Zambia Venture Capital Ltd v PIE Delighted Ltd (SCZ Appeal 165 of 2000) [2001] ZMSC 116 (27 June 2001)

IN THE SUPREME COURT OF ZAMBIA SCZ APPEAL NO. 165/2000 HOLDEN AT LUSAKA (Civil Jurisdiction) ZAMBIA VENTURE CAPITAL FUND LIMITED APPELLANT AND PIE DELIGHT LIMITED RESPONDENT * Coram: Sakala, AG. DCJ., Chirwa and Lewanika JJS 15th February and 27th June, 2001. For the Appellant, Mr. A. D. Dudhia of Musa Dudhia and Company For the Respondent, Mr. P. Chisi of Chifumu Banda Associates. Sakala, JS., delivered the Judgment of the Court. JUDGMENT Cases referred to: 1. 2. 3. 4. Chikuta Us. Chipata Rural Council (1974) ZR 241. Cripps Pharmaceuticals Vs Wickenden (1973) 2 ALL ER. 606. Windsor Refrigerator Co. Ltd (1961) 1 ALL ER 277. Gadsden V. Chila SCZ Appeal No. 15 (1992). This is an appeal against a judgment of the High Court entered in favour of the respondent revoking the appointment of the receiver who was the second defendant at trial. : J2 : For convenience, we shall refer to the appellant as the first defendant and the respondent as the plaintiff which they were at trial. The second defendant, the receiver, did not appeal. This action was commenced by an originating summons supported by an affidavit consisting of 52 paragraphs. The affidavit in opposition consisted of 31 paragraphs. The affidavit in reply consisted of 11 paragraphs. These affidavits exhibited numerous bulky documents. Above all, the affidavits contained a number of contentious matters. The plaintiff sought the following:- “L A declaration that the appointment of the 2nd Defendant as Receiver and Manager of the plaintiff company was in contravention of both debenture and floating charge each dated 19th August 1997 (the alleged appointing instruments) and consequently that the said appointment is void ab initio. 2. A declaration that a receiver can only take possession of the subject matter of a receivership after the Registrar of Companies has duly caused a notice of the appointment of a receiver to be published in the Government Gazette as required under section 109 of the Companies Act, chapter 388 of the Laws of Zambia and consequently the demand by the receiver to take possession of the plaintiff company on his date of appointment was illegal. A declaration that in the event that the appointment of the 2nd 3. defendant is validated the 2nd defendant, as a receiver, is in fact an agent of the plaintiff company and not of the 1st defendant as provided under section 113 of the Companies A ct. An injunction restraining the defendants whether by themselves, 4. their servants, agents or howsoever from dealing with or parting with whether by way of sale or otherwise until trial of this action or further order of the court. : J3 : 5. An order for specific performance of the agreement to have an interim manager for six months to reorganise the operations of the plaintiff company. 6. Costs. In an interlocutory application for an interim injunction pending trial, Mr. Dudhia had raised an issue that the action was wrongly before the court as it ought to have been commenced by a writ of summons. Mr. Dudhia relied on the decision of this court in the case of Chikuta Vs Chip ata rural Council(l). The court overruled the objection pointing out that the Chikuta case was decided in “1984” and that the more recent authorities of the Supreme Court tend to prefer the view that litigants should not be punished on technicalities and that pleadings ought to be allowed to be amended subject only to costs. Although this position taken by the court was correct, the trial court promised to look at the objection again at trial if raised. The objection was never raised. We must, however, point out that the Chikuta case, decided in 1974 and not 1984, although decided several years ago is still an authority. According to that authority, there is no case in the High Court where there is a choice between commencing an action by a writ of summons or by an originating summons. In fact that case held that where a matter is brought to the High Court by means of an originating summons when it should have been commenced by writ, the court has no jurisdiction to make any declarations. The decision also condemned the use of affidavit evidence in contentious matters. The relevant facts in the present case are that the plaintiff had established a take away under a franchise from Pie City of South Africa. The defendant : J4 : undertook to subscribe USS 30,000 in ordinary shares of the plaintiff. The defendant also agreed to provide loans totaling USS 100,000. The loans were secured by two debentures. The affidavit evidence established that the plaintiff received a total sum of US $ 195,000 from the defendant out of which US $ 150,000 was a loan secured by fixed charges and a floating charge over all of the plaintiffs assets. The sum of US $ 45,000 was received for the purchase of shares. It was not in dispute that during the operations of the plaintiff company misunderstandings arose between the parties relating to the financing and management of the company. As a result of these misunderstandings, the defendant demanded for the appointment of a Manager to provide technical assistance to the plaintiff company for a period of six months. The Nebwe Family, representing some of the shareholders, resisted the appointment of a proposed Manager. Deloitte and Touche, were however, appointed as Consultants. An interim Manager, was also appointed to restructure the plaintiff company into a viable going concern. The defendant, on the other hand, demanded the immediate repayments of the loans plus interest in accordance with the new investment agreement of 30lh March 