Export Trading Limited v Chimanga Changa Limited (2019/HPC/0555) [2020] ZMHC 442 (3 March 2020)

IN THE HIGH COURT FOR ZAMBIA AT THE COMMERCIAL REGISTRY HOLDEN AT LUSAKA (Civil Juris diction) BETWEEN: 2019/HPC/0555 EXPORT TRADING LIMITED APPLICANT AND For the Respondent :'1r .-\. Roi. Jt1rrs of AUi·ecl Ru /Jerl s & Company RULING On . Hot ion to [l1srlf1 :•;(' f),. ( ·, l.'>t:, 1)/1 Pnint . .:; ,.~( Lem' Legislation Referred to: (i) The Corµonite Insolve ncy !kl No. lJ 1) f 2U l 7 in Sl'<'lions 14 , 15, 16, 22, 25, 26, 27 , 32 Rules of Court: (ii) The Rules of the S up1·enw C nun .. r England 196:'l. 111 C>rclcr 2 Rule 2. Order 5 Rule 3. 14A f~Hh· I ,md 3.1 l~ul<:' ~ Case Law: {iii) Anderson Mazokc1, Lt Ge11eru l Cliri ..... 1u11 Te11il>o. Uodfn;'!f 1Hiyc111da v Levy Mwana.wasa, The Elector<1/ Cuo1111i.~:,i()11 c,f Zwnbic1 i'.t Th e: : \rtorney General (2005) Z. R. 138 R I 1. INTRODUCTION 1.1 The Applicant moved thi s Court b_\" <1rigim1ting summons seeking in t he m ain to set aside thf' volunta r_v busin ess rescue proceedings ("BR Proceedings'') inslituled by the Respondent and the consequential a ppoinlment of a business rescue a dmini strator. 1.2 The Respondent did not reac t to tht:' merits of the action and instead deplo>·ed a motion for determin a tion of lhe Applicant's (. case in lzmine. 1.3 The motion was opposed by the Applicant bolh on the merits and on grounds of its p ropriety on account of alleged irregularity. I propose to deal with the issu e of propriety first before conside ring each substa ntive lim b of the three pronged motion. 2. PROPRIETY OF RESPONDENT'S PRELIMINARY MOTION 2.1 Th e Applicant invill'd thi s Court to dis miss lhe Respondent's moti on for alleged failure to comply \\'ith: (i) the threshold requirement (of giving notice of intention to d efendanr) under 14A/2/J of the Rules of th e Supreme Courl of England 1965 ltlw URSC''): a nd (ii) the requirem ent undL'r 33/ 3/ l of the RSC to seek a pnor Cou r t order rn fram e pre li rni n n ry issues as opposed to the self-help initia tive of the RL'!ipo11clcnt to s~ llle its own qut'stions for detl'rmini'lt ion. 2.2 If established, the said alleged lapses would amount to an in-egularity in terms of' Order 2 Ruic 1 ( 1) of the RSC. 2.3 However, according to Orclrr J. Rule '.2 and explanatory note 2/2/4 of the RSC, the right to redress an irregularity can be waived if a party takes an>' fresh step \\'hich would onl.v h ave been taken if the irregularity did not exist. 1 2.4 In the case before Court. the record s how:; that on 18 February ,. 2020, the Applicant filed a n affidavit cll1d arguments in opposition to the Respond ent's motion on th e merits. Such a step to defend the m otion on the merits \\'Ot1lcl surely only have been relevant if the alleged irregula rities did not exist. 2.5 The Applicru1t therefore waived the right to fault the Respondent's motion for n on -compliance \\'ith the Rule s of Court. •·212 2. - Application to set aside f or 1rre91dc,111;, (] }An applicaHon to set aside for !_,·regularity 11•Iy 11m,t?ffii•1gs. cmy s tep taken irt all!) p ror.cedi11r1s v r <lll!J dor1/ll1e11t .. 11,d(/111<' 11/ L,,. on/,, ,· /i1 <:>r e111 shall not be allowed unless it is made 11,11!1i11 <1 r c <1! ;011ri/JI.- ti11 1, · ui:d before the party applying has taken any fresh step <1.fte.r becomittq aware qf_the i[[Qgularity 2/2/4 "Take n any fresh s t ep a Ji er J;eco111111y <H< ,,.,..._,, u( rite tl'l <i!!JU!unty A " fr§5-?.h ... ~.~ .. [or the purpose o[ ttr.is_ry_le i s urw s ufficient to constitute a waiver of the irreqularit11. "In order to estahlish a _wafoc r _!JQU must s how that the party has taken s ome .. ~t.,(ll?_,YJ_h_icl.1 .is only ncccssar11 or only .tf§!ll...'t!_l_j f_ the objection has been actually waived or has never been entertained /i?e111 11 S tem / I S92J 66 L. T. 469. pe1· Ccwe J at p.4,1)." (E mphasi s a rlclc·cl ) R3 2.6 In the premises. the issue of the a pparent irregularities cannot be raised at this late stage and I will 1;1ccordingly proceed lo determine the Respondent's motion on iLs mcriLs. 