Candlex Limited v Katsonga Phiri (Civil Cause 680 of 2000) [2003] MWHC 119 (8 July 2003)

AN as IN THE HIGH COURT OF MALAY PRINCIPAL REGISTRY CIVIL CAUSE NO. 680 OF 200¢ t o > C BETWEEN: CANDLEX LIMITED - and - MARK KATSONGA PHIRI PLAINTIFF DEFENDANT CIVIL CAUSE NO. 713 OF 7000 BETWEEN: CANDLEX LIMITED - and - MARK KATSONGA PHERL PLAINTIFF DEFENDANT CORAM: THE HON. MR. JUSTICE F. E. KAPAMDA M/S Savjani S. C. and Ndau, of Counse "or the Plaintiff M/S Mhone and Mulere, of Counsel for he Defendant M/S Balakasi, Ngwale, Mankhanamba, . Jzre and Mzungu Official Interpreters/ Recording Officers Dates of hearing : 28" January 2002, 1° February 2002, 4" February 2002, 11°* February 2002, 43th Febriary 2002, 2" April 2002, 5111 April 2002, 8" April 2002, 18" April, May 2002, 2002, 811 May, 2002, 9°" May 2002, 16'* May 2002, 25" July 2002, 28" October 2002, 2911 October 2002, 2002 and 1° November 2002. October 2002, 31° October Date of judgment: 8" July 2003 Kapanda, J Introduction JUDGMENT :: The plaintiff company, Candlex Limited, is a private limited It was liability company incorporated in the Republic of Malawi. incorporated in 1983. The plaintiff company operates from its premises on Plot No. CC 936 at Maselema in the City of Blantyre of the said Republic of Malawi. The defendant is one of the three shareholders in the plaintiff company. The relationship between the defendant and a fellow shareholder has gone sour. This, incidentally, has had an effect on the relationship between him and the plaintiff company. Hence the legal action herein. There were actually two distinct causes of action before this court viz Civil Cause No. 680 of 2000 and Civil Cause No. 713 of 2000. The two legal actions were commenced on 10 March 2000. Both were The two actions were, by the commenced by the plaintiff company. order of this court, consolidated into, and tried as, one action. The essence of this consolidated action is that the plaintiff wants its premises on the said "ict No. CC 936 at the defendant out of Maselema in the said City of Blantyre. Further, the plaintiff company desires that the defendant should stop calling himself Group Chairman or Managing Director of is challenging the plaintiff's averments in the consolidated action. the plaintiff company. The defendant History of Plaintiff company the relationship between the Defendant and the In order to fully appreciate what is in issue in this matter a brief the plaintiff company need to be stated. Here is the history of background to this case in so far as it relates ic the relationship between the defendant and the plaintiff. the time shareholder at the plaintiff The defendant was a founder of the plaintiff company. He was a company was majority The other shares were held by his wife, brother and incorporated. Indeed, the defendant's brother, mother ani wife were, for all mother. intents and purposes, minority shareholders if not nominal shareholders. Further, during the early days the plaintiff corapany was a family venture where the board of directors comprised the defendant and his said wife, brother and mother. This has since chcnged. Neither the defendant nor the said members of his family are Directors of the plaintiff company. The defendant's shares, in the plaintiff company, have since dwindled. He is no longer a majority shareholder. This has come about because he sold most of his shares to people not within his family. Why his shares were sold will be discussed later. The defendant was also the plaintiff company's Managing Director up until sometime in 1995 when he ceased being the Managing Director of the plaintiff company. Of course the defendant denies that he stopped being the Managing Director of the plaintiff company. We will come bac«+ to the position of the Managing Director when the court is considering the issues for determination in this matter. The defendant did not only found the plaintif{: company. He also established other businesses, either as limited liability companies under the Companies Act or as firms under the Business Names Registration Act. There is no evidence to suggest that the plaintiff company had All shares or interest in these other businesses of the defendant. there is to it is that the defendant had an interest in both the plaintiff company and the other businesses of his. More on this will be discussed later in this opinion. It will suffice though to put :: t here that, on 6™ May 1993, the plaintiff company's then board of directors passed a resolution upgrading the Managing Director's posit on in the plaintiff company. The incumbent of this position, before it vias upgraded to the position Group Chairman/Managing Director, was the defendant. It was further resolved by the Board of [: rectors that the defendant was to negotiate for his remuneration, in this newly created fram the so called post of Group Chairman/Managing Director, the view that associate companies. The directors were of the defendant's remuneration was not the responsibility 2f Candlex Limited. It would appear that members of the boarc realised that the relationship between the plaintiff company and the defendant's other business ventures was a loose one. This is obvious when one reads the said resolution of the board as regards the defendant's remuneration in his new post. The board was rightly of the view that the defendant's its remuneration from the so called associate companies was not concern or that of the plaintiff company. shareholder. The natura' a majority As mentioned earlier the number of shares that the defendant holds in the plaintiff company have substantially bee. reduced. He is no consequence, but longer undesirable in the eyes of the defendant, of this has been that the defendant's influence in the plaintiff company has been eroded. He has found himself out of the board of directors of the plaintiff company. Further, the relationship between the defendant, on the one hand, and is at its a fellow shareholder and the plaintiff, on the other hand, the relationship lowest ebb. One manifestation of is the consolidated action