1998. Thus, by a letter dated 1 llh February, 2000, the plaintiff company was informed of the appointment of a Receiver / Manager pursuant to the security executed under the original investment agreement. The plaintiff company was requested to handover its property to the Receiver. From that time the plaintiff has not conducted its business. It was common ground that the Registrar of Companies did not cause a Notice of Appointment of the Receiver to be gazetted. It was also common ground that the plaintiff company is indebted to the defendant. : J5 : The complaint by the plaintiff company is that the Nebwe Family, as shareholders, have also invested in the company, and that the current financial predicament has been caused by the failure of the shareholders to agree on various issues including expansion programmes. The plaintiff company also complained that due to the demands by the Receiver for the immediate repayment of the loan, the restructuring process could not be implemented. For this reason it was contended that the plaintiff company was denied the chance to re-sustain itself. At the hearing of this appeal counsel for the defendant informed the court that the plaintiff company was not trading because the Manager appointed by the court refused to run a company that had no money. In a three page judgment, the learned trial judge found that on the facts of this case the Receiver was an agent of the plaintiff company; that in law, the appointment of the Receiver could not stand if the principal, the plaintiff company here, objected; that in terms of the provisions of Section 109 of the Companies Act, the non-gazetting of the Appointment of the Receiver was fatal; and that the plaintiff company was currently financially on its knees with a threatening demise at 50 percent. Despite these findings, the learned trial judge was satisfied that the plaintiff company could see a new lease of life. The court observed that the plaintiff company was a family concern whose shareholders wanted it to succeed; but that the defendant was only interested in the recovery of its money invested in the plaintiff company. The learned trial judge ruled that Delloite and Touche be the interim Manager for a period of one year. The appointment of the second defendant at trial as a Receiver was revoked. The defendant appealed against all the above findings. : J6: Mr. Dudhia, on behalf of the defendant, filed detailed heads of argument and a list of authorities based on five grounds of appeal. The first ground was that the trial judge erred in law when he revoked the appointment of the Receiver. We heard a number of arguments on this ground. The main one was that the plaintiff company did not request for the removal of the Receiver and that therefore the trial judge could not have made the removal order. Mr. Chisi on behalf of the plaintiff argued the appeal without written heads of arguments but promised to file them later. Counsel did not seriously challenge the arguments on the first ground. His short oral reply on this ground was that by implication, the plaintiff requested for the removal of the Receiver in paragraph two of the originating summons. He contended that the trial judge was on firm ground in holding that the Receiver was an agent of the plaintiff and that he was also on firm ground in revoking the appointment on the ground of an objection raised by the plaintiff. We have considered the arguments on this ground one. Paragraph two of the originating summons sought a relief of a declaration that a Receiver can only take possession of the subject matter of receivership after the Registrar of Companies has duly caused a notice of the appointment of a Receiver to be published in the Government Gazette as required by Section 109 of the Companies Act. The paragraph further sought a declaration that the demand by the Receiver to take possession of the plaintiff company on his date of appointment was illegal. We do not understand paragraph two of the originating summons to have been a : J7 : claim for the revocation of the appointment of the Receiver or that the appointment was void ab initio. Above all, the record of appeal clearly shows that counsel then appearing for the plaintiff abandoned the claim for a declaration that the appointment of the Receiver was void ab initio. Both parties at trial did not make any submissions in relation to the abandoned claim. It was, therefore, a misdirection on the part of the trial judge to delve into a claim that had been abandoned. For this reason, it is unnecessary to deal with the other arguments based on this ground. Ground one of appeal therefore succeeds. The second ground of appeal was that the learned trial judge erred in fact and in law in his finding that Section 109(4) of the Companies Act is mandatory and that failure by the Registrar of Companies to publish a Gazette Notice is fatal to the appointment of a Receiver. We heard arguments on this ground that the obligation to publish a Notice in the Gazette of the appointment of a Receiver was on the Registrar of Companies and not the defendant. We heard also arguments that in any event publication only affects third parties. Further submissions on this ground were that there was no evidence before the trial judge that the Registrar had not advertised the appointment of the Receiver. Other arguments on this ground were that Section 109(4) was not intended to be a mandatory provision because there is no time limit fixed for the advert by the Registrar, no provision that a failure to advertise renders the appointment null and void. Mr. Dudhia relying on the cases of Cripps Pharmaceuticals Ks Wickenden (1) and Windsