Lamise Trading Limited (Suing in its capacity as Shareholder of Intelligent Mobility Solutions Limited) v Kapsch Trafficcom AG and Anor (2024/HPC/0339) [2024] ZMHC 189 (12 August 2024)

IN THE HIGH COURT FOR ZAMBIA AT THE COMMERCIAL REGISTRY HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: 2024/HPC/0339 LAMISE TRADING LIMITED (Suing in its capacity as Shareholder of Intelligent Mobility Solutions Limited) APPLICANT AND KAPSCH TRAFFICCOM AG INTELLIGENT MOBILITY SOLUTIONS LIMITED 1 ST RESPONDENT 2ND RESPONDENT Before: The Honourable Mr. Justice L. Mwanabo on 12th August, 2024 For the Applicant: Mr. J. Chileshc of Messrs. Eric Silwamba, Jalsi & Linyam a Legal Practitioners For the l st Responde nl: Mr. S. Chisanga and Mrs M. Mwaba of Messrs. Corpus L,- F'or the 2 nd Respondent: Mr. J. S. Ka kondo appearing as Director Legal Pract itioner s RULING Cases referred to: 1. Chrispin Daka and Chikumtso Phiri v Elliot I nternational L imited v Anne Valerie Patricia Wilkie (Appeal No. 153 of 2021) 2 . ZCCM Investment Holdings PLC v First Quantum Minerals and Others, Appeal No. 92 of 2020 3 . Konkola Copper Mines, Vedanta Resources and Milingo Lungu (Sued in his capacity as Provisional Liquidator of Konkola Copper Mines Plc) & Others, Appeal NO. 128 of 2021 CAZ/08/32/2021 4 . Foss v Harbot tle (1843) 2 Hare, 461 Rl Legislation referred to: 1. Companies Act No. 10 of 2017 2. Rules of the Supreme Court of England 1999 Edition (White Book) 3. Black's Law Dictionary 11t h Edition 1.0 APPLICATION 1.1 The Applicant herein filed ex summons for leave to commence a d erivative action on 13th May, 2 024 against the 1st Respondent. 1.2 The application was made pursuant to Section 331(1), (2) (a) and (3) of the Companies Act 1(the Act) and was supported by an affidavit, skeleton arguments and list of auth orities. 2.0 INTRODUCTION 3.1 The Applicant herein filed an application on 13th May, 2024 for leave to commence a derivative action against the 1st Respondent for a lleged breach of fiduciary duties and for consequential losses suffered by the 2 nd Respondent. 3.2 The 1st Respondent is a major shareholder in the 2 nd Respondent whilst the Applicant is a minority shareholder and brings t h e application herein in that capacity. 3.0 APPLICANT'S EVIDENCE AND ARGUMENTS 3.1 The basis of the Applicant's application is that the 1st Respondent holds 51 % shares in the 2 nd Respondent while the Applicant holds 49% s h ares. The Applicant is of the view that the 2 nd Respondent is entitled to an action against the 1st Respondent for breach of fiduciary duties and a draft statement of claim was exhibited. 3.2 It was further stated that the 2 nd Respondent has an upper hand over the 2 nd Respondent such as attempts to wind up the 2 nd R2 Respondent thereby sabotagin g th e 2 nd Respondent. The Applicant produced a decision of th e Court of Appeal m a rked "ZEN7'' where the issue Applicant intervened to avert th e actions of the 1st Respondent over t he 2 nd Responde nt. The Applicant further alluded to t he issue of being side-lined in key d ecision making processes that had a dversely affected the Applicant and the 2 nd Responden t. 3.3 In a rgui.ng the a pplication, the Applicant reproduced Section 331 of the Companies Act 1 and cited t he case of Chrispin Daka and Chikumtso Phiri v Elliot International Limited v Anne Valerie Patricia Wilkie 1 wh e r e the right of a shareholder to bring a claim by way of derivative action seeking relief on be h a lf of a company for a wron g done to a company was endorsed citin g the earlier case of ZCCM Investments Holdings Plc V First Quantum Minerals and Others2 • 3.4 The need to obtain leave prior to bringing an action as was explain ed in the case of Konkola Copper Mines, Vedanta Resources and Milingo Lungu (Sued in his capacity as Provisional Liquidator of Konkola Copper Mines Plc) & Others3 was referred to. I must simply state that I h ave duly taken into account the r est of the arguments by the Applicant including the position that a d erivative action is a pe rmissible legal departure from the rule pronounced in the case of Foss v Harbottle4 that if a wrong is done to th e company, th e proper p erson to sue the wrongdoer is t h e company itself. 4.0 1 ST RESPONDENT'S EVIDENCE AND ARGUMENTS 4.1 The 1st Respondent's contention is mainly a de nial of t h e a lleged breach a nd that the a lleged actions of the l51 Responden t were actually actions of a director of the 2 nd Resp onden t for which n o liability can attach to a sharehold er. According to t he 1st Respondent, the Applicant had not disclosed a cause of action and that it will incur costs for no benefit in defe nding a baseless action. R3 4.2 The cases and the principles in the authorities cited by the 1st Respondent are mostly similar to those cited by the Applicant. The other arguments related to defining terms such as cause of action and the distinction between a company and its dir ectors to buttress the point that the actions complained of by the Applicant were not of the 1st Respondent but director of the 2nd Respond e nt. 4.3 The 1st Respondent contended furthe r that there was an earlier derivative action whose withdrawal can only be with leave of Court but that discontinuation of that action was without leave of Court. 5 REPLY 5.1 The Applicant filed a reply whose gist is that in an application for leave to com mence a derivative action the following are the considerations: 5.1.1 likelihood of the proceedings succeeding; 5 . 1.2 costs of the proceedings in relation to the relief likely to be obtained; 5 . 1.3 action a lready taken , if any, by the company or its subsidiary to obtain relief; or 5 .1 .4 in terest of th e company or its subsid iary in the proceedings being commenced, continued, defended, or discontinue d, as the case may be. 6.0 ANALYSIS AND DECISION 6.1 I have considered the affidavit evidence and arguments by the parties. The application herein is for leave lo commen ce a d erivative action. My starting point in determining the application is to consider Section 331 of the Act 1 which provides as follows: "331. (1) Except as provided in this section, a director or an entitled person shall not bring or intervene in any proceedings in the name of, or on behalf of, a company or its subsidiary. R4 (2) Subject to subsection (4), the Court may, on the application of a director or an entitled person, grant leave to- (a) bring proceedings in the name and on behalf of the company or any subsidiary; or (b) intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or subsidiary, as the case may be. (3) Despite the generality of subsection (2), the Court shall, in determining whether to grant leave in accordance with that subsection, have regard to the- (a) likelihood of the proceedings succeeding; (b) costs of the proceedings in relation to the relief likely to be obtained; (c) action already taken, if any, by the company or its subsidiary to obtain relief; or (d) interests of the company or its subsidiary in the proceedings being commenced, continued, defended, or discontinued, as the case may be. (4) The Court may grant leave, in accordance with subsection (2), if satisfied that- (a) the company or its subsidiary does not intend to bring, diligently continue or defend, or disconti nue the proceedings, as the case may be; or (b) it is in the interests of the company or subsidiary that the conduct of the proceedings should not be left to the directors or to the determination of the members as a whole. (5) A notice of the application, made in accordance with subsection (2), shall be served on the company or subsidiary. (6) A company or its subsidiary- (a) may appear and be heard; and RS (b) shall inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be. 6 .2 In the case of Konkola Copper Mines, Vedanta Resources and Milingo Lungu (Sued in his capacity as Provisional Liquidator of Konkola Copper Mines Pie) & Others3 it was held, in ter alia, as fo llows: "In our view, on a proper construction of section 331 of the Companies Act supra, it is evident, that a director or an entitled person shall not bring or intervene in any proceedings in the name of, or on behalf of, a company or its subsidiary, without the leave of the court. We accept the 2nd to 4th respondents' submission to the effect that the appellants ought to have sought leave to bring the action on behalf of the company." 6.3 In the same case of Konkola Copper Mines3 th e rationale for a derivative action was pronounced as follows: "The starting point for our consideration is the rule enunciated in the case of Foss v Harbottle supra. A clear statement of the rule was stated in the case of Edwards v HalliwellB where Jenkins LJ stated that: "The rule i n Foss v Harbottle.,. comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or associations of person itself Secondly, where the alleged wrong is a transaction whi ch might be made binding on the company or association and all its members by a simple majority of the members, no individual member of the company or associat ion is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company is i n favour of what has been done, then cadit question. No wrong has been done to the company or association and there is nothing in respect of which anyone can sue." R6 In the case ZCCM Investments Holdings v First Quantum Minerals and 6 others supra, we stated that the disadvantage of the rule is that it could allow the majority to plunder the company, leaving the minority without a remedy. We noted that exceptions to the rule have therefore been developed as pronounced in the Foss v Harbottle supra. We therefore, went on to state that a shareholder may bring a claim by way of a derivative action seeking relief on behalf of a company for a wrong done to i t. A derivative claim is one where the right of action is derived from the company and is exercised on behalf of the company. 