Kanyinji v Perfect Milling Company Limited and Another (HP 1054 of 2012) [2015] ZMHC 144 (29 September 2015)

IN THE HIGH COURT FOR ZAMBIA , AT THE PRINCIPAL REGISTRY , AT LUSAKA (CivilJurisdiction) BETWEEN: 2012/HPjl054 PETER KANYlNJI APPLICANT , AND PERFECT MILLING COMPANY LIMITED MADISON INVESTMENT, PROPERTY AND ADVISORY COMPANY LIMITED 1ST DEFENDANT 2ND DEFENDANT Before the Han. Mrs. Justice A. M. Banda-Bobo in Chambers on the .........')~.j~.. I....of September, 2015 I FOR THE PLAINTIFF: I FOR THE RESPONDENTS: Mr. K. Mwiche - Legal Counsel Mr. P. Songolo - Phil song & Partners Madison Investment Property & Advisory Co. Ltd JUDGMENT Cases referred to: 1. Solomon VS. Solomon (1897) AC 22 (2) 2. MerChandiselTransport Limited VS. British Transport Commission (1962) 2 QB 3. Zambia Consolidated Copper Mines Limited VS. Richard Kangwa and Others (SCZ Judgment Nd. 25 of 2000) , 4. Hotel and Tourism Institute Trust VS. Happy Chibesa, Appeal No. 58 of2001 5. Mopani Copper Mines PLC VS. Mwape Chimukumbi and 51 Others (SCZJ No.12 of 2011) , I I I I I I 6. Newston Siu1anda and Others vs. Foodcorp Products Limited (SCZ J NO.9 of 2002) 7. Dimb1ey& Sons Limited VS. National Union of Journalists 8. Redri1za Limited vs. Abuid Nkazi & Others (SCZ J NO.7 of 2011) 9. Adams VS. :Cape Industries pIc (1990) Ch 433 10. Ord VS. Belhaven Pubs Limited (1998) Bee 607 11. Happy Chibesa 12. King Farm Products Limited, Mwanamuto Investment Limited vs Dipti Ran Sen (1984) 1 All ER 751 (executrix) and Administratrix of the Estate of Ajut (Sarab Sen) Vol. 2(SC)) I (2008) (ZR72 13. Sank of Zambia VS. Chibote Meat Corporation Limited (SCZ J. No. 14 of 1999) Legislation and other Works referred to: 1. Oowers Principles of Modern Company Law 2. Cases arid Materials of Company Law 4th Edition, Andrew Hicks and S. H. I 000 at page 516 3. Section 57 of the Companies Act I By way of Writ of Summons and a Statement of Claim, filed on 12th Februlry, following r lliefs against 2012, the plaintiff, Peter Kanyinji claims the the I" and 2nd defendants herein, namely: (i) (ii) (iii) (iv) (v) Payment of a sum of K312,693,470.00 (unrebased) bein~ gratuity and other benefits upon completion of I contract, I I the same amount to be paid by the In the alternative, 2nd defendant, who acknowledged the debt since the 2nd aefendant formed part of the same group of companies as the 1" defendant and who operate as a single economic entity, I I Interest at I December, 2009, the current bank lending rate from 31" Any bther relief the Court may deem fit, and ICosts. J2 I I I I According to the Statement of Claim, the plaintiff was Managing Director (MD) of the 1" defendant company, a private company engaged in manufacturing and milling, while the 2nd defendant was also a private company and operated as an Investment and Property Development Company. I It was stated that both defendants belong to the Madison Group of Companies which group of companies operate as a single economic unit going by their condubt and actions. The plaintiff, according to the statement, entered into a contract of employmlnt with the I" defendant for a three year period as General Manager (GM) from I" January, 2007. He served the entire con~act period. According to him, at successful completion bf the contract, he was due to gratuity at 25% of his basic salaryj for the 36 months of his contract. His calculations brought the gratuity to K312,693,470.00 which he requested to be paid. For some reason, the 2nd defendant admitted to only owing him the sum of K207,859,683.00, without stating how it arrived at tJat sum, and that the 2nd defendant assured him that the outstanding amount would be paid upon availability of funds and based oh seniority of claims. Despite this and several reminders from his counsel, the money has not come through. As a consequence, so he stated, he has suffered 10sJ and damage as he had been deprived the use of his money, hende the claims before Court. ~3 The 2nd defendant settled appearance and defence on 27th September, 2012. In its defence, the 2nd defendant said it was a mere shareholder in the I" defendant and merely invested in it. Further, thlt I it is a subsidiary of another company and that it was not privy to the contract of employment that the plaintiff entered intd with the I" defendant. It was also its defence that the amount lreferred to in the Statement of Claim was disclosed to it by Management of the I" defendant company as a shareholder in the I" defendant which disclosure was part of assets and liabilities dJring the period the 2nd defendant was negotiating to I dispose of its interest in the I" defendant company to third parties. Th~y denied being liable to the plaintiff for any amount; and so candot be held liable for any loss or damage suffered by the plaintiff arising out of the alleged relationship between the plaintiff and the I" defendant. In sum all the allegations were denied. The I" defendant not having settled appearance and defence, the plaintiff bbtained on 8th October, 2012, judgment in default of appearance bd defence in the claimed sum with interest at 8% from I" December, 2009 up to the time of that judgment and thereafter a the current Bank of Zambia lending rate until satisfaction. This matter is, therefore, with the 2nd defendant. Twowitnesses testified for the plaintiff at trial. PWI was th plaintiff, Peter Kanyinji. He testified that he had been an em~loyee of the I" defendant, as M. D for three (3) years J4 I I I • under a I I contract I of employment; which expired on 31" December, 2009. He showed the contract as appearing at pages 11 to 17 of his bundle of documents. It was his evidence that he wrote to th~ Board of the 1" defendant a month before notifying them that I the contract was ending and that he should be paid I his terminal benefits; but was not paid. It was his further evidence that although the contract did not have a grJtuity clause, management had, as per the letter appearing i~ the bundle of documents, written that he should be paid gratuity at 25% of the total earned during the contract period. Whln he was not paid, he wrote a letter to the Chairman demanding Ito be paid, as per letter at page 4 of the bundle of documents. It was his evidence that he received a reply from Madison Investments Limited, the 2nd defendant acknowledging that they were aware that Perfect Milling Company Limited was supposed to pay him fhe gratuity. The letter is exhibited at page 3 of the Bundle of Documents. I It was his avernement that during his tenure of office, there had been a lot of criss-crossing of functions which showbd that the two defendants therein operated as one entity. To bhttress he said that his letter of appointment and the contract of 11mploymentappear on different letter heads, namely, that the let er of confirmation written by the Board Chairman was on JESTIC Business Consultant headed paper, and not Perfect Millihg Company Limited letter head. He acknowledged :>5 that the 2nr defendants were shareholders of the I" defendant, but they were involved in the running of the 1" defendant. It was his further evidence that the involvement of the 2nd defendant Iwas discernable in that when he wrote to the Chairman of the Board of the 1,[ defendant requesting for his gratuity, th~ Managing Director of the 2nd defendant replied to the letter; a~ appearing at page 3 of his bundle of documents. He gave a further example of where a group of retrenched workers I wrote to th~ 1,[ defendant asking for their payment, and the 2nd defendant Jrote to him in his capacity as MD requesting him to avail them ~ith information regarding payment of gratuity of the retrenched workers; the letter is at page 19 of the plaintiffs bundle of documents. He alluded to the criss-crossing of functions of shareholders; directors and management of Perfect Milling Company Limited and the 2nd idefendant which made him conclude that the 1" and 2nd defendant were run as a single entity. This belief, according to him was urther accentuated by the fact that the letter at page 19 referred to above was acted upon and the retrenched workers from Perfect MillingLimited were paid by the 2nd defendant. One of these workers was a Sydney Mateyo. He saw this payment as at that time he was still MD in the 1" defendant company; and the payment voucher was headed Madison Investment. He referred to ~ document appearing at page 5 of his supplementary bundle of dbcuments. On this point, he referred the Court to pages 6 to 7 to show that the cheque issued to Mr. Mateyo by the J6 2nd defendant was actually deposited and paid. He asked to be paid in the same way since the 2nd defendant had acknowledged that Perfect Milling Ltd owed him and that he should be paid .. accor mg to semonty 0 Calms. d. fl' I Under cross examination, I I employed as a General Manager from 2007 to 2009, though the first appointment had been that of a Managing Director, but this the witness indicated that he had been changed afJer Madison brought in a Group Managing Director. He pointed Ito the contract as appearing at pages 11 - 18 of his bundle of documents. The letter at page 18 of the bundles of I documents ~onfirmed him as the M. D in the 1" defendant. He however, s~d that although his appointment was that of M. D, there was nb contract showing his appointment as M. D., but that the contracJ before Court was that of General Manager in the 1" defendant. Further that there was no contract with the 2nd defendant but that the contract on page 17 was signed at the 2nd defendant; ~OUght it did not appear as a party. He went on to state his rolb as GM and that he reported to the Board of the 1" defendant. He acknowledged that the 2nd defendant is a shareholder in the 1" defendant and that though it is the majority shareholder, it is not the only shareholder. It was his response, when questioned, that the profits of the 1" defendant Jere re-invested in the company, but that during his tenure of fffice, he never declared any dividends to the shareholders. He denied that the company was insolvent when he was leavi l g. He stated that he was due a performance bonus :>'7 , at the discretion of the shareholders while in office, but he never received oAe; but denied that he was not paid due to none performanc~ of the company. He agreed when queried, that the 2nd defendaht advanced money to assist with operations of the 1" defendant; bd when referred to page 3 of the plaintiffs bundles of documeAts, he was quick to admit that this letter does not state that the 2nd defendant is liable for his gratuity. As regards the letter aJ page 19 of the plaintiffs bundle of documents, it was his evidenc~ that there was no admission of liability by the 2nd defendant Jut that they were aware of the terminal benefits due to the 1" defendant employees. I I I I I With regard to the Board of the 1" defendant, he said there were 4 - 5 members who represented the shareholder but was not aware who lPPointed them, but that a Mr. Chisenga was a Board Member of the 1" defendant. He acquiesced that it was unusual for a board member to get involved in the day to day running of the companr.. He did not know the Board members of the 2nd defendant, although at the time he was retiring, he was reporting to the 2nd drendant It was his further evidence in cross examination that he never received inktructions, as General Manager, that there was another grohp that took over, and could not say anything on Amazing FeJds; but that on his retirement, the 1" defendant was operational. He went on to state the role he played in Mr. Mateyo's do uments namely that he responded to the