Walusiku Lisulo v Cecil Stewart Niell and Anor (Appeal 141 of 2000) [2002] ZMSC 142 (26 April 2002)

IN THE SUPREME COURT OF ZAMBIA HOLDEN AT LUSAKA APPEAL NO. 141/2000 (CIVIL JURISDICTION) BETWEEN WALUSIKU LISULO APPELLANT AND CECIL STEWART NEILL FRANSHOEK FARM LIMITED 1st RESPONDENT 2>d RESPONDENT Coram: Ngulube, CJ, Chibesakunda, JS and Mambilima Ag. JS on 15th November 2001 and 26th April 2002 For the Appellant: For the Respondent: Mr N K Mubonda of Messrs D H Kemp & Company Mr J Sangwa of Messrs Simeza Sangwa and Associates JUDGMENT Chibesakunda, JS, delivered the judgment in Court Authorities referred to: 1. 2. 3. 4. Sithole Vs State Lotteries Board 1975 ZR 106 Turnkey Properties Vs Lusaka West Development Company Limited 1984 ZLR at P.85 Rule 68(1) of the Supreme Court Cap. 25 Partnership Act (British) 1890 In this appeal for convenience sake we will refer to the parties as they were referred to in the court below. This is an appeal by the 1st Defendant (Walusiku Lisulo) against the High Court Judgment, which was in favour of the Ist Plaintiff (Cecil Stewart Neill) and the 2nd Plaintiff (Franshoek Farm Limited), now the Ist and 2nd Respondents. The Judgment, which is being challenged, was based on two causes of action. These were consolidated, the first cause of action being Number 1990/HP/l 873. J2 This cause of action was for among other orders a declaration that the purported expulsion of the 1st Plaintiff from the partnership of Neill, Malenga and Lisulo was null and void. The second cause of action No. 1990/HP/1874 was inter alia for a declaration that the refusal by the Ist Plaintiff to sell shares in the 2nd Plaintiff, Franshoek Farm Limited, to the Defendants was valid. The facts before the High Court on which there was no dispute are that both the 1st Plaintiff and the Defendants were the forerunners to the partnership of the Neill, Malenga and Lisulo. During the university vacation the 1st Defendant used to be invited by the 1st Plaintiff to work in his firm, Stewart Neill and Associates, in order to supplement the University grant which was not adequate. The 1st Plaintiff and 1st Defendant become very close friends to the extent that the 1st Plaintiff invited the 1st Defendant to join him and formed a partnership after obtaining a degree course in architecture. They then invited the 2nd Defendant to join them to form a partnership called Neill, Malenga and Lisulo. The 1st Plaintiffs case is that in 1988 he decided to emigrate to Botswana and formed up another partnership known as Dalgliesh Lindsay Group, a Botswana based architectural firm in which he and the two Defendants held equal shares of one third each. Unknown to the 1st Plaintiffin 1990 the two Defendants established another architectural firm to compete with Dalgliesh Lindsay Group. With the Is' Plaintiffs departure from Zambia differences and misunderstanding began to simmer between him and his Zambian based partners. The differences were mostly on the account of the Zambian based partnership as the Is' Plaintiff rejected the 1990 accounts of the Zambia based partnership. So on 20th July 1990 a Mr Townsend the accountant to the Zambian based partnership wrote on behalf of the 1st Plaintiff indicating that he (the 1st Plaintiff) wanted to withdraw from the partnership subject to him being paid the sum of Five Hundred Thousand Sterling Pounds as compensation (page 123 of the record). J3 The two Defendants in response to that letter offered to withdraw from the Botswana practice on condition that they be paid 1,500,000.00 Pula as compensation. The Defendants thereupon having rejected the 1st Plaintiffs condition of paying him Five Hundred Thousand Sterling Pounds expelled him from the partnership he founded through a resolution of the meeting of the 11th November 1990. Subsequently, the two Defendants invited a Mr Bwalya to become a new partner. They then changed the name of the Zambian based partnership to Lisulo, Malenga and Bwalya. They dismissed Mr Townsend as the accountant of the partnership. On the selling of shares by the two Plaintiffs, the Plaintiffs case that the shares were offered to the two Defendants in their personal capacities. So they could not pay for these shares using money from the Zambian based partnership which they claimed was to clear loans in their by the 2nd Plaintiff to Development Bank of Zambia and Barclays Bank in Zambia. The 1st Plaintiff case also is that each Defendant acknowledged his indebtedness to the 1st Plaintiff in their letter dated 24th February 1984. It is also his evidence that the 1st Plaintiff had offered the two Defendants shares in the 2nd Plaintiff of 83,333 shares each. In rebuttal the Defendants case was that the partnership of Neill, Malenga and Lisulo was composed of three partners who held shares on equal basis. When the 1st Plaintiff decided to emigrate to Botswana the partnership continued to operate on the basis of 1983 agreement which was an extension of the informal agreement of 1981. Therefore further evidence in rebuttal is that in 1984 the 1st Defendant