between the plaintiff and the defendant herein where the plaintiff company has lodged a complaint against the defendant. the souring of The plaintiff's complaint and the answer by the defendant Plaintiff's complaint The full particulars of the plaintiff's complaint against the defendant are in the two statement of claim in the consolidated action herein. We do not intend to set out in full all the allegations of fact in the said statements of claim. The court will only give a sketch of the plaintiff company's complaint. The plaintiff company's complaint is that the defendant is falsely holding himself out as Group Chairman and Managir« Director of the the plaintiff defendant is falsely representing that he has controlling or managerial The plaintiff continues to complain that company. authority over the plaintiff company. It is the further grievance of the plaintiff company that the defendant's conduct is causing confusion to employees of the plaintiff company. Moreover, the plaintiff company complains that it has suffered, and may continue to suffer, serious loss and damage or prejudice by reason of the defendant's said conduct. is it Moreover, the plaintiff the defendant had been occupying its two office rooms as a tenant at will. Further, the plaintiff company states that despite bzing given notice to the delivery up possession of defendant has failed to deliver up possession of the. said offices. the plaintiff's two office rooms, company's contention that Consequently, the plaintiff is seeking, over ard above costs of these proceedings, the following remedies viz: - 1. 2. 3. An injunction to restrain the Defendant by himself or by his employees or agents or any of them or otherwise howsoever from holding himself out as the Group or Managing director or manage or employee of company and from interfering directly or indirectly in the management and coministration of the plaintiff company. the plaintiff General damages for (i) unlawful interference in the management the plaintiff company and (ii) procuring and administration of breach of contract on the part of the emplovexs of the plaintiff company. Possession of two office rooms on the plaintiff company's land and premises known as Plot No, CC 936 situate in /Aaselema Road in t he City of Blantyre. 4. Mesne profits at such rate as the court deems fit from 8™ March 2000 until delivery of possession. 5. An injunction restraining the Defendant by himself or by his servants or agents or otherwise howsoever from being or remaining in or entering upon the plaintiff's land and premises comprising of two office rooms on Plot No. CC in Maselema, in the City of Blantyre. Defendants response The defendant denies that he is falsely holding himself out as a Group Chairman and Managing Director. He contenc's that as a matter of fact he is and was at all material times the Group: chairman/Managing Director of the plaintiff company and all its so called sister companies. Further, the defendant states that his occupation of the two office rooms is by virtue of his being the Managing Director/Group Chairman of the plaintiff company. On that account, it is argued by him, he is not a tenant at will. Moreover, the defendant contends that as a minority shareholder in the plaintiff company he is entitled to possession of the said two offices so that he can effectively protect his interest in the company. The long and short of it is that the defendant has joined issues with the plaintiff company on the grievances stated above. Application For Amendment of Defence It must be pointed out that, at the time the pleadings herein were closed, there was no dispute regarding the shareho'cing in the plaintiff company. The defendant had made an admission ix his statements of defence. The essence of this admission was that he «admitted that he is a minority shareholder in the plaintiff company. Ths was the position up to the time when the defendant was about lose his defence Indeed, the defendant changed his mind when this court testimony. was about to retire to write its judgment. The defendant purported to apply for an amendment of his statement of deferce. He essentially wanted to retract his earlier admission that he was a minority shareholder in the plaintiff company. The court did not rule on the application. It indicated that it would deal with the application at the time it would be considering the judgment in this matter. We have decided not to allow the amendtnent sought by the defendant. There has been an unreasonable and inexcusable delay in Further, there was no evidence to the making of this application. suggest that the admission by the defendant was 1 mistake which only came to light at the closure of the defendant's defence. As rightly put by Mr Savjan S. C., the defendant and his Counsel hacl, for a long time, in their possession the letters where the defendant was alleging that he parted with his shares under duress. Notwithstarcding the fact that they had the said letter in their possession the defzndant decided not to plead it in his defence. We would not be wrong to come to the conclusion that the defendant wanted to amenc his defence after realising that his case was a bad one. it would amount to denying the plaintiff The amendment will have to be refused. It is rejected because the allowing opportunity of challenging the defendant's case which was being raised for the first time in the proposed amended defence. We are afraid that allowing this amendment would mean re-opening the trial of this action. There must be finality to these proceedincs. As a matter of fact, with the admission by the defendant, the plaintiff company and its lawyers were entitled to assume that the action was not being challenged on the question of a minority the defendant company being The plaintiff company came to court and conducted its shareholder. case on the premise that it was not going to prove the admitted face that the defendant was a minority shareholder. Finally, freely sold his shares. the court would like to observe that even if this amendment were allowed the