query from the Managing Director, but he did not draw up the documents for payment to I r. Mateyo. He acknowledged generating the letter J8 I I I at page 8 of the 2nd Defendant's bundle of documents. He agreed that there is an L. S. A. group of companies but not a Madison I Group of Companies. It was his response, with regard to the criss-crossihg of functions, that there was no memorandum, but rather lett~rs, and his instructions emanated from various corners and not just his Board. He claimed he had a legitimate claim agaihst his former employers for his gratuity, and ultimately ~greed that it was only his former employers who were liable for hi~ gratuity. In re-examination, it was his response that he was not the only former employee seeking payment from the 2nd defendant; and that other c10lleaguesfrom the I" defendant who left earlier than him were pld by the 2nd defendant. Further, tliat even though the 2nd defendant was but a shareholder in the I" defendant, the manner in which it conducted Dusiness showed that they operated as a single entity; as they ran the 1" defendant as their responsibility as each time he wrote to the l,t defendant, he would receive a response from the 2nd defendant. He said at one time, he had been told to indicate on the 1" defendant headed paper that it was part of the Madison Grhup of Companies. He was not aware when the L. S. A Group of coh,panies was incorporated in the group of companies. On his perfdrmance bonus, he stated that it was not a condition precedent tJ receiving his gratuity at the end of the contract, and no issue ha! been raised about his performance; and he did not run the combany down as can be evidenced from the fact that his 3"9 contract was not terminated. On writing for payment of his gratuity, it was his response that he wrote to the 1" defendant and not the 2nd defendant, although the letter at page 19 of his bundles cJne from the Acting Managing Director Mr. Don Maila at Madison Investment Limited. PW2 was Sidney Mateyo, a former employee of the 1" defendant. His evidence was that he was retrenched in 2009 and was paid his dues by the 2nd defendant as per documents at pages 5 -1 of the P. S. B. D. Ultimately, his evidence was that the I 2nd defendant paid him, even though his contract of employment was with pJrfect Milling Limited, the 1" defendant. In cross examination, he reiterated that he had been employed by the 1" defendant and not the 2nd defendant. He also agreed that I he was ret~enched as the company was closed in 2009, though he did not know why it was closed. Further, that at this point, the company was run by the plaintiff. He stated that the 2nd defendant ~aid him his terminal dues as they were the ones running tHe 1" defendant; and were shareholders defendant. in the 1" The plaintiff closed his case. The 2nd defendant opened its case and called to the stand, one Rita Kabihga Chisela, a Treasury and Finance Manager at Madison I~vestments Company Limited, the 2nd defendant. She confirmed hat I the 2nd defendant was a shareholder no . III the 1" I I defendant and that the plaintiff had been a G. M in the I" defendant. That due to the non-performance of the 1" defendant, a decision Iwas made to sell it and a buyer was found to that effect, and it was agreed that upon payment of a down payment of the purchase price, they would take over the running of the I" defendant; but ultimately the sale was cancelled. It appears though that about K200 million had been paid by the intending buyer and the Board of the 2nd defendant agreed to use that money to liquidate the debts of the 1" defendant, particularly that owed ~o former employees; who were in none managerial positions. Her further evidence was that and it was 10 be liquidated. Furthermore, the 2nd defendant, she found the I,t defendant had already been the company was non-operational that upon her joining acquired Jd the plaintiff was an employee therein, but that he never work' d for the 2nd defendant. It was her evidence that to her knowledge no terminal benefits were due to the plaintiff from I the 2nd defendant, but from the 1" defendant. Under cross examinatioA, she stated that the 1" defendant is still in existence but not op~rational and that if it was still in existence, it should communicate on its letter head. Queried further, it was her response th~t if the plaintiff had an issue, he should have written to the 1" d~fendant, who would communicate to him on its letter head. She then, went on to interestingly state that if a company stops usinJ its letter head and uses another company's letter head, it me!ms it is not operational but was unable to answer the question wJy, after the plaintiff wrote to the 1" defendant, it was ':S11 the 2nd defendant who replied. She however, went on to state that if the ~Iaintiff, on the basis of that concluded that the 2nd defendant had taken over the operations of the 1" defendant, I then he wab wrong; and this would be despite the fact that the letter writteh to him was signed by the M. D of the 2nd defendant. This was id reference to the letter at page 3 of the P. B. D. She did concedJ that the M. D did not sign as a Board member of the I" defendJt. She said that the plaintiff is owed by the 1" defendant. It was her evidende that a claimant in a company in liquidation is entitled to ~e paid from the proceeds of the liquidated company and not eldewhere. She was not aware if the law segregated when it cmhe to payment between the ordinary employees and those in m~agement. The witness acknowledged that PW2 was paid by thel2nd defendant. She said she did not know why the plaintiff wad not paid when others were paid. She conceded that she had ne~er read his contract and could, therefore, not know whether it las a condition that he should produce results before