Robert Mbonani Simeza and Anor v Ital Terrazo Ltd (Appeal 144 of 2009) [2012] ZMSC 107 (16 January 2012)

File. IN THE SUPREME COURT> HOLDEN AT LUSAKA (Civil Jurisdiction) MBIA of JUD’CIARY APPEAL NO.144/2009 SCZZ8Z194/2009 rBETWEEN: ROBERT MBONANI (Suedas Receiver/Manager of ItaJT&rra^trLfmited) 1 st APPELLANT FINANCE BANK (Z) LIMITED 2nd APPELLANT AND IT AL TERRAZZO LIMITED RESPONDENT CORAM: Chirwa, Ag. D. C. J., Mwanamwambwa, and Chibomba, J. J. S., On 3rd November 2009 and 10th January, 2012 <4 For The Appellants: For the Respondent: Mr. M. M. Mundashi, S. C., with him, Ms. L. Kasonde, of Mulenga Mundashi & Company. Mr. L. Zulu, of Messrs. Malambo & Company. JUDGMENT Mwanamwambwa, JS, delivered the Judgment of the Court. Cases Referred to: 1. 2. 3. 4. Magnum (Z) Limited v Basit Quadri (Receiver/Manager) and Grindlavs Bank International (Z) Limited (1981) Z. R. 141. Avalon Motors Limited (In receivership) v Barnard Leigh Gadsen & Another [1998] Z. R. 41. John Chisata v A. G. [1990/1992] Z. R. 154. A 1 ' Zulu v Avondale Housing Project Limited [1982] Z. R. 172. -J2- In this Judgment, we shall refer to the respondent as the plaintiff, the 1st appellant as the 1st defendant and the 2nd appellant as the 2nd defendant, which they were in the Court below. This is an appeal, by the pt and 2nd defendants, against the Ruling of the High Court of 13th August 2009. By that Ruling, the trial Judge refused an application by the 1st defendant to strike out the writ of summons and statement of claim, for irregularity. The case for the plaintiff is that in 2006, its shareholders permitted an unsecured loan of US $4,500,000, to be obtained from the 2nd defendant, by a company called Zambezi Portland Cement Limited, (hereinafter referred to as “The Company") in the name of the company. The money was meant for the construction of a cement plant and crushing plant. The shareholders of the plaintiff are substantially the same as those of the company. That it was a clear understanding between the company and the 2nd defendant that the obligation to repay the unsecured loan was entirely that of the company, as borrower and not the plaintiff. On 24th September 2008, the 2nd defendant appointed the 1st defendant as Receiver and Manager over the assets of the plaintiff. That was done under the powers conferred by the Debenture Mortgage over the loan. On the 27th of September, 2008, the 1st defendant suspended the Directors of the plaintiff. He then indicated his intention to -J3- dispose of the assets of the plaintiff A search in the Patent and Company Registry showed that there were issued a Deed of Appointment of Receiver on 24th September 2008, based on the powers contained in a Mortgage Debenture, registered in the Register of Deeds on 8th November 2006. The plaintiff contends that the loan of US $4.5 million was an unsecured borrowing and as such there could not have been a Mortgage Debenture. It disputes the authenticity of the Mortgage Deed, as no such document was executed by the 2nd defendant. It alleges that a the Mortgage Debenture Deed was fraudulently executed. On 25th March 2009, the plaintiff issued a writ of summons against the defendants, mainly claiming the following:- “1. For an order to set aside the Deed of appointment of the 1st Defendant as Receiver/Manager over the assets and affairs of Ital Terrazzo Limited on the ground of want of jurisdiction. 2. 3. For an order to set aside the undated Mortgage Debenture Deed and registered in the Deeds Registry at Lusaka on 8th November 2006 in respect of S/D 5 of S/D *J’ of Farm No. 415a Ndola and S/D 2 of S/D if Farm 415a, Ndola on the ground of fraud. For an order for rectification of the Lands and Deeds Register in respect of S/D 5 of S/D ‘J* of Farm No. 415a, Ndola and S/D 2 of S/D ‘M* of Farm 415a, Ndola by cancellation of the charge created on the said pieces of land. An Order for damages for trespass to the assets and business undertaking of Ital Terrazzo Limited as a result of the appointment of the First Defendant as Receiver/Manager.” 4 I -J4- The defendants’ case is that in 2006, the 2nd defendant lent the plaintiff, a total sum of US $4.5 million. That the money was lent to the plaintiff in its corporate entity, for its use to acquire and install a crushing plant in Ndola. That on applying, the plaintiff specifically stated the purpose of the loan. That the loan was secured by Directors’ personal guarantees, Mortgage-Debentures over floating assets, plant and machineiy and Mortgage over land or buildings. The land included the following: - (a) S/D ‘M’ of Farm No. 415(a), Kavu, Ndola, in the Name of the plaintiff. (b) S/D 5 of S/D ‘J* of Farm No. 415(a) Ndola in the name of the plaintiff. (c) S/D *Y14’of Farm No. 748, Ndola (House No. 51 Chintu Avenue), in the name of the plaintiff. That it was the plaintiff who borrowed US$4.5 million and not Zambezi Portland Cement. That the responsibility of repaying the money has always been that of the plaintiff. That the plaintiff executed a Debenture-Mortgage in favour of the 2nd defendant. That this Debenture Mortgage was registered in the Lands and Deeds Registry, on 8th November 2006, and at PACRO, on 22nd November 2006. They deny fraud. On 26th March 2009, the plaintiff was granted an injunction, restraining the 1st defendant from disposing of the plaintiff assets, pending determination