3. ISSUE NO. 1: "That the Court has no jurisdiction t.o heur Lhe (J riginating summons and ought to dismiss the action c,s pruc:eclu rally 111 con ect in view of the default by the Applica nt in not obtc1ini119 either the written consent of the Respondent's business rescue aclministrotor or the pn'or leave of Court to commence legal proceedings against the Respondent as p er section 25 (1) (a) and (b) oft he Co,porate Insolvency Act No. 9 of 2017' 3. 1 Section 22( 1) of the Corporate Insolvency Ac t No. 9 of 2017 ("Cl Act") confers a statutor>· right on any affe<:ted person to apply to Court in objection to a reso lution to begin voluntary business re scue proceedings i-BR Proceedings"). 3.2 The Appli ca nt , t1s a n a lleged ;.1ffcctc-d en tity. has s ought to exercise th at right. The Respo nde m has in this limb asserted that the exercise of th e sa id right is subj ect to thf' moi-at.orium under section 25 of the CJ Act whi c h inte r alin dictates in 2 5( 1 )(a) and {b) that legal proceedings cannl)t ue bro ught against a company during BR proceedings \\' it huut thl' \\'rillcn consent of the BR administrator and prior leave or Court. 3.3 Th e questio n th a t I mu s t the r1:·fore- n: solve is whe ther the exercise of the s lat ulory righl c:unk rrc-cl by scc ll\m 22( 1) is subject Lo the restriction in section 25. 3.4 On the discourse of interprermion of scatu1rs. the Supreme Court guided as follows in the case of Anderson Mazoka, Lt General Chri.ston Tembo, Godfrey Miyanda v Levy Mwanawasa, The Electoral Commission of Zambia & The Attorney GeneraP. wherein it was held inrer ci/io: • ;. It is trite law tftat the primary 1-ule of interpretation is t hat words should be given their ordinary grammatical and natural m eaning. Ii is only !f there is ambiguity in the natural mecming of the words cmd the intemion cannot be ascertained from lhe words used by the legislature, that recourse call be hord lo the other prin ciples o/ inlerpretalion.''3 (Emphasis added! 3.5. Coming to the case before Court, section 22 (1) of the CI Act is v.·ordcd: ~22.(J J Subiect to subsection (2). at nny rime after the adoption nf <1 r~sol11tio11 os ~pt'cijied ill section 21 and until the adoption of n h11si11ess n:sc:ue plan in accordance with section "13. an affected person may apply to a Court for an order- (a) setting aside the resolution on the grot111cls that- (i} there is 11 0 reoso11c1/Jfc> bc,sis for believing thc,t the compnny is Jinrrncinfly distressed: (ii) ther e (s 110 rcnsu11oble prospect for rescuing the compw1_tl,' or l {2005) Z. R. 138 J lbid ,.p. 159 (lines 5-10) • • the company hos failed to satisfy (iii) procedural requirements sel out in. section 21; the {b) setting aside-:: //w uppoi11I111en1 of tlie IJusiness rescue admiriis1raw,·. un the 9rmu1cls thar the business rescue administmt<ff· (i) is nor qualified os pro1.'ided in section 30; (ii) is not independen I of the company or its mancigement: or (iii) Tacks the nec.:essory skills, huving regard lo 1J1e <.:umpony's circwll~lcmces; or {c) requ111ng rhe business rescue administrator ro provide secwity in an nmm111r ond on term-" and conditions that 1he Cow, consider~ necessnry, rn secure 1he interest of the compa ny ond ony o.t)~ctecl person." 3.6 Quite dearly the invocation of section 22( 11 is subject to or limited by subsection 2 the reof \\'hich for its pc:1n reads: "/2) A director who uoted in favo ur of a resolution to begin business rescllt'..' pro<.:eeding$ us prnt•icled in section 21 shall not u.pply to the Courl. us SJ.k!C~(ied in suL>sec1io11 (1), to set a side the resolution nr tlw oppo1nrme11t of the business rescue administrator, 1.111/c s s rht' dirr'clor sotisjies the Cou rt that in supporting the resolution, the d irector c1ctecl in good faith, on the basis of i 11jt-m11ntio11 tlwt wc,.s s ubsequenl.ly found to be fcds e or misleodin9." 