd Company Law. Whereas the Shareholders' agreements entitled only shareholders with 10% or more share interest to nominate directors with Clause 8.1.2 and Clause 8.2 .0 protecting that position, the Articles of Association allowed for shareholders whose share interest was less than 10% to nominate directors. 8.72 In resolving the dispute , the Court extracted the following statement from Farrar's Company Law (supra) Chapter 12 page 135; "Since 1856, the Companies Acts have provided for a constitution in the form of memorandum and articles of association. The proprietors of a Company sometimes wish to supplement these for a variety of reasons. Although they value the limitation of personal liability as regards the outside world they wis h to agree among themselves how risk, profit and control shall ultimately be distributed-----" (reasons for supplementation) it may be f elt, in the case of an incorporated----- Company that the statutory form provides an inadequate record of their understanding. Some additional agreement is necessary to deal with the composition of the board removal of directors (etc.) ..... " 8.73 Having quoted as above, the Court went to state as follows; "Moreover, the learned author continues to explain that methods used to supplement articles of association through shareholders ' agreements have been in form of those agreements between all J30 stakeholders relating to participation in management, a right to be bought out, etc. Thus it is clear that shareholders themselves can decide the manner in which their Companies may be managed or controlled." 8 .74 At J16, the Court stated as follows; "It is clear therefore, that s hareholders can contract amongst themselves through a shareholder agreement to specify certain entitlements or obligations as the case may be. Such shareholders' agreements will be personally binding on each shareholder who has executed the same, courts will honour such agreements." 8.75 All the above cited authorities, in our view, have settled the question on the issue whether or not shareholders can contract inter se to alter the way affairs of the Company are managed and that such decisions are binding on the shareholders and are enforceable by Courts of law. 9 . 0 9.1 CONCLUSION In view of the fact that there was a shareholders' resolution to transfer liability for the loans procured by the Appellants to the Company, UFZ, the directors of UFZ are bound by it. 9.2 In order for the Personal Liability Transfer Agreement to be in effect, consent of the directors is not required. 9. 3 There is also an argument that the Personal Liability Transfer Agreement is ineffective because it was not signed by the creditor, the Respondent herein. It is our view that because the resolution by the shareholders does not affect the Respondent, Clause 13(1) of the Loan Agreements does not apply. JJ l 9 .4 What the shareholders did only affected the relationship between the shareholders and the Company namely, shifting the burden of paying back the loan from the Appellants to the Company. 9.5 As a matter of fact, prior to the halting of the payments, by Victor Makuza, the Company was paying the loan instalments and default only occurred once Victor Makuza defied the shareholders' decision to formally transfer liability. 9.6 The other argument is that the Personal Liability Transfer Agreement is inoperative because it was not signed by one shareholder UFI with a 10% stake in UFZ. 9 .7 In this judgment, it is very clear that the advice given by Victor Makuza at the shareholders' meeting of 31 st January, 2017 was for the Zambian shareholders to execute a written Personal Liability Transfer Agreement which they did. Secondly, we have sufficiently demonstrated 1n this judgment through case-law and scholarly works that the majority shareholders in a Company have an overriding voice in the control of a Company. In this case, the agreement was executed by all Zambian shareholders whose aggregate stake is 90% . 9.8 It is therefore , without doubt that Victor Makuza, in his capacity as Managing Director for UFZ, had no power to J32 overrule the shareholders by refusing to implement the Personal Liability Transfer Agreement. 9. 9 In the view we have taken, it follows that the alleged default by the Appellants was one imposed and misplaced as liability had in fact moved from the Appellants to U-Fuel Zambia Limited. 9.10 In that regard, the foreclosure on the shares of the Appellants is null and void. 9.11 The result is that the appeal is allowed and the judgment of the Court below is set aside. 10.0 ORDERS 10.1 In order to give effect to our judgment, we order that the shares seized from one Ackim Chirwa and Levy Joseph Ngoma be restored to them forthwith. 10.2 We further order that the Appellants' shareholding in UFZ a nd their directorship be and they are hereby restored accordingly. 10.3 We also order PACRA to correct the Register to reflect Ackim Chirwa and Levy Joseph Ngoma as Shareholders and Directors in UFZ. J33 10.4 We also order that the Respondent be removed from the Register of Shareholders in UFZ forthwith. 10.5 We finally order that UFZ resumes its amortisation of the outstanding balance on the loans as per the Shareholders' Personal Liability Transfer Agreement dated 26th January, 2017. 