payment. In re-examination, when referred to the document at page 3 of the PBD, it was her response that the letter was signed by the Acting MD in his capacity as MD of Madison, the shareholders. Further prJssed, she said Perfect Milling Limited, the 1" defendant i~ not in liquidation, but was not operational. She reiterated t~at PW2 was paid from the K200 million paid from the cancelled sale of the 1" defendant and that those paid were I H2 unionized employees of the 1" defendant. She did not know why the plaintiff was not paid, but hazarded a guess that it could be I because th~ amounts available were not sufficient. The defence indicated that they would bring one more witness, but at the next hearing, the witness was not available. This coincided with the Court relocating to Ndola on transfer. The parties we)e agreeable to the matter being heard in Ndola. When the same bame up on 30th April, 2015, Counsel for the 2nd defendant, Mr. Mwiche indicated that he would not call any other witness and closed his case. Counsel for both parties opted to file written suBmissions. In his submissions, counsel for the plaintiff, Mr. Songolo went over the cl~ms and the status of employment of his client with the 1" defendant and that his employment was done by the Madison Group of Companies. He referred on this point to documentJ at page 11 to 17 of the plaintiffs bundle of documentJ. He also referred to the letter of confirmation as appearing ht page 18 and that the Madison Group of Companies actually cohfirmed the plaintiff in his appointment. It was his submission that the plaintiff was entitled to payment of gratuity wAich clause was introduced into his contract by way of a memorJdum issued by the 1" defendant, and as appearing on page 22 0 the plaintiffs bundle of documents. He submitted that conse~uently, the plaintiff was entitled to gratuity calculated at 25% of his basic pay upon successful completion of his I I I contract. It was his submission that for reasons known only to themselves! the 2nd defendant only admitted to owmg him ZMW 207, 859,683.00 and not ZMW 312,693,470.00. He pointed to page 3 of the plaintiffs bundle of documents and went to point ou~ that of interest is the fact that the acknowledgment of the debt is on the 2nd defendant's headed paper. I Counsel disparaged the 2nd defendant's denial of liability that the debt is oJed by the 1,t defendant and that this was totally incompetedt at law. To augment his case, counsel submitted on the separa~e legal personality of a Limited liability company. To buttress, e pointed the Court to the case of Solomon vs. Solomon' 6n the legal personality. He went on to look at the exception tb the rule enunciated in that case, which he said is that a cour can pierce the corporate veil and thereby legitimately disregard J company's separate legal personality where a group of companies in reality conduct themselves as one economic entity or Jnit, which according to him, is especially so and common \~th companies operating in a group. It was his contention fhat this is especially so where a subsidiary company, though a separate legal entity does not freely determine its business c~nduct but operates under instructions given to it directly or indirectly by the parent or holding company; by which it is controlled. To buttress, I was referred to Gowers Principles of Modern Company Law, 6th Edition, 148, where it is stated that: "In the case where the veil is lifted, the law - ignores the separate personality of each company in favour of I J14 I I economic entity the associated companies." constituted by a group of It was couhsel's contention that the evidence on record left no doubt operate thatl d throughout . I the transaction, the defendant clearly I as a smg e economIC enttty; an .. d h t at h teo hid' mg company c~led the shots throughout the period. He analysed the evidende that in his view supported his submission as the record will bhow. ! have taken note of his submissions to which! shall rever later; suffice to state that counsel pointed out in the evidence, instances lending credence to the assertion that the defendants clearly operated as a single economic unit and that the holding company clearly called the shots throughout the perlO m questIOn. I . . d' Counsel contended that besides the plaintiffs evidence, a perusal of the 2nd defendant's bundle of documents of 25th June, 2013 actually d~monstrated that the 2nd defendant and the entire group was deeply involved in the affairs of the 1" defendant, thereby making it legally valid for the Court to make a finding of I the defendants were operating as a single economic fact that unit. To bhttress, he referred to the 2nd defendant's documents appearing ~n pages 49 - 50 on the attempts to sell the 1" defendant by the 2nd defendant. The other documents were those I I I at pages 5! to 54. With regard to the document at page 54, Counsel cJntended that this showed that although the !" defendant ~as a separate legal entity, it was as a matter of fact answerable to the 2nd defendant, financially, commercially and economical!. It was his contention that the fact that the :;- 15 evaluation report was produced by the 2nd defendant for its own use strengthened the notion that although the l,t defendant had a separate legal personality, it did not freely determine its own conduct, but was financially, commercially and economically answerable to the 2nd defendant and hence under its control. Based on the evaluation of the evidence, counsel was of the firm conviction that despite its separate legal personality, the I" defendant was not independent as its affairs were controlled and managed br the 2nd defendant. To lend credence, I was referred to the case of Merchandise Transport Limited vs. British I I I I I Transport Commission2 I and to Lord