and the 2nd Defendant were offered shares in the 2nd Plaintiff by the 1st Plaintiff to be held on equal basis. A return was filed with the Registrar of Companies showing that the two Defendants were new shareholders with the 1st Plaintiff. Later it transpired that the 2nd Plaintiff was heavily indebted to Development Bank of Zambia and Barclays Bank (Z) Limited. Accordingly, it became the two Defendants’ responsibility as grantees to redeem the loans using the money from the partnership of Neill, Malenga and Lisulo. So their contention is that shares were fully paid for. J4 On the Botswana practice their case was that according to the agreement they held shares equally and that the Ist Plaintiff was to run the partnership on their behalf. In 1988 at a meeting at Pamodzi Hotel, Lusaka, it was resolved that each partner would receive certain percentage of income from the partnership managed by him. On the cash of Five Hundred Thousand Sterling Pounds, demanded by the 1st Plaintiff as condition for his resignation from the Lusaka based partnership their case is that at the meeting held on the 11th November 1990 which the Is' Plaintiff did not attend although he was invited the other partners accepted his resignation but refused to pay this amount of Five Hundred Thousand Sterling Pounds. That was the evidence before the court. The High Court ruled that the meeting held on 11th November 1990 was not properly convened and that the business conducted, including the resolution to expel the 1st Plaintiff was at variance with the law in particular Section 25 of the Partnership of Act 1890 (2) and as such the resolution was null and void. The court therefore ruled that the 1st Plaintiff was still a partner of Neill, Malenga and Lisulo and that the partnership had not changed its name and also found that the 1st Defendant was liable to account to the 1st Plaintiff for the profits accrued to him from the business he set up in Botswana, in conjunction with the Defendants and others; and that the task of ascertaining that profit was to be done by an auditor or an accountant to be appointed by mutual consent of the parties once the parties ascertained what the Is' Plaintiff was to be paid his shares of such profits. The court also ordered a permanent injunction to restrain the 1st Defendant by themselves or their agents in any way to obstruct the 1st Plaintiff from exercising his rights as a partner of Neill, Malenga and Lisulo. On the second claim, the court ordered that the purported sale of shares in the 1st Plaintiffs company was null and void. The court also ordered that the partnership would only be dissolved after the parties had distributed to themselves the profits as ordered by the court. The court furthermore ruled that the inclusion of Mr Bwalya as partner was illegal and therefore null and void. The court also ordered that an accountant be engaged to render the accounts of the 2nd Plaintiff covering the years when he was under control of the 1st Plaintiff and the two Defendants. J5 On the purported sale of shares in the 2nd Plaintiff the court held that the shares having not been paid for by the Defendants from their own source the purported sale was null and void and that the shares had to be forfeited to the 1st Plaintiff. At the hearing of the appeal before us, Mr Mubonda, learned counsel for the Defendants, first applied for the amendment of the memorandum of appeal pursuant to rule 68 fl) of the Supreme Court Act (1), as according to him, the memorandum of appeal which was filed by Messrs Chilupe and associates did not reflect the arguments he wanted to advance before us. As there was no objection the application was granted. Mr Mubonda then submitted, that he relied on his written grounds of appeal and only amplified on grounds (1), (10) and (11). On ground (1), Mr Mubonda argued that the learned trial Judge misdirected himself in law and fact in finding and declaring that the expulsion of the lsl Plaintiff from the firm of Neill, Malenga and Lisulo was unlawful and therefore null and void. He asserted that the 1st Plaintiff was the one who gave notice to withdraw from the partnership in a letter at page 123 of the record of appeal. His partners only accepted his resignation. So the court should have held that the partnership became dead as from the day the partners accepted his resignation. He argued that even the lower court at page 26, lines 10 to 15 found as a fact that there was no partnership/relationship. It is, therefore, surprising that the learned trial Judge contrary to his own findings held that the partnership/relationship between the Plaintiff and the two Defendants was still alive because this gave an impression that the court was forcing this relationship between these two parties. He defined what partnership is meant to be as a free association between either two people or among more than three or more people. He argued that there should therefore be consent for this association to continue. He accepted the point of view that the ending of this association had to be