10.6 Costs shall be for the Appellants to be taxed in default of agreement by the parties. F. M. CHISHIMBA COURT OF APPEAL JUDGE ........... J .................. . M. J. SIAVWAPA COURT OF APPEAL JUDGE J34 ' . ' Dissenting Judgment/ Opinion Sharpe-Phiri, JA delivered this dissenting judgment I hold a different view from the majority decision and my dissenting opinion will be read separately as below. I adopt the facts as determined in the lower Court and to some extent as determined by the majority judgment herein save for a few factual departures as will be evident in my dissenting opinion. I reiterate the facts of interest as follows, UFZ had an initia l share structure depicted in its minutes of 11th June 20 15 at pages 470 to 4 71 of the ROA, as follows: i. The 1st Appellant had 31 % stake in paid up shares with extra 10% unpaid; ii. The 2 nd Appellant had 31 % stake in paid up shares with 10% unpaid; iii. U-Fuel International (UFI) had 10% stake all paid up shares; iv. African Site Masters Limited had 4% stake in paid up shares with 12% unpaid; v. Claydon Kalambo had 2% stake in paid up shares; vi. Christopher Besa was allotted 2% stake in shares which were only partially paid for; vii. Unalloted shares accounted for 9 % of issued shares. J3 5 There is no dispute that the Appellants independently and individually executed loa n agreements dated 14th September 2 015 with the Respondent to acquire US$90 ,000 each and they both individually pledged their shares in UFZ as secu_rity in default of repaym ent. On 9 th September 2016, the 2nd Appellant together with African Site Masters Limited a nd Mutale Besa (alias Christopher Besa) executed a Power of Attorney in favour of UFI in relation to voting rights and all ancillary activities including decision making arising from their respective shares in UFZ. Effectively, they voluntarily ceded their rights attached to their shares in UFZ to UFI , a fellow shareholder so that UFI could act as their proxy in all such related matters and affairs. This is evidenced from the power of attorney found at pages 677 to 682 of the Record of Appeal. In relation to the loans contracted by th e 2nd Appella nt with the Respondent, misunder standings arose as to the extent of involvement and attachment of lia bility to UFZ, and this led to the 2nd Appellant revoking the power of attorney conferred to UFI in relation to his sh ares in UFZ. However, at this point, the Respondent h ad enfor ced its rights on the loans by way of foreclosing on th e Appellant's shares in UFZ. This was achieved by the fact th at UFI which had the power of attorn ey as proxy on behalf of the Appellants h ad a ppointed and tasked Mr. Victor Makuza to oversee its affairs in UFZ. Eviden ce of Mr. Makuza's representative capacity of UFI is seen in p art in the letter revoking and terminating the power of attorney of UFI as a sole and J36 I • ' • exclusive proxy of the 2 nd Appellant. The letter is at page 578 of the Record of Appeal in which correspondence the addressee was UFI for the attention of the said Victor Makuza. It is also not in dispute that the same Mr. Makuza was a Director in the Respondent company. Having outlined the foregoing, it is now imperative for me to address the real issue in contention, which revolves around the propriety of attaching and transferring the liability of the Appellants to UFZ. In so doing, I also recast the 3 grounds of appeal before this court here below for context: GROUND 1 The learned trial Judge erred in law when she held that the Personal Liability Transfer Agreement executed by the parties herein did not comply with the requirements of Clause 13 of the Loan agreement as no prior written consent from the Lender was obtained in line with Clause 13 of the Loan agreement when the parties executed the Personal Liability Transfer agreement in the face of irrefutable evidence that proved that the instruction to execute the personal liability transfer agreement was given by Victor Makuza in writing and signed and that the said Victor Makuza was clearly representing the Respondent who was the Lender in the loan agreement. GROUND 2 The learned trial Judge in the Court below erred in law when she held that the loan agreement did not place a legal obligation on U- J37 Fuel to settle the loans in the face of irrefutable evidence that showed that the said loans were advanced solely and exclusively to be used as capital on U-Fuel Zambia Limited and in the face of further evidence that established that even in instances when the Appellant had paid the monthly installments, they were refunded their money by Victor Makuza from the proceeds of U-Fuel Zambia Limited. GROUND 3 The learned trial Judge in the Court below erred in law when she held that the foreclosure of the Appellant' shares by the Respondent without complying with the law in the face of evidence through Victor Makuza's own admission during cross examination, that he orchestrated the default in payment of monthly instalments with the view of taking over Appellants shares in U-Fuel Zambia Limited despite all the parties agreeing through the Personal Liability Transfer agreement that payment of the loan instalments would come from U-Fuel Zambia Limited. Grounds 1 and 2 will be addressed simultaneously as they relate to the question of determining the propriety of attaching and transferring liability to UFZ. To start with, I note from the judgment of the High Court that UFZ had filed a notice of discontinuance of its action against the Respondent on 24th August 2017. This is as indicated at page J3 of the judgement of the lower Court (page 14 of the Record of J38 I • • Appeal). Therefore, UFZ was not a party to the proceedings in the Court below. In coming back to the issue in contention, there is no dispute that that the loan agreements were