Dankwerts W's judgment at page 206 - 207; from which he quoted a passage as the record will show. He then referred the Court to a decision by our own Supreme Court in the case of Zambia Consolidated Copper Mines Lir~ited vs Richard Kangwa and Others3 ; where the issue of op1eratingas one economic entity by two companies was dealt with. It was counsel's submission that similarly in this case, the plaintiffs evidence demonstrated that the 2nd defendant was clearl~ not overly scrupulous in observing any legalistic lines of demarcation in the name of separate corporate entities. He contended that the 2nd defendant easily picked up the liabilities of the I" defendant, despite the separate legal personality that existed. Counsel then moved on to submit on the issue of legitimate expectatiod based on the fact that the 2nd defendant paid the terminal b nefits for PW2 an employee of the I" defendant. It was argue I that such a payment raised expectation that the J16 plaintiff would be similarly paid. To buttress, the case of Hotel and Tourism Institute Trust vs. Happy Chibesa" (unreported) I was cited tb whit the Court said: "At 11w, if an employer raised legitimate expectation to any lemployee that employer is estopped from refusing to extend the same treatment similar circutnstances. " employer's employee conduct, that that the by in to Another cabe on the same point, Mopani Copper Mines PLC vs. Mwape Chimukumbi and 51 Others' was cited in support. I Counsel slbmitted that the legitimate expectation was set in motion whfn the 2nd defendant conducted business as a single economic jntity and further when it paid terminal benefits of many other former employees of the I" defendant; including PW2. BasJd on the above, it was Counsel's submission that the 2nd defenddnt cannot now be heard to say that the liability in this case is for the I" defendant alone. Counsel went on to discredit the evidence of the lone defence witness, Jrere she justified payment to unionized and not management staff. It was his contention that this was not legally law, because all staff including the plaintiff were tenatable 1t employees Ff the defendants who were legally entitled to receive their terminal benefits. It was urged that this is supported by the fact that t1e plaintiff successfully completed serving his contract without any record of failure or indeed indiscipline. The Court was urged to dismiss the 2nd defendant's explanation as to why ~17 other employees were paid and not the plaintiff. The Court in conclusion was urged to award the plaintiff his claims with costs. In their submissions, the 2nd defendant, through Counsel, Mr. Mwiche,g~ve a back ground to the case, claims and the evidence adduced bt both parties through their witnesses. Substantively, Mr. Mwich~denied that the plaintiff was on the evidence before court entitled to the reliefs he claimed. He based his assertion on the separ1te legal personalities of the two defendants, according io him, the plaintiff was employed by the I" defendant. as He denied that the two companies could be taken as one entity as each one Jas registered separately under the Companies Act Cap 388 of the Laws of Zambia. Counsel, relying on the case of Salomon vs. A. Salomon & Co. Limited (s pra) sought to distinguish between a shareholder and an entity, !nd stated that according to that case, the liability of a shareholdt is limited to the unpaid capital. Further, that based on this principle of separate personality, a company enters into contracts ,bd is liable for them. The shareholders enjoy limited liability aiL are not liable to contracts entered into by a company. To that effect, the Court was referred to the case of Newston . Siulanda and Others vs. Foodcorp Products Limited", ~s well as the case of Dimbley & Sons Limited vs National Union of Journalists (1984~and to the Judgment of Lord DiplJck where the House of Lords restated the reason for the separate personality. Counsel submitted on the Court's reluctance to pierce the corporate veil in our jurisdiction. He submitted that the Supreme Court guided in the case of Redrilza J18 I I I I I I I Limited vs. Abuid Nkazi & Others. that the corporate veil could only be pi~rced where there appeared to be malice. It was his contention Ithat the evidence in this case did not show any malice on the I" ~efendant's part for the corporate veil to be pierced. Counsel oJ the issue of Group Companies was of the view that there is nJ legal principle that entail liability passing from one company to the other, although, so he stated, the Learned authors of Cases and Materials of Company Law 4th Edition, Andrew Hicks and S. H. Goo at page 516 state that: Enguih company law does not possess a specific law at of Groups corp6rate clearly exists." the phenomenon groupings... Counsel slbmitted further that to allow the lifting of the "corporate veil," there must be evidence of the abuse of the corporate form and in this matter, there is no evidence to that effect or t~e availability of exceptional circumstances that would warrant th lifting of the veil. There was agam reference to the authors of Case & Materials (supra) to buttress the issue of lifting the veil due to abuse. Counsel clntinued to canvas this point by reference to the Supreme Gourt decided case of Redrilza (supra). He went on to argue that the 2nd defendant was merely a shareholder in the I,t defendant and the two entities carried out different types of business. It was his assertion that there was no nexus in the business of the two entities that would imply that they operated as a singl~ economic unit. To support, I was again referred to -:>: 19 Hicks and Goo page 515 (supra), where in summary it was stated that a holding company could be liable for its subsidiaries debts if the relationship of agency can be