3.7 There is no m entio n in sec tion 22 Lb.at the right conferred in subsec tion (1) is sub_ject t. n :•1m· ol h er pHrt or the C l Ac t besides s ubsection (2). • • 3.8 The end result is thnt tht-rc is no interpl ay between section 22(1) and 25( 1) of the CI Act which by implication means thal Lhc right to object to a resolution lo commence BR proceedings is not captured by the moratorium aga inst legal proceedings. 3.9 The logic is also und eni::ibk as an ~1 pplication pursuant to section 22(1) of the CI Act is not a kgal proceeding against a company in BR proceedings bLtt inste;:i <l a n acliun LO challenge the validity of a resolution to commence voluntar.,· BR proceedings. 3. I O In other words, the st1 bjet:t of c"t section 22( I) application is not a co mpany but the very decision to p lace a company under voluntan· BR proceedin~s both in term s of the procedure and me rits of that decision . This 11rn~· be contrasted with the position under s<.:c lio n 25( 1) where then· is u n :"slriclion o n proceedings against a company which is under BR proceedings and not a res tri c tion on proceedings to challenge the decision to place a company Linder BR procc:('dings . 3.11 The Applicant did not therefore require the conse nt of the Respondent's BR ad111ini:-;t rnto r or lhe prior consent of this Court to commence this uctiun . 4. ISSUE NO. 2: "That lhe relief, sought hy the App!icu111 in µurogrnphs I w1d 2 of the Originating Summons os u•c/1 o.c.. ,-,r/ic r cnntenrious issues raised in the Aj]i.davit in support of orifJi11miu9 ~111 111111.,n s do 1101 }(11/ wi1hi11 the purview of Order 30 Rule 11 of th e Hiyh Court R11/es and us such the Applicant ought to have commencecl thl!:' action Liy wny of iu1-it of swnmons and not originating summons.,. R, • • 4.1 The entire issue rests on the ck-terminat ion of \\'hat is the correct mode of commencement for ::1 statuto1·y application in objection to the commencement of voluntary BR proceedings . 4.2 Section 22 of the Cl Arr which confers the right is devoid of procedure on mode of commL"ncemcnt and so Loo is the rest: of the Cl Act and its subsidiary k gis la tinn as at dc1 te of commencement of this action . l have a lso c h ecked the High Court Rules under Chapter 27 of the Laws o f Zambia a11d nut found any prescription on mod e of commen<.:em ent of c1 statutory application to the High Cou r t. 4 .3 I say High Court bl?cause sec tion 2.2 ( 11 of the CI Act slates that the re qui s ite a pplication mc1.y be m a d e to "a Courf' while section 2 defines ··coun .. as the "J-l igh Court ". To fill this lacuna in our domestic rules of C ourt, m~· n ·coursP is to m,.•ok<." section 10 of the High Court Ac t whic h imports the RSC. The Applicant's Counsel were swift lo point out orck r ;:, Rule 3 of the RSC as a gap filler. It rea ds: "5/3 3 . Proceeding:::. 1tJh1ch 1111.1s t be lwyw, l>y ori9i1wring summo ns Proceedings bt/ which an application is to be made to the High Court or a judge thereof under any Act must be begun bt/ oriqinat!!.19 summons except where by these rules OT" bi/ or under am/ .4ct the application in question is exp,-esslz{ required or authorised to be made by some other means. This rule does not c1pply lo an application made in p e11din9 proceedings. (Empha sis added) • 4.4 I accept that submission as sound and rul e that unless and until there arc Court proceedings rules promulgated under the Cl Act, a statutory application pursu a nt tu section 22(1) must be brought by originating summons to challenge a decision to commence voluntary BR proceedings. 5. ISSUE NO. 3: ''That the rightful pa,ty ru be cited cis "Respondent" in the Originating Summons should have been ··C,1imcmyo Cho 119a Limited (under ·Business Rescue Proceedin gs'') and 1101 tlie n1.m1e o( Clli1no119a Changa Limited.'. 5.1 The Respondent has taken issue with the fact that the caption on the originating pror.ess a nd su bsf-'qLH:n t Court papers does not state next to the nAmt' (,f llw Respondent that it is under BR Proceedin gs. 5.2 Th e R(;"s ponden L ha ~ askt·d this Co urt tu draw an ,malogy \. Vitb. the position \\'here a compan:, is in receivership suggesting that just like in r eceiver shi p. there is a shift in locus standi from the Company Lo the BR admini:;trator. 5 .3 Tempting as the Rc-:-:.pondent's argument may be. I am not persuaded by it as: (i) the CJ Act express!\· l't'CJLtires tht> inriclent of receivership to be stated a long \\'ill! tli1.: 11 1:rn11: of a ..:om pany on its official statutory a nd comm uni cations e tc. see section 15 of the CI Act. There is however. no such requirement with respect to BR proceedings: .-1 11(1 • (ii) lhe Cl Act recognises the shift of /new, stw1di to the receiver by providing for lia bilit_\· of t h e receive r on c ontracts (section 14 ) and for disposa l of the 1:o m1x 111ics· a ssels b_v the receiver (section 16). Thi s ca n be contrasLecl with Lhe posilion under BR proceedings as th e re 1s no liability for the BR admini strator o n con tn=tcts a nd the BR administrator's power is confined to just man agem en t a nd control of the company (see section 3 2( 1)) ,,·hile th e powe r to sell is exe rcised not in the n ame of the BR adm inistrator but still in the m~m <" of the compan_,· (see section 26( l )a a nd 26(3)) and indeed pnwer to do 0 1 lwr acts is st ill in the name of the compa ny e .g. post BI~ proceedin gs fin a n ce (section 27 (1) a nd 27(2)). 5.4 In th e premisl's I a m indm cd lO reject th e invitation to faul t the caption or the l~c spundt"n t in tllcsc proceed ings whic h doe s not. as a rule, have to stcHt" th::1t the Re:-s p o n dent is ';under BR proceedings" . 6. CONCLUSION AND ORDERS 6.1 Under the a uspict's of tl11:· C l Acl. the stakeholders of a company can decide to place it un der vol\1ntar_\· business rescu e by passing a membe rs' resolution pursuant rn sec-t.iun 21 . 6.2 Any person a ffected by such a decision has a s tatutory right to · challenge it (proccdun.,1 lly a n d on the m e rits) by way of an application to the High Cnun purs uant to section 22( l) of the Cl Act. 6.3 Since the subject of an applica tion pur::;uam to sectio n 22( 1) is the decis ion [and not the compn,wj . such an application is not a legal proceeding against th e compnn_v as envisaged by section 25( 1). Consequently. the mnr;:itorium therrun ckr and requireme nts for leave of Court and consent of th e business administrator are of no application. 6.4 The only fe tter to the- f •xt·1·c isc· of the s tatutc11;-· right under section 22(1) is subsection (21 \\·hic-h (as c1 gen cn:11 rule) bars a director \\'ho supported the BR resolut ion from la ter raisin g objection. 6.5 In the absence of prm·isin n ~ in 1.hc primary and / or s ubsidiary legislation for the rrnidt' of lht- s,,icl application. Order 5 Rule 3 of the RSC fills the 1.~cunc-1 b_\· prt'~;cribing 1he origina ting summons procedure as applicable. 6.6 Unlike receiv~rship. th e c1ppointnwnt of a BR a dministra tor does nor resu lt in transmission of i<,rns stondi from the compa ny. There is no requirement for rb c 11;11 11 ( • c;:q-nion or a cumpa n_,· to indicate (in Court proceedin gs) tha t i1 is under BR. 6 . 7 On the totality of thL· fnrL'going. the pn. .. liminary motion is bereft of m erit on all ground s and is dismissl.'J a cconlingl~' \\'ith costs. RI I 6.8 However, m:ving to the no,-clLy of the issues raised (which is an incident of the infanc:·, of th e rdc\·;:im la\\' on our statute books), I will grant the Respondent k·a ,·l" lo app<:'al. 6. 9 Having disposed of th e preliminrll"y i ssu es, r issue the follmving directions for progression ul the su bstantive matte r : (i) the Respondent must fik a nd serve its affidavit and arguments in oppositi on to the originating summons by 13 Ma rc h 2020: (ii) the Applicant s h .=i ll h,1vt· the liberty to file and serve its documents in n'pl_,. b:, 20 Ma rc h 2020: and (iii) the hearin g of the urigin a 1ing summons ~hall follov,, on 24 March 2020 at 08:.30 huurs. Date d thi s --------- ---·-· -- · · · -·-·dm· of•· · ----- --· ---------- --- . . · . . --- -- --2020 K. CHENDA JUDGE OF THE HIGH COURT R I.?