of the main claims. The affidavit supporting the application for the injunction was -J5- sworn by one MR. ANTIONIO VENTRIGLIA, a former shareholder in the plaintiff company. He averred, inter alia, that, he was authorised by the plaintiff to swear the affidavit. And that he had personal knowledge of the facts he deposed to, as former shareholder in the plaintiff-company. On 21st April 2009, the defendants filed an application to set aside the writ of summons and statement of claim, for irregularity. Their argument on this application was that since the plaintiff company was under Receivership, it cannot legally prosecute any claim, independent of, or against, the Receiver and Manager; that the action amounts to the 1st defendant suing himself. They also argued that Mr. Antionio Ventriglia, instituted this action, after he had ceased to be a shareholder. Therefore, he had no locus standi in the matter. On the affidavit evidence and the law, the learned trial Judge held that since it was the Deed of Appointment of the 1st Defendant, as Receiver/Manager, which was being challenged by the Plaintiff, the case fell within the exception to the general rule that where a company is under Receivership, only the Receiver can sue or defend in the name of the company. She added that the allegation of fraudulent execution of the Mortgage-Debenture, in the writ of summons and statement of claim, raised triable issues which required to be dealt with at trial. -J6- As regards the role and status of Mr. Antionio Ventriglia, she said that from the endorsement on the writ of summons and statement of claim, she was satisfied that the action was not brought out by him. That there was an indication in his affidavit that the Directors of the plaintiff participated in the commencement of the action, at the instance of the plaintiff­ company. Having said that, she then concluded: UI also further order that the affidavit of Antonio Ventriglia be expunged from record as he has no locus standi in this matter and that instead an affidavit sworn by one of the Directors of the plaintiff company, who have brought this action, accordingly swear and file one in its place." There are three (3) grounds of appeal. These read as. follows: “(1) The learned trial Judge erred in law and in fact when she held that the Directors of Ital Terrazzo (in Receivership) had participated in the institution of the action and that the action was commenced at the company’s instance without due regard to the principle of law that when a company is in Receivership proceedings can only be instituted by a Receiver and not its Directors. (2) The learned trial Judge grossly erred in law and in fact when she formed the flawed or erroneous view that since the Deed of Appointment of the 1st appellant as Receiver/Manager was being challenged by the plaintiff company the matter fell under the exception to eneral rule that only a Receiver can commence or defend a company in Receivership. (3) The learned trial Judge misdirected herself when she ordered that the affidavit of one Antonio Ventriglia be expunged from the record on - J7 - account that he had no locus standi in the matter and that another affidavit be filed and, on the other hand, accepting that he had brought this action on behalf of the Company; a contradictory position without any legal or factual basis.” On behalf of the appellant, Mr. Mundashi, State Counsel, and Ms Kasonde argued grounds one and two together. They submit that a Receiver is an Agent of the company under Receivership. He is there to secure the interests of the debenture holder. And in those circumstances the company concerned is debarred from instituting proceedings against the Receiver/Manager. In support of their submissions, they cited Magnum (Zambia) Limited v Basit Quadri (Receiver/Manager) and Grindlays Bank International (Z) Limited (1). That case decided exactly as stated by the two learned Counsel, as set out above. They further submit that in certain circumstances, the Directors of the company under Receivership, may institute proceedings in the name of the company. Here, as authority, they refer us to Avalon Motors Limited (In Receivership) v Bernard Leigh Gadsen and Motor City Limited (2). In response, on behalf of the plaintiffs, Mr. Zulu submits that the learned trial Judge was on firm ground in that her Judgment was made in full regard to the law as interpreted in Avalon Motors Limited (In receivership) v Bernard Leigh Gadsen and Motor City Limited (2). That she examined the - J8- facts to determine whether or not this case fell within the permitted exceptions set out in the Avalon Motors* case. That she came to the conclusion that the case fell within the permitted exceptions, as it were the Directors that were challenging the validity of the Mortgage Debenture Deed, under which the power to appoint the Receiver was derived. We have considered the submissions on grounds one and two. We have also looked at the authorities cited. In Avalon Motors* Case (2), the question was when can the Directors and Shareholders of the company under Receivership be allowed to maintain an action in the name of the company. This Court upheld the decision in Magnum (Zambia) Limited v Quadri (Receiver/Manager) and Another (1). It then held that Directors and Shareholders of a company under Receivership, as well as anybody who