defendant's allegation would have still have failed. There was no evidence to prove the allegation of duress. The defendant the company and the defendant wanted an investor who would help keeping the company afloat. The ones who came in were the Hubbes who bought shares from the defendant. There was no hostile take over of the plaintiff company as was being suggested by the defendant. If anything the problem is that the defendant does not want to accept the sterk reality that the plaintiff company is no longer his family empire. Indeed, By reason of the foregoing the accepted pleccings in this matter It is from are those that were there at the commencement of trial. those pleadings that the facts in dispute between the parties herein arise. The Issues As we see it, there are not so many issues to be determined albeit that the pleadings exchanged herein appear to be lengthy. We now propose to set out the issues for determination in this matter. The issues arise from the said accepted pleadings in the: consolidated action herein. From the said pleadings the following are, ing "utshell, the issues that require to be adjudicated upon by this court: - (a) whether or not the plaintiff company is pat of a group of companies. (b) whether or not the defendant is the plain-iff company's Group Chairman/Managing Director. (c) whether or not the defendant is entitlec occupy the two office rooms on Plot No. CC 936 Maselenia in the City of Blantyre. (d) whether or not the plaintiff company is er titled to the remedies in the consolidated action hereir., We must observe that, although the issues for cetermination have been itemized seriatim, the court will not be speci*ically referring to each one of them when it is making its findings of fact. Further, as we are determining the issues set out above it will become necessary to that have not been specifically answer mentioned above. Moreover, our decision on these issues will be based on the acceptable evidence on record. some ancillary questions The Evidence The court heard evidence from both parties. The plaintiff called two witness viz. Mrs Rosemary Kanyuka and Mr Michael Hubbe. On the defendant's side there was a total of six witnesses who testified on These witnesses were ihe defendant (Mr behalf of the defendant. Mark Katsonga Phiri), Messrs Peter Katsonga Phiri Emmanuel! Dustan Chinunda, Levison Weston Ganiza, George Namatuiro and Wellington M'nesa. All the witnesses underwent some gruelling cross-examination. As a matter of fact some of these witnesses were crossed examined for a period of more than a day. Fact of the case: A Narrative It is from the testimony of these eight witnesses that the relevant facts obtaining in this case can be discerned. We shall attempt, as far as practicable, the said facts in a chronological order as we find them. to set out Birth of the plaintiff company The plaintiff company was incorporated inte a private limited liability company on 19" May 1983. The defendant and his brother were the only shareholders then. The shareholding structure has since changed. We will come back to this later in this judgment. Appointment of defendant as Managing At the time of the incorporation of the plaintiff company the defendant was made one of its Directors. The defendant was later appointed Managing Director of the plaintiff company on October 1994. This was after he had been a Director of the company for more than a year. We wish to observe that the defendant was appointed a Managing Director at a meeting of Directors the instead of appointment being made at a shareholder's meeting This irregularity was never cured by the shareholders of the plaintiff company. Be that it may be, with this appointment in the plaintiff company, the position of Managing Director This position was to change almost nine years later. there was then created, The upgrading of the position of Director On 6™ May 1993 the plaintiff's Board of Di-ectors decided to It wes upgraded to the upgrade the position of Managing Director. position of Group Chairman/Managing Director. Thz relevant parts of the Minutes of the Meeting of the said Board of Directors indicate that the upgrading was being done so that the incumbent could oversee what the Directors called "Group Operations." The defendant was the Managing Director at the time this resolution was made. Indeed, it is in evidence that following this meeting a letter was written to the defendant had appointed Group Chairman/Managing Director. However, it was conceded by Mr Peter Katsonga Phiri that when he wrote this letter of cppointment he was not the said Board of Directors, following the minutes of the meeting of him that advising beer he At the time the position of Managing Director was being upgraded the defendant had already established some other businesses and/or limited liability companies. The defendant also set up other businesses after the position of Managing Director was upgraded. It is important to note thought limited liability companies, did not and do not have any shares in the slaintiff company. these other businesses, or that Reconstitution of the Board of Directors of the plaintiff company The plaintiff company was being managed by the defendant and some members of his family. This state of affairs changed on 29™ of April 1994 when a new Board of Directors was fut in place. This marked the end of governance of company by the defendant and the members of his family. A professional Board of Directors was then constituted. the plaintiff The Board of Directors resolves that defendant should step down as Managing Director As a further manifestation of the said end of management of the plaintiff company by the defendant and the members of his family the Board of Directors made a pertinent resolution at 'ts meeting of 23°° The Board resolved, /nter alia, tiat the defendant February 1995. should step down as Managing Director of the plaintiff company. From the evidence on record the defendant was to remain, and remained an ordinary Director of the plaintiff company. The defendant eventually resigned as a Director of More on his resignation as a Director will be discussed later. the plaintiff compary. Financialproblems in plaintiff company and sale of shares The plaintiff company was in financial problems. It was sinking. Actually, it started making huge losses in 1993. Sorvetime in February 1996 there arose a need to have an investor who would inject money into the plaintiff company so as to keep it floating. The defendant had to sale some of his shares in the plaintiff company. He sold his shares to the Hubbes. Exactly when he sold his shares is not an issue but the evidence on record shows that on 30™ July 1996 the 3oard of Directors of the plaintiff company introduced the Hubbes as shareholders of the in a written agreenent, entered into plaintiff company. it stows that Michael between the defendant and Michael Hubbe, Hubbe became a shareholder of the plaintiff company on 151 August 1996. Before the said 1° day of August 1996 a majcrity of the shares of the plaintiff company were held by the defendant. The position has In terms of the annual return of the plaintiff company since changed. for the period up to 17™ November 1999 the defendcnt was no longer a in the plaintiff majority shareholder. company, are now held by the Hubbes. A majority of the shares, Further, Defendant resigns as Director of the plaintiff company The defendant was part of management of the plaintiff company until sometime in June 1999. As we mentioned earlier, the Board of Directors had resolved that he should step down as Managing Director. Hence he remained in the management of the plaintiff company as a In point of fact on 8™ Director up until the said month of June 1999. June 1999 the defendant tendered his letter of resignation as a Director of the plaintiff company. The defendant's resignation was to be with immediate effect. He attempted to withd-aw his resignation three (3) months later. As a matter of fact he late on put a condition to his resignation. It would appear that his attempted come back was futile. We say this because on 9° November 1999 the Defendant had proposed himself to the shareholders of the plain-iff company to be appointed a Director. His proposal was rejected. Upon his resignation, on 8" June 1999, the rolz of the defendant in the plaintiff company changed. He was the management of the plaintiff company. The defendant became a mere shareholder in the plaintiff company. A minority srareholder for that matter. no longer part of Defendants Memoranda to department managers of the plaintiff company The defendant never accepted that he was no longer part of management of the plaintiff company. This manifested itself after the plaintiff's General Manager, Mr Bob Abbey, had hud his request for renewal of a temporary Employment Permit refused by Government. On 28" February 2000 the defendant wrote a Mem> to all department managers of the plaintiff company instructing thers to be reporting to In the said Memo of 28™ February 2000 the defendant described him. This did not go wel! with the plaintiff himself as Group Chairman. company. There was an exchange of Memos between the defendant and the Chairperson of plaintiff's Board of Directors. The plaintiff company's Chairperson of Board of Directors wrote the defendant, on 29" February 2000, advising him to stop writingsuch kind of Memos. The defendant was further advised that his Merios to department managers were illegal. Threat of legal action and demand for delivery of office rooms In this Memo the defendant was advised that The exchange of Memos in February 2000 was followed by ye another Memo from the Chairperson to the defendart. It was dated 6" March 2000. the plaintiff company would take legal action if the defendant did not desist from the practice of writing Memos to depertment managers. The threat of legal action was preceded by a Noticz to the defendant to vacate two office rooms he had been occupying cs Managing Director of the plaintiff company. The Notice was served 07 the defendant on 2™ March 2000. The plaintiff company demanded o% the defendant to deliver up possession of the said office rooms on 8" March 2000. The defendant has not delivered up possession of the said office rooms. We must observe though that the defendant is no longer physically occupying the two office rooms. The defendant does not deny that the two office rooms belong to the plaintiff company. Further, it is admitted by the defendant that he has other offices opposite the premises of the plaintiff company where he and his other businesses operate from. The above are the relevant facts that we testimony of the witnesses who testified before this court found from the in the consolidated action herein. Having set out the facts of this case let us now proceed to consider the issues for determination in this matter. The court will of course bear in mind the submissions of Counsel when it is considering the questions for determination. Law and consideration of the issues for Determination Is the Defendant entitled to occupy the two offices? The defendant is no longer in the employ of the plaintiff company. This is the case because he ceased being the Manag ng Director of the plaintiff company. He must realise that, having resigned as Director of the plaintiff company, he is now a mere shareholder. Further, the position of Group Chairman is irrelevant in so fcr as the plaintiff company is concerned. The plaintiff company, as we will see shortly, is not part of a group companies. It can not therefore. have a position of Group Chairman within its structure. The case of Mobil Oil (MW) Ltd. vs. Leonard Mutsinze CC. No. 1510 of 1992 (unreported decision of Chatsika J. of 6™ August 1993) is instructive on the question whether the defendant is entitled to occupy the two office roams. In the Mutsinze case the defendant resigned as an employee of the plaintiff company. It was held by Chatsika, J. a3 he then was, that the resignation terminated his engagement with the: plaintiff company and that this had the result of automatically terminating his right occupy the