shown. It was contended ~hat in casu, there was no such business relationship, and this ddfeated the argument that the two operated as a single economIC unIt, as t ere were no CIrcumstances were agency h . h could be imputed and the evidence does not support the existence of such a relationship. In dealing with the issue of a single ecoJomic unit, Counsel drew the Court's attention to the case of Adams vs. Cape Industries plc9 where the sanctity of I. I separate p~rsonality was upheld, and Judge Slade stated on this Issue: "there is no general principle that all companies in a Group of Companies are to be regarded as one. On the each fundamental principle contrary, company in a group of companies is a separate legal entity possessed of separate legal rights and liabilities: that the is I To stress the point that the law does not permit the substitution I of one cobpany for the other to meet liability, the Court's attention las drawn to the case of Ord vs. Belhaven Pubs LimitedlO where the issue of a shareholder's limited liability in respect of lits subsidiary companies was discussed and that the shareholder enjoyed limited liability in these instances. It was Counsel's contention that Courts will not allow a plaintiff . h I I. Wlt a c mm agamst one company In a group to su stJtute t e b' h . holding cofnpany or other group subsidiaries merely because the group ma~ be a single economic unit. J20 I I To strengthen the argument that the 2nd defendant was a mere shareholde~ and, therefore, not liable, Counsel referred to the share purchase agreement as appeared at page 3 of the 2nd defendant'J Bundle of documents. Counsel went on to state what the purpose of the share agreement was. Further, that indeed the 2nd def~ndant attempted to dispose of its shareholding in the I" defendknt to Amazing Feeds Limited, which sale failed. Further thlt the non-management workers of the 1" defendant, a group to Jhich PW2 belonged were paid their terminal benefits by the 2nd befendant from the proceeds of the disposal of shares, purely on humanitarian grounds and not a legal obligation. Counsel was of the view that that cannot form the basis for the plaintiffs hlaim. Counsel, on that basis sought to distinguish the cited dase of Happy Chibesa 11 as according to him, in that case, the dlaimants were employees of the entity which had met the obligaJons of some of the workers and left out the claimants of the salne entity which was not the case here. Counsel submitted that there cannot be any legitimate expectation established against the 2nd defendant as there was no contractual relationship between the plaintiff and the 2nd defendant for such I . an expectatIOnto arise. . Based on the aforestated, the Court was urged to dismiss the claim with costs. 1 have JarefUllY I su mISSIons an b d .. considered the evidence before me, the authorities availed in the submissions by :s 2i Counsel for both parties and have anxiously cast my mind to them. The followingfacts are not in dispute, vis, that the plaintiff herein was an errJployeeof the 1" defendant. It is also not in dispute I I that the 2nd defendant is a majority shareholder in the 1" defendant Icompany. It is also not disputed that as a former employee df the 1" defendant, and having completed his team of office, he i~ entitled to payment of gratuity at 25% of his gross salary. It lis also not in dispute that this gratuity has not been paid from ~he time it accrued. The 2nd defendant herein agreed that the l' defendant owes the plaintiff his gratuity and the same would be aid as and when funds were available and in line with the senionty of claims. This is as far as the parties are able to agree. The plaintiff in his claim sued the 2nd defendant in the alternative for payme~t of his debt. His argument among others is that the 2nd defendant to all intents and purposes operated the 1" defendantJ as part and parcel of a group of companies and were one econolnic unit which would justify the lifting of the corporate veil and tJereby ignore the separate corporate entity aspect of the two entitie1s. The 2nd defendant on the other hand insists that as a separatd legal entity, it cannot be responsible for the debts of the 2nd dlfendant as it was merely a shareholder in the 1" defendant and there was no basis on which the Court could order that it bears the debts of its subsidiary and thus abrogating the J22 I I I I principle of separate legal personality as enunciated in the case of Solomon vs A. Solomon (supra). As I see it and ignoring for the moment arguments on the fringes, I have to determine whether on the evidence before me, the two I defendantJ operated as a single economic unit that would eventually lead to the lifting of the corporate veil and thus make the 2nd defendant liable for the debts of the 1" defendant to the plaintiff. Counsel for both parties in here have adequately addressed the issue of t~e separate legal personality and I do not intend to go over their jubmissions, suffice to state that that is the position. There is no argument that a limited liability company is a person at law caJable of suing and being sued in its own name. See Section 22(1) of the Companies Act Cap 388 of the Laws of Zambia. However, authorities abound, some of which have been ! cited herem, where Courts have had occasion to ignore this separate Idgal personality and go behind to see who is in actual control of lithecompany. This is especially so where companies operate in a group of companies and it is apparent that they operate as one economic unit in their everyday operations. In the case of King Farm Products Limited, Mwanamuto Investment Limited v~ Dipti Ran Sen executrix and Administratrix of the Estate of Ajut)JBarabSen}'2it was said: I I , "we note that what really led to the application against the ;:and appellant was as a result of how the two appellant companies related with each other in their oper~tions in general and in the manner they both ':t 23 The proceedings against in handled the late Mr. Sen's disciplinary proceedings the 2nd appellant particular. were Ijustified because it was apparent the assets owned by the 1" appellant, were also owned by the 2nd appellant. This was confirmed by the calling of DW2, an internal auditor who was said to have worked for the 2nd appellant and was asked to probe allegations against Mr. Sen in the operations of the 1" appellant." that . Based on the above, the Court found the 2nd appellant liable for the debts bf the 1" appellant even though they were separate I al eg entities. .. 