is properly interested and who has beneficial interest to protect, can sue a wrongdoing Receiver or former Receiver, in their own names and in their own right. That the Directors should be entitled to sue in the name of the company to litigate, inter alia, in the following circumstances (a) Where the current Receiver is the wrongdoer (as where he acts in breach of his fiduciary duty or with gross negiigence). (b) Where the Directors wish to litigate the validity of the security under which the appointment has taken place; or (c) Where the vital interests of the company are at risk from elsewhere and the Receiver neglects or declines to act. I In the present case, the plaintiff is challenging:- -J9- (a) The validity of the Deed of Appointment of the 1st defendant as the Receiver/Manager, on the ground of want of r Jurisdiction.. o (b) The validity of the Mortgage Debenture Deed/registered in < 4* . the Lands and Deeds Registry on 8th November 2006, in 4 respect of S/D 5 of S/D M’ of Farm No. 415(a), Ndola and S/D T1 2 of S/D *M* of Farm No. 415(a) Ndola, on the ground of " fraud. ' o. , .h. - - - u- • - t ■ - This is as per, claims (i), and (ii) in < the writ of summons and statement of claim. Jnour view, the allegations of frauds and want of jurisdiction fall under circumstance (b); challenge of validity of the appointment of the Receiver. In effect, we .uphold the decision by the learned trial Judge that since it was a Deed of Appointment of the 1st "defendant as Receiver/Manager which B r I was being challenged by the plaintiff, the case fell within the exception to the general rule that where a ^company is under Receivership, only-the Receiver can4sue in the name of the A company. As to whether fraud or lack of jurisdiction are true, it is for'the trial; Court to (determine, at trial. Indeed, in this respect, we again agree with the -learned. trial Judge that the alleged fraud and lack of jurisdiction. are triable issues,; which on the facts of thist case, warrants allowing the matter to proceed to trial, on:merits. And this is in.accord witlr John ■ Chisata vA. G.(3L In that case we said Jhat the best course in nearly every case is;to allow the whole matter to come to trial and. to leave it to the trial Judge to-decide what claims are sustainable; that wherever possible, and where there is.no prejudice to either party, matters should be allowed to come to ► *• trial, so that the issue may properly be resolved. Interlocutory orders which prevent this should be avoided......... -Jll- that the proceedings had been properly commenced on behalf of the company, what then was the purpose of ordering a fresh affidavit to substitute the one sworn by Mr. Ventriglia, in relation to an issue on which she had already made a determination. They submit that, that would appear to be an implicitly admission that there was need for an affidavit to be sworn by a proper officer of the company, to support the legitimacy of the proceedings. That a corrective affidavit was meant to regularize an irregularity. They submit that the trial Judge’s finding on the issue was perverse and ought to be set aside on the authority of Masauso Zulu v Avondale Housing Project Limited (4). In response on behalf of the plaintiff, Mr. Zulu submits that ground three goes against the clear findings by the learned trial Judge. It is his contention that the learned trial Judge made a finding that the action had been commenced by the Directors, in the name of the company. That she never found that Mr. Ventriglia instituted the action on behalf of the company. We have considered the submissions and have examined the High Court Judgment in relation to this ground of appeal. We agree with Mr. Mundashi and Ms. Kasonde that the learned trial Judge made two contradictory decisions on the status of the Court proceedings and Mr. Ventriglia. In our view, her ruling that the matter was commenced by the Directors of the I -J12- plaintiff, was correct. It was supported by evidence; namely paragraph 10 of Mr. Ventriglia’s supporting affidavit. Having made such a determination, there was no need for her to expunge from the record, the supporting affidavit of Mr. Ventriglia and order that it be replaced by one sworn by a Director of the company. Mr. Ventriglia swore the supporting affidavit, merely as a witness for the plaintiff. He did so because he had personal knowledge of facts he deposed to. At law, anybody can be a witness for a company or indeed any other litigant. He can be such a witness either as a deponent of ♦ an affidavit or in oral form. What matters mostly is that he should have personal knowledge of facts he is testifying on. The learned trial Judge misdirected herself when she ordered J that the affidavit in question be expunged from the record. Indeed, we note that Mr. Zulu has properly conceded on this issue. We hereby reverse her order and restore the affidavit. In effect, we allow ground three of the appeal. However, grounds one and two having failed, our final decision is that the matter shall proceed to trial, in the High Court. Accordingly, it is hereby sent back to the High Court, before the same Judge. Since the appeal has partly failed and partly succeeded, we order that costs abide by the outcome of the trial. I D. K. CHIRWA AG. DEPUTY CHIEF JUSTICE MrS. MWANgEl SUPREMElfoUf JUDGE H. CHIBOMBA SUPREME COURT JUDGE