plaintiff's house. The underlying logic 3 : Justice Chatsika, as he then was, applies with equal force to the case before us. In the instant case the defendant is no longer an employee of the plaintiff to occupy the plaintiff company. company's two office rooms. Consequently, he has no right It is laughable that the defendant thinks he can occupy the two office rooms as a shareholder. We can imagine what would happen if the plaintiff company had a thousand shareholders and all of them wanted to have an office space at the plaintiff company. It would be inviting chaos. We know of ne: law that says that a minority shareholder is entitled to occupy premises of the company in which he owns shares. Indeed, the defendant need not have offices at the premises of the plaintiff company in order for him to protect his said interest as a minority shareholder. the premises of Is the Defendant a tenant at will? The case of Mussa Janmahomed vs. Ahrnzd Mussa Lambat [1923-60]ALR Mal 181 is instructive as regards how a tenancy at will may be created. It can not be denied that the defendant occupied the two office rooms when he was actively involved with tre management of the plaintiff company. He was to occupy the roorss as long as he was employed by the plaintiff company. The defendant centinued to occupy the office rooms after he ceased being Managing Director of the plaintiff company. He was not even paying rent ior the two office rooms he continued to occupy. A tenancy at will is implied because he had admittedly been permitted to occupy the two office rooms without paying rent for the use of the said rooms- Mussc. Janmahomed vs. Ahmed Mussa Lambat - ante. As a matter of fact, the defendant continued occupy the office rooms as a tenant at will. The offices are owned ly Candlex Limited and the demand for the premises determined the tenancy at will that had been created. The defendant has been in wrongful occupation and use since the date Candlex Limited demanded surrender of the two office rooms. For that the defendant is liable to pay damages to the plaintiff company for the continued wrongful possession of occupation of the said two office rooms. What ther are the damages payable? Mesne Profits The normal measure of damages for the said wrongful occupation is the market rental value of the property occupied or used for the period of wrongful occupation. The court did not eceive in evidence the market rental value of the two office rooms. he ends of justice would be met if this court were to order that the damages should be assessed by the Registrar. It is so ordered. Could the defendants resignation be witharawn? In Glossop vs. Glossop [1907]2Ch. 370 at 374 Neville, J. had this to say which we respectfully endorse: - ".-T have no doubt that a director is entitled to relinquish his office at any time he pleases by proper notice to the company, and that resignation depends upon his notice and is not dependant upon eny acceptance by the company, because I do not think they are in a positicn to refuse acceptance. it appears to me thata director, once having given in the Consequently, proper notice of his resianation of his office. is not entitled to withdraw that notice. but. if it is withdrawn it must be by consent of "he company properly exercised by their managers, who are the directors of the company. But, of course, that is always dependent upon any contract be-ween the parties, and that has to be ascertained from the articles of association--" (emphasis supplied by us) in James North (Zimbabwe)(Pvt)Ltd vs. Further, Mattison [1989]LRC (Comm.)615 at 626 d-f Smith, 7. had this to say which is very instructive as well: - and Others "Mr Gillespie argued that Kelly's letter of resignation contained an offer to work out his three months notice, which offer was accepted and therefore - Ido not agree with him. he remained a director until the end of April Article 94 of the articles of association of James North provides .. that the office of a director shall be vacated if, by rotice in writing to the company, he resigns his office. Kelly wrote to the Ckairman resigning from his office as a director with effect from 31 Jcrnuarvy. In my view it automatically followed that he vacated his office as director on that date. There is no question that his resiqnation had to be acepted before it could take effect---" (emphasis supplied by us) All In the case under indications are thet consideration what dc the articles of association of Candlex Limited say? Do they say the resignation has to be accepted? Did the other Directors accept the withdrawal of the the Articles of Defendant's resignation? Association of the plaintiff company do not say anything about the need for consent of the other Directors before one's resignation can be effective. It therefore does not surprise us that the defendant had to nominate himself to be appointed a Director of the plaintiff company. The plaintiff company was actually right in treating the defendant as having resigned as Director at the time be gave his notice of the plaintiff resignation. Why? company, in article 65, provides that : The Articles of Association of - "A Director shall hold office until he resigns his office or is removed from office" And Section 145 of the Companies Act, so far as material, reads as follows: "--The office of director shall be vacated if, inter alic, the director resigns his office by notice in writing to the company." Both the Companies Act and the articles of ass3ciation of Candiex Limited do not provide for acceptance of resignation by the Directors It naturally follows 'hat the defendant of vacated his office as a director on the day he advised the plaintiff company that he was resigning, as Director, with immediate effect. the plaintiff company. It would, [Act No. 19 of 1984] Could the defendant, after resigning as a director, continue being Managing Director of the plaintiff company? in our opinion, be pretentious in the extreme to think that the answer to this question would be in the affirmative. In order to appreciate why we are of this view let