1 In anothe1 case of ZCCM Ltd vs. R. Kangwa (supra}, it was found that top management came from ZCCM to Ndola lime. Further, tJat the company sold some Ndola Lime houses and at other tim Is got involved in such sales and even kept the proceeds. The Supreme Court upheld the Industrial Relations Court's findings of facts in this case on the basis of the evidence before it aJd its holding was that the: "two companies operated as one economic entity and they are even like one and purposes for all company" (emphasis by Court) intents The Supreme Court went on to state that these aspects of the relationship pointed out by Counsel in extensio constituted ample grounds for a tribunal of substantial justice to reach the conclusiod the Industrial Relations Court did. The Court then went on tO state that: I "ZCCM were clearly not overly scrupulous in observing in the name of any legalistic lines of demarcation J24 I I I , • I I I I separilte corporate entities and the Court was not in err to hold the view that there would be: "untold unfairness to the aggrieved workers." In the case of Bank of Zambia vs. Chibote Meat Corporation Limited'3 in allowingthe appeal, the Supreme Court pronounced itself on t~e question of the controlling voice and interest in a company Binding corporate entities which in common language they "own", namely, ".... whether the beneficial owners of a company, that is the beneficial owners of shares have or do not have over riding authority over the companies' affairs and even over the board of directors ..." because the complainants in the case were clearly nominees, clearly subservieJt and under the domination of Mr. Sardanis and others at head office who appeared to assert and exercise overriding authority" the beneficial owners, the sharehold~rs enjoy, as a matter of right over riding authority over a company's affairs. This is the controlling voice over the wishe~ of mere directors and nominees" In the matter in casu, and in a desperate attempt to distance the 2nd defendlmt from liability, counsel stated that the 2nd defendant was merelt a shareholder in the 1" defendant and the two were separate ehtities doing different types of business. I however, beg to differ a in my view, there is overwhelmingevidence on record and as aldo pointed out in extensio by Mr. Songolo of instances when the 2nd defendant went and controlled the affairs of the company. I will not attempt to reproduce them here as counsel ~25 • • has already set them out. These are sufficient to show that the 2nd defendkt was the controlling voice of the 1" defendant. To all intent~ and purposes, the influence of the majority I I I shareholde~ is very apparent. The 1" defendant was made to dance to the proverbial "shareholders tune." The icing on the cake was the fact that it was the 2nd defendant who acknowledged that the 1" defendant owed the plaintiff his dues and that tlie same would be paid in accordance with the seniority of claims. In the letter at page 3 of the plaintiffs' bundle of documents from the 2nd defendant, it shows the amount owed to the plaintiff. This is against a back ground of the evidence that infact at that point, However,eren if it had not been operational, to which there is no the 1" defendant was still operational. evidence on record, it was still in existence. It had not and up to the time ~f hearing this matter it had not been placed in liquidationl The sole witness for the 2nd defendant was categorical in her evidence that the 1" defendant was not operation4 but still in existence. If the argument for a separate corporate Identity is to be advanced further, it is trite that a limited liaoility company owns its own assets, which assets can be off loaded to enable it settle its debts, failure to which it should be liquidated for failure to pay its debts. The 2nd defendant has not advanced any plausible reason why it would acknowledge the debts of another company in these circumstarices. It is my view that it is because to all intents and purposes, the two companies were operated as one economic unit. J26 • I am confirmed in my view because counsel's argument is that the paymebt that was made to PW2 and his colleagues came from monies collected on the cancelled sale of the I" defendant. This I argument, though valid to the extent of where the money came from, does not assist I the 2nd defendant but rather goes to reinforce the fact of a single economic unit. The money ought to have gone into the I" defendant's account from which it could have been Uisbursed to the affected employees. There is evidence that the plyment to PW2 and his colleagues came from the 2nd defendant' account. Page 5 of the plaintiffs supplementary bundle 0 documents refers. In these circumstances, the assertion that the payment was made on behalf of the I" defendant rO the affected workers on humanitarian grounds does not hold w ter, as "there is no such a thing as a free lunch." I I note tha the 2nd defendant says it has a right to sell its shares. This is trJe as shares are personal estate of the shareholder. Please see