as stipulated in the Partnership Act of 1890, as there was no provision in the partnership agreement between the two parties as to how the partnership was to end. J6 He went on to argue that according to the letter dated 20th July 1990 at page 123 the ending of this association was conditional on the Defendants paying to the plaintiff the sum of Five Hundred Thousand Sterling Pounds although he added that the amount of money was negotiable. His further argument is that as there was no prescribed way of terminating this relationship, therefore, in view of the acrimonious exchanges between the two parties the court should have drawn the only reasonable inference that the relationship had ended. It was dead. So it was, therefore, wrong for the court to have ordered the parties to sort out the accounts before legally effecting the end. Mr Mubonda’s other view is that the court in granting a permanent injunction was wrong. Instead the court should have ended the partnership and made an order to deal with other issues. Citing the case of Sithole Vs State Lotteries Board (3) he argued that the learned trial Judge wrongly granted a permanent injunction. He contended that, the partnership, is like any other contract and that the usual remedy for any breach lies in damages Turnkey Properties Case 4. He further submitted that the remedies for breach of contract include orders of inquiries of account. So the learned trial Judge wrongly exercised his discretion in granting a permanent injunction. He outlined the principles of granting an injunction and stated that these did not apply. He went on to say that the learned trial Judge was alive to the fact that the partnership was only defacto in existence. He acknowledged and accepted the fact that the learned trial Judge had to rely on Section 26(1) of the Partnership Act of 1890, On ground (2), it was argued that there was oral as well as documentary evidence establishing that the Defendants paid for the shares in the farm known as Franshoek Farm Limited. On ground (3), It was argued for the Defendants that the evidence on record was that Mr Bwalya become a partner even before the 1st Plaintiff left for Botswana. The accounts of Partnership Act of 1890 show that Mr Bwalya was a partner. Initially Mr Bwalya only became an associate partner. Later on he became a full partner. Even in the meeting of 11th November 1990 shows Mr Bwalya as per minutes at page 242 as a partner. J7 He argued that the receipts by a person of a share of the profit in a business is prima facie evidence that that particular person is a partner in that business. On Ground (4) it was urged on behalf of the 1st Defendant that the learned trial Judge was wrong when he held that the change of name by the partnership was wrong. Mr Mubonda argued that three (3) Zambians based here in Zambia, were practically entitled to change the name of the partnership to reflect their own interests. On Ground (5) it was pointed out to us by Mr Mubonda that when there is no prescribed manner in law of convening a partnership meeting the learned trial Judge was wrong to have held that the meeting of the 11th of November 1990 was wrong and illegal. On ground (6) it was contended on behalf of the Defendants that all the findings of the lower court were not supported by evidence when the lower court held that the money used by the 1st Defendant and Mr Malenga to pay the debts owed by the 1st Plaintiff was a loan due to the 2nd Plaintiff from the partnership of Neil Malenga and Lisulo. According to him even the transaction between the Plaintiffs and the two Defendants in respect of selling shares to in the 2nd Plaintiff was valid because the Plaintiffs did not dispute the existence of this contract. Their claim before the High Court was for the recession of the contract. He contended that failure to pay for the shares was abinitio. Failure to pay is only a breach and the redress for such is damages. It was therefore wrong for the learned trial Judge to hold that the contract was void abinitio for failure of consideration. So he argued that the shares in the firm should have been held by the learned trial Judge to have been validly transferred to two Defendants. On ground (9) Mr Mubonda in his written heads of argument, argued that the learned trial Judge fell into error when he ordered a mutual agreement by acceptable accountant be engaged to undertake the task of rendering an account of the 2nd Plaintiff covering the years when it was under the control of the 1st Defendant and 1st Plaintiff and that this prayer was not included in the pleadings. On ground (12) the argument for the Defendants is that the shares he was given initially in the partnership of Neill, Malenga and Lisulo were done in appreciation of his abilities. Therefore it was wrong for the learned trial Judge to hold that the shares were given to him free of charge. - 18 - Mr Sangwa in response supported the lower court’s findings and subsequent orders the court made. But Mr Sangwa conceded on behalf of the Plaintiffs to the arguments that the partnership ended as there was no goodwill between the two parties. He accepted that as from the 11th of November 1990 the partnership defacto ended. He argued that as there was no partnership deed the court in deciding the issues had to rely on the Partnership Act of 1890. He, however, went on to say that the letter at page 123 that Mr Mubonda referred to, as the document indicating the withdrawal of the 1st Plaintiff from the partnership was indeed the document, which indicated the end of the partnership. But that this letter contained a condition on which to end the partnership, which was that, the Defendants had to pay the Five Hundred Thousand Sterling Pounds or the Pula equivalent to the 1st Plaintiff. The Defendants never fulfilled that condition. In response Mr Mubonda’s point on the notice to dissolve the partnership, he argued that this point was never raised in the High Court. He also submitted that this prayer was an afterthought. When asked by the court as to why the lower court did not make the order of dissolving the partnership his response was that the court was in a dilemma and could not decide. But that on the delicate balance the court made this order, which it did after visiting authorities, which was to appoint an accountant to conclude the relationship. On the farm, Mr Sangwa argued that the 1st Defendants and his colleague did not pay for the shares and that the money they claimed to have paid to rescue the 1st Plaintiff in his indebtedness to the banks (Development of Zambia and Barclays Bank) was not money from their own pockets. It was the money withdrawn from the partnership. So the issue of purchasing the shares in the farm was different and that the issues relating to the shares were to be dealt with in cause No. 1999/HP/l 875. On Mr Bwalya’s admission of being a partner Mr Sangwa supported the lower court’s findings that he was invited to join as a partner after the 1st Plaintiff left for Botswana and that this was done without the latter’s consent. He pointed out that the court below rejected the minutes of April 1998 as a correct record. - J9 - So there was no evidence on record that Mr Bwalya’s membership was accepted in accordance with the Partnership Act of 1890. It was his prayer therefore that this court should hold that the partnership came to an end on 11th November 1990; that the expulsion of the Is' Plaintiff was null and void up to 11th November 1990; that the account be done for proper distribution to the partners up to that date; and that Mr Bwalya’s membership in the partnership be null and void up to 11th November 1990. He also prayed that the lower court’s order on the sales of shares in Franshoek Farm Limited be upheld and the rest of the lower court’s orders also to be upheld. We have considered the arguments before us very seriously. On ground (1) we agree that the evidence before the lower court, taking into account the document at page 123 (letter from Mr Townsend indicating the intention of the 1st Plaintiff to withdraw from the partnership) and subsequent conduct of both sides established clearly that the partnership that existed as a healthy partnership defacto came to an end on 11th November 1990. On the question of when effectively the de iujere partnership came to an end Mr Sangwa properly and rightly accepted that the IIth of November 1990 marked the effective date of the partnership coming to an end. Since we accept that we therefore hold that the learned trial Judge should have made an order to that effect and to have made proper distribution orders of the Zambian based partnership. We therefore order that the High Court directs a qualified referee to render the account of the Zambian based partnership to that date. That qualified referee to be appointed by the High Court should then wind up the affairs of the Zambian based partnership. Consequently, we hold that up to the 11th of November 1990 the 1st Plaintiff was a partner and remained entitled to all the benefits in the partnership up to that date. In other words, the purported expulsion of the 1st Plaintiff was null and void to that date. The injunction granted by the learned trial Judge is discharged from that date. The damages incurred by the 1st Plaintiff as well as the injunction to be made good up to that date. J10 On the sale of shares the 2nd Defendant we agree with the learned trial Judge that there was no sale of shares as the two Defendants did not pay for the shares. The money paid by the Zambian based partnership was not money paid by the two Defendants. Therefore, the money paid by the Zambian based partnership should be accounted for and distributed as already ordered. On the other point raised we hold that the learned trail Judge was on firm ground we cannot fault him. The appeal therefore is dismissed only to the extent that the effective date of partnership came to end as the 11th November 1990. Costs for the Plaintiffs in default of agreement to be taxed. M M W S Ngulube CHIEF JUSTICE L P Chibesakunda SUPREME COURT JUDGE I C M Mambilima SUPREME COURT JUDGE