us consider some statutory provisions that have a hearing on this question. Section 2 of our Companies Act No. 19 of 1984 defines managing director as a director to whom has been clelegated any powers of the board of directors to direct and administer the business and affairs of the company. And, a director has the meaning assigned to it by Section 140(1) of Act No. 19 of 1984 which stipulates that: this Act "For the purposes of the expression "directors" means those persons, by whatever name called, who are appointed to direct and administer the business and affairs of the company." Further, Section 43 of the said Companies Act suggests to us that a Managing Director is part of a group of directors cf a company. The being eventual: made Managing defendant, notwithstanding his Director, was just delegated to manage the company on behalf of all the other of directors. He could not resign as director and then expect to continue being Managing Director of the plaintiff company. As we understand it, the management of the company is the responsibility of directors only that a Managing Director has delegated authority to do it on behalf of all the directors. He cannot leave this group and then say he will continue to be a Managing Director of ci company. In terms of the alleged agreement, with regard to entitlement of shareholders to appoint Directors, may be the defendant qualified +o be appointed as director but was not, in point of fact, appointed a director. Actually, this court already found, in its ruling of 2" April 2002, that the alleged agreement was a non- starter and has no bincing effect. The defendant cannot, therefore, claim that he is entitled to run the affairs company Group Chairman/Managing Director or in concert with the rightful Directors of the plaintiff company. plaintiff either alone the of as Is the Plaintiff company part of a group of companies and/or associated with or related to any other company? It is the view of this court that whether o- not the plaintiff company was part of a group of companies is a question of law. Indeed, we should be concerned with the position at law and not with the defendant's imaginations. We should not involve surselves with the defendant's relationship with the plaintiff compery and the other companies that he established. We should rather jocus our attention on the law as regards the establishment of a group of companies or related and/or associated companies. The case of Whitehouse vs. Carlton Hotel (Pty) Ltd [1988]LRC Comm. 725 was cited by Mr Mhone in support of the argument that the plaintiff company was part of a group of companies. I do not know why this case authority was relied upon by Counsel for tie defendant. The case only makes a scanty reference to a group of coripanies. Indeed, in the Whitehouse case there was in existence, in poin of fact and law, a group of companies. Further, the principle issue, if not the only issue, being decided though was whether the allotment of shares was properly done or done for improper purposes. The court was also referred to the case Adams vs. Cape Industries PLC [19°0)) Ch. 433. This authority was quoted by the defendant to buttress his argument that the plaintiff company was part of a group of companies that he controlled when he was appointed Group Chairman. This case authority, just like most of the cases cited by Counsel for the defendant, does not assist the defendant. To the contrary it assists the argument of the that you can only have a group of corrpanies where one plaintiff I have read the authorities company has shares in another company. cited by Counsel for the defendant and there is one thing that I have observed. It would appear that Counsel did not fully read these cases. It is observed further that Counsel cited these cases, just for the sake of it. The authorities quoted by Counsel will not assist us in determining whether the plaintiff company is, at law, part of a croup of companies. The law will have to be found somewhere else. As a starting point in answering the question posed above let us see what the provisions of the Malawi Companies Act say with regard to the term group of companies. Section 2 of the Companies Act [Act No. 19 of .984] states that: - "Group body corporate "or group company" means thar, other body corporate, the body corporate or company sc described is: - in relation to any (a) (b) (c) asubsidiary of that other the holding of that other or asubsidiary of that other's subsidiary." that were The facts of this case do not show that the plaintiff company falls into any of the categories described in the above quoted section. Moreover, the plaintiff company has no shareholding in any of the other the Defendant. companies Furthermore, it is to be observed that most of the s> called associated or related companies were not actually body corporate at the time the defendant was erroneously appointed Group Chairma. In our view the defendant's other businesses were associated or related to him as a sole proprietor of same or as a shareholder in those entities that were limited liability companies. referred to being by Further, in Section 185(1) of the Companies 4ct it is provided thus: - "The provisions of this section (section 185) shall apply where, at the end of the company's financial year, a company has subsidiarizs: . ' The said Section 185, in a summary, obliges limited jiability companies that have subsidiaries to prepare group accounts. There are of course the exceptions with regard to this requirement. plaintiff company never fulfilled those exceptions. It is to be observed that the plaintiff company never prepared group accounts. This, in our view, shows that there was no group of companies to which Candlex Limited belonged. \Jnfortunately, Moreover, It follows that the other companies it is a settled principle of law that on incorporation a company becomes a separate legal personality: Yanu Yanu Company Ltd. vs. Mbewe 10 MLR 379. Further, it is an established principle of law, and we need not cite a case authority for it, that every limited liability