Section 57 of the Companies Act. There is evidence on record that the 2nd defendant reached consensus with among others, AJazing Feeds Ltd to sell the assets of the I" defendant. I note witJ interest that at page 8 of the 2nd defendant's counsel's submissioh, that his client merely attempted to dispose of its shareholdibg in the I" defendant to Amazing Feeds Ltd. It goes without Sa~ing that there is a distinction between shares held in a compan and the assets of a company. A shareholder can only dispose of his personal estate, shares, in a company which sh~res he owns. '1" 27 •.' . In Gower and Davies: Modern Principles of Company Law 7th Edition, 2003, London, Sweet and Maxwell, at page 33, it is I , stated, in dealing with the advantage of corporate personality that: , property belongs separate property... on incorporation, "the dghts of members therein differ from their dghts to their the I company and corp~rate members have no direct proprietary rights to it but merely to their shares in the undertaking. A change in the niembership, which causes inevitable dislocation to a paitnership firm leaves the company unconcerned. The shares may be transferred, but the company's prop~rty will be untouched." (emphasis by Court) to the I I I In the doc ments appearing at pages 49 - 53 of the defendant's bundle of documents, it clearly shows that what was envisaged to be sold wbre not shares, defendantl, but letter at pJge 51), In view of this and many other instances and the entire assets of the company. the personal property of the 2nd (See the contrary td the 2nd defendant's assertion that it was merely trying to sell its ~hares, it is patent that they were trying to dispose off the assets of the l>t defendant. They presumed to do so in my opinion, b cause they treated the I" defendant as one economic unit with themselves and so blurred the lines separating their corporate legal personalities. It is clear to see the nexus between the two co~panies such as to make the 2nd defendant liable for the debts bf the l>t defendant, It is difficult to comprehend, how counsel cduld in the face of the evidence on record state that there was ho business relationship between the two when the 2nd defendant practically ran the operations of the 1" defendant, in J28 •• one instance even sending a Mr. Chisanga to go and operate from there. I was referred to the case of Redrilza Ltd (supra) for the proposition that I the corporate veil can only be pierced where there appe~rs to be malice. I have looked at the case in issue and while ~he Supreme Court did guide thus, it had said that: "... this must be exercised judiciously and in specific case~ (emphasis by Court) This case 0 my mind is distinguishable from the matter at hand. That mat er was specific to an Issue of termination of employment; and the complainants had to show that there had been malide in the way they were treated. In casu, the matter was on th1 issue of entities being operated as one economic unit and to my!mind the question of malice would not arise in this case. Having found that the 2nd defendant was not overly scrupulous in observing the legalistic lines of demarcation in the name of separate corporate identities, I deem that this is a case in which they should be held responsible for the debts incurred by the I,t defendant ~othe plaintiff. As I said earlier, I do not accept the assertion that PW2 and his colleagues were paid on humanitarian ground. I find this to be a rather lat attempt to dodge responsibility. If that be the case, what prevented it from extending the same courtesy to the ::I 29 I I .. • plaintiff. There is no evidence that infact the other employees were paid from the K200 million paid by Amazing Feeds as the I money went IIwant I account. to the 2nd defendant and not the I" defendant's to agree with counsel for the plaintiff that in line with the cited case of Hotel and Tourism Institute Trust (supra), t~ey had created expectation in the plaintiff that since his junior IOfficers were paid by the 2nd defendant, he would be accorded the same treatment. when the knd defendant I from the I" defendant I acknowledgement ought This expectation was re-enforced acknowledged the debt as owing to him and that the same would be paId. The . to have emanated from the I" defendant and not th~ 2nd defendant. Further, the attempt to insinuate that the plaintiff did not declare dividends and therefore, I failed to run the compahy profitably is a weak attempt again to avoid liability. I agree with Mr. Songolo that there is no evidence before Court that there had been a performance agreement. Further, there is no evidence that during the course of his tenure of office he had been sanctoned b . emg a umomse I.. for non-performance. Even the issue of him not did emp oyee oes not anse. . Having thus traversed the law and authorities, it is my finding of fact that I" and 2nd defendants operated as one economic unit; and las such the 2nd defendant is liable to pay the plaintiff his termin~1 benefits due to him from the I" defendant. It is my finding also that, the 2nd defendant having paid PW2 and his collelgues their terminal benefits; they had created BO I I the •• ,, expectation in the plaintiff herein that he would be treated in a ..1 SImI ar manner. I Having found thus, I deem that the plaintiff has succeeded in his claims agJinst the 2nd defendant, and order that if the 1'( defendant is unable to pay the said sum, the 2nd defendant should pay; with interest on the said amount at the current bank lending rat~ from 31,( December, 2009 to the date of payment. Costs f01l0l the event to be taxed in default. Leave to aJpeal is granted. DELIVERED AT LUSAKA THIS .~ c, \'- ••••It;••~•••••• DAY OF SEPTEMBER, ................. ~ . HON. MRS. JUSTICE A. M. BANDA-BOBO HIGH COURT JUDGE ~31