contracted by the Appellants in their individual capacities with a pledge for security of their shares in UFZ in favour of the lender, which is the Respondent. The loan agreement, particularly Clause 13(1) and (2) reproduced in the majority Judgement spells out the fact that the parties to the loan agreement could assign or transfer their rights and obligations (borrower or lender as it were) under the agreement upon written consent of the other party which consent ought not be unreasonably withheld or delayed. It is thus clear that the Appellants could under the agreement assign or transfer liability to a third party, such as UFZ if written consent of the Respondent (Lender) is obtained prior to such assignment. In the case at h a nd, however, what is clear is that the Appellants respectively entered into the loan agreement with the Respondent and the transfer of liability agreement which they now seek to rely on as transferrin g their personal liability to UFZ is the Loan Liability Transfer Agreem ent dated 26th January 2017 executed by Appellants with three other fellow shareholders of UFZ who include African Site Masters Limited, Christopher Besa and Claydon Kalambo. This agreem ent is conta ined at pages 683 to 685 of the Record of Appeal. This agreem ent was brokered following a J39 meeting of UFZ held on the 31 s t January 201 7 where Mr Victor Makuza was both Chairman and Secretary. In the said meeting, the members of UFZ resolved in Resolution 3 and the action point at page 183 of the Record of Appeal as follows: "UFZ to stop making Mr Chirwa and Mr Ngoma loan payments unless there is a written agreement by the shareholders recommending to do so. Action point- Mr Besa to meet with 6 shareholders and draft a written agreement on these loan payments." Other than the foregoing, there is no evidence that prior written consent of the Respondent was obtained indicating that it had agreed that the Appellant's liability against it could be transferred to a third party, UFZ. The only evidence before Court is of a Loan Liability Transfer Agreement which was executed by five (5) shareholders of UFZ with the exclusion of UFI. There was however no evidence of a board resolution having been secured indicatin g UFZ's acceptance of th e debt. In addition to the foregoing, I wish to re-echo and affirm th e sentiments expressed by the learned Judge in the Court below found at page Jl 7 to J l 8 where she said as follows: "Before I move on to the next issue for determination, I feel duty bound to comment on the submission by the Defendant that if it was the desire of the majority shareholders in UFZ that the loans contracted by the J40 . t • plaintiffs be paidfrom the company funds, the plaintiffs should have taken the necessary steps to reduce their wish into a board resolution followed by a novation agreement signed by all the relevant parties, namely, the Borrowers, the Lender and UFZ. The above submission is sound and the Plaintiffs should have taken that route to ensure that their wish was realized. Black's Law Dictionary defines 'novation' as: 'The act of substituting for an old obligation a new one that either replaces an existing obligation with new obligation or replaces an original party with a new party. A novation may substitute (1) a new obligation between the same parties, (2) a new debtor, or (3) a new creditor.' It is important to note that in order for the novation to bind the parties, both original parties must agree to it. Alternatively, since clause 14.9 of the Loan Agreement allows for the Agreement to be amended of modified in whole or in part at any time by an agreement in writing executed in the same manner and by the same person, there was nothing to stop the plaintiffs from engaging the defendant, with the agreement of UFZ, to amend the Loan Agreements to reflect UFZ as the Borrower" In view of the foregoing, I wish to restate that there is nothing evidencing written consent from the Respondent of transfer of liability from the Appellants to UFZ on record. There is also no J41 resolution by UFZ evidencing that it has accepted to take up responsibility for the loans contracted by the Appellants. The only clear evidence is that the Appellants contracted loans from the Respondent which remain unpaid and shares in UFZ were placed as security which the Respondent h as since fallen back on . In conclusion, as the Court below determined, I end my opinion by referring to the words of Sir George Jessel MR in his J udgment in the case of Printing Numerical Registering Company v Simpson as quoted by our Supreme Court in the case of Colgate Palmolive (Z) Inc v Abel Shemu Chuka as follows: "If there is anything more than another, which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty in contracting and that, their contracts, when entered into freely and voluntarily shall be enforced by Courts of justice." In view of the foregoing, I find no merit in the Appellant's grounds 1 and 2 of the appeal, and consequently I also find that the Respondent cannot be faulted by foreclosing on the Appellant's shares in UFZ as contained in the share pledge agreements of the parties and the notices of transfer of shares forms executed by the Appellants. In this light, I find that ground 3 has no merit. J42 I am of the considered view that the learned trial Judge in the Court below was on firm ground in deciding as she did in her judgment of 17th December 2020 and the appeal before us had no merit. This concludes my dissenting opinion. ~ F" N. A. Sharpe-Phiri COURT OF APPEAL JUDGE J43