company is a separate legal person that should not be: identified with its the defendant members. established as limited liability companies were seperate entities from They could only become related if the other the plaintiff company. companies were subsidiaries of plaintiff company or if the piaintiff company had shares in these other companies. The fact that both were founded by the defendant, or that he had shares in all of them, did not make the companies related or associated or a groip of companies at in the law. eyes of the law, then he should have taken the advice of experts. He should have caused the plaintiff company acquire shares in the other limited liability companies that he established. The plaintiff company never acquired shares in the other companies that the defendant established before he was appointed Group Chairman. If the defendant wanted to create a group He did not. companies, Before leaving this issue we wish to make the following further observations on the question of group of companies. These remarks go companies a long way to demonstrate why we can not accept the contention that the plaintiff company is part of a group of companies or that it is that were related to the other associated with or established by the defendant. Firstly, it is neither being suggested nor is it in evidence that the Defendant held shares in the other companies on behalf of plaintiff company or for the benefit of the plaintiff company. The shares that the defendant held in the other companies were not for the benefit of the plaintiff compary but for his own For this reason it can not be said that Candlex Limited was benefit. part of a group of companies or that it was related to, or associated had established. with, Secondly, there is no evidence of any control exercised by Candlex Limited over the commercial activities that were zstablished by the The plaintiff company had no corporate control over the defendant. other companies to warrant the other companies being referred to as part of a group of companies to which the plaintiff company belonged, or to be associated with, or related to the plaintiff company. the other businesses the defendani that not and those of the defendant's other Thirdly, the debtors or creditors of the plairtiff company were its own businesses. Furthermore, the plaintiff company was not taxed on profits made by these other businesses in which the defendant had an interest. Moreover, the business being conducted by these cther companies that were established by the defendant was not being cone as part of the business of the plaintiff company. Fourthly, the fact that the defendant used the plaintiff company's assets to set up his other businesses, or that it loaned money to these other companies, does not of itself make the plaintiff company part of a group of companies. As we see it, the defendant abused his position in plaintiff company to lend out money, with no interest charged, to the other company or sole proprietorships that he establ shed. Fifthly, the other companies defendant were not wholly or partially owned by Candlex Limited. our view, they were separate business operations. that were established by the In Lastly, we did not find any evidence to suggest that the companies were deliberately established with a view to having ore composite group designed to deal in one business or economic activity. Should we lift the veil of incorporation in thé circumstances of this case? incorporatio The courts have power to lift the veil of incorporation where it is alleged and proven that the veil of s being used for In the case «t hand no one has improper or illegal or unlawful purposes. directly suggested that we should lift the veil of incorporation. Be that as it may be the argument by the defendant, that the plaintiff company has sister or related companies, has the effect of "zquesting the court to lift the veil of incorporation so that we can see hirn as a shareholder and founder in both Candlex Limited and the other companies that he established. That is not reason enough for the court to lift the veil of incorporation in Candlex Limited. The plaintiff company is not using its the veil of veil for improper or illegal purposes. We will incorporation for the purpose of allowing the defendant to remain in the management of plaintiff company or for any othe+ purpose. lift not Is the defendant the plaintiff company's Chairman/Managing Director? up The defendant will not be allowed to hold hiriself out as Group Chairman/Managing Director of the plaintiff compciy. Yes he might that is net good not have been written a letter of termination b enough reason for him to hold himself out as Group Snairman/Managing Director of plaintiff company. We have already fourd that the facts of this case show that he does not hold any manage'ial position in the plaintiff company. If the defendant wants let hira take out an action for breach of contract of employment. He will not be allowed to cling on to a position the plaintiff company says the defendant does not hold it has been found as a fact that the plaintiff any more. Further, company does not belong to a group of companies. It therefore follows that the defendant can not use the non existent position of Group Chairman to run the business of the plaintiff company, At law a company is managed by directors who appoint one If you are not a amongst themselves to be a Managing Director. In terns of the plaintiff director you can not manage a company. company's Articles of Association it is only one o* the Directors who The defendant resigne<! as Director and can be Managing Director. could not, therefore, run the affairs of Candlex Limited under the guise of being Group Chairman. the company. Indeed, a Managing Director ceases to held the office of Managing Director if for any reason he vacates the post of the director The defendant was not appointed in a separate of contract to be Managing Director of the plaintiff company. On the facts of this case he was Managing Director because. he was a Director of the plaintiff