6.4 Of paramount impor tance from the reading of Section 331 of the Act 1 and t h e case cited above of Konkola Copper Mines3 is that the derivative action should be motivated by the desire to serve the interests of the company and not the direct interests of the person suing. The grievance must be that of the company and n ot th e person applying for leave to commence such an action. 6 .5 In the matter before me, the Applicant's application for the derivative is to make good the consequen tia l losses alleged to h ave been suffered by the 2 nd Responden t as a result of the 1st Respondent's breach of its fiduciary duties towards th e 2 nd Respondent. 6.6 What th e 1st Respondent has raised in opposition to t h e application are mostly substantive issues relating to the a lleged breach. It is therefore p r emature for me to determin e those issues at this stage. Th e issue of whether the actions complained of were done by a director whose actions is alleged not to be binding on the 2 nd Respondent cannot be dealt at the stage of dealing with th e application for leave. The issues raised are what can for m part of the 1st Respondent's defence to the substantive action. I agree with the Applicant's conten tion that the issues to be determined at this stage are clearly outlined under Section 331 of the Act 1 as being: R7 6.6.1 likelihood of the proceedings succeeding; 6.6.2 costs of the proceedings in relation to the relief likely to be obtained; 6 .6.3 action a lready taken, if any, by the company or its subsidiary to obtain relief; or 6 .6.4 intere st of the company or its subsidian; in the proceedings being commenced, cont inued, defended, or discontinued, as the case may be. 6 . 7 I p ose to mention a t this stage and say something about the Power of Attorney produced by the 1st Responde nt. IL is n ot dear wh ere the same was executed from. Furth ermore, looking at the attestation clause, the names of the signatories are not stated and t h eir capacities or posi tions in the 1st Responde n t a re not stated. The document itse lf though indicated to be a deed it is not sealed and delivered as the common seal of the 1st Respondent was not a ffixed. A d eed is defined by Black's Law Dictionary 11 t h Edition3 as follows: "A deed is a writing sealed and delivered". Therefore, the manner the Power of Attorney in issue was executed is not compliant with what it purports to be. 6 .8 I h ave looked at the draft statement of claim exhibited by t h e Applicant and find that the same h as ra ised credible claims and the proceedin gs have prospects of success subject. to the evidence to be adduced by the parties. According to Sectio n 331 of the Act 1, the main contende r to an application for leave to comme nce a deriva tive action is a company on whose beha lf the action is in tended to be commen ced which is the 2 nd Respondent herein. It is th at company to dispute the presence or absence of the requireme nts outlined by th e Act. However, the 2 nd Respond e nt failed to file its opposition to the a pplication despite several extensions given to it. As a Court I could n ot keep postponing the h earing a nd determination of this application due to the 2 nd Respondent's internal failure to appoint R8 advocates hence my decision to proceed to determine the application without any documents given the 2 nd Respondent's position to the application. Ther e is no veritable evidence to m ilitate against the granting of the application herein. Moreover, the d ecision of the Court Appeal produced by the Applicant gives credibility to the application . 6. 9 As regards the claim that ther e is multiplicity of actions due to an earlier derivative action, I find no evidence to support that assertion as n o order or ruling was produced by the 1st Respondent where such leave was granted. Ther efor e, that argument lacks merit. 6.10 After considering all the evid ence before m e, I find that the Applica n t's application has met the t h reshold for me to grant an order for leave to commence a d erivative action. I accordingly grant the applicant leave to commence a d erivative action in the n a m e a nd on b e h a lf of t h e 2n Res ondent. Costs shall be in the caus e . Lastone Mwanabo HIGH COURT JUDGE R9