company. Consequently, he must have ceased being Managing Director of the plaintiff company on the day he resigned as In any event the 3oard of Directors Director of the plaintiff company. of the plaintiff company resolved that he should step down as Managing The resolution of the Board of Director of the plaintiff company. Directors has not been rescinded or varied. Was the Defendant an Executive Chairman of Plaintiff company? The defendant was never appointed an Executive Chairman. There are no board minutes indicating that the defendant was appointed such If anything at one point in time he had been Executive Chairman. appointed Managing Director but he ceased being one when the board decided that he should step down. Is there Interference, by the Defendant, with operations of Candlex Limited? From the observations made above we find that the defendant was indeed interfering with the operations of the plaintiff company. Further, it is to be noted that article 72 of the Articles of Association of the plaintiff company provide that: - "The business of the company (Candlex Limited) sta! be managed by the and things as are Directors--- and may exercise and do all such ac necessary to carry into effect all the objects, purposes, authorities, powers, and discretions provided on the Memorandum of Association save such as are by the Act or by the Articles required to be exercised or done by the company in General Meeting---" the And on appointment and removal of Managing Director of plaintiff company the Articles of Association of Candlex Limited in article 62 state that: - "The company in General Meeting (shareholders) may at any time appoint a the company--- and may Managing Director to conduct remove any Managing Director so appointed, and may fil! up any vacancy in the office of Managing Director---" the business of As already found above, the defendant is neitn2" a Director nor a Managing Director of the plaintiff company. The defendant is a mere shareholder of the plaintiff company. He is therefcre interfering with the operations of the plaintiff company when he writes memos and advises department managers that they should be reporting to him. Further, the defendant is well advised to note that 2n 7™ August 2000 the plaintiff company's shareholders appointed Mr Michael Hubbe to be Managing Director of Candlex Limited. This puts to rest as to who is the plaintiff company's Managing Director. Is the Defendant being oppressed as a minority shareholder and what is his remedy? It has been found by this court that the defendant is a minority shareholder. There is no evidence though that he s being oppressed. The defendant should not take the law into his own hands and impose If he thinks he is being himself as one of the people in management. oppressed, as such minority shareholder, then sure! Section 203(1)(a) of the Companies Act may be employed by him to get redress in a court of law. Section 203(1)(a) of the Companies Act states, /nfer alia, that: - "Any member of the company may apply to the court for an order under this section on the ground that the affairs of the company cre being conducted or the powers of the directors are being exercised in 1 manner oppressive to one or more of the members or in disregard of his or heir proper interests as members of the company---" We have already found that the defendant offered no evidence to support his assertion that he is being oppressed by reason of his being that he is being a minority shareholder. The defendant could feel oppressed but he is not. The problem is that he wants to manage the plaintiff company when, under both the Articles of Association of the plaintiff company and the law, he can not be allowed o do so. For the reasons given above the plaintiff company has made out its case against the defendant in both legal actions. Conclusion Is the plaintiff company entitled to all the reliefs sought in the consolidated action? it for unlawfully interfering sought. We think that in the plaintiff company or Although we have found that the plaintiff has made out its case against the defendant it does not necessarily follow that it will get all the plaintiff has not the remedies demonstrated the loss or damage it has actually suffmred as a result of the defendant's conduct in interfering with the management and administration of the plaintiff company. For this reason, the court refuses to order that the defendant should pay damages, to the the and plaintiff, -nanagement for allegedly procuring administration of breach of contract on the part of the employees of the plaintiff company. The above finding does not, however, mean that the plaintiff if the defendant's company may not in future suffer loss or damage. In that event, we find that the plaintiff's conduct is not stopped. prayer for injunction must succeed and an order of i1junction is hereby granted restraining the defendant by himself or 03, his employees or agents or any of them or otherwise howsoever from xolding himself out as the Group Chairman or Managing Director or dirz:tor or manager or employee of the plaintiff company and from interfering directly or the plaintiff indirectly in the management and administration of company. Further, it is the order of this court that an injunction should issue and is hereby granted restraining the defendant by himself or by his servants or agents or otherwise howsoever from being or remaining in or entering upon the plaintiff's land and premises comprising two office rooms on Plot No CC 936 in Maselema, in the City of Blantyre. We make the following further orders: - (a) The defendant shall deliver up possession of the plaintiff's land and premises comprising of the said iwo office rooms on Plot No. CC 936 situate in Maselema in the: City of Blantyre. (b) The costs of, and occasioned by, this consolidated action are awarded to the plaintiff company. This disposes of the consolidated action herein. Pronounced in open Court this 8™ day of July 26743 at the Principal Registry, Blantyre. F. E. Kabanda JUDGE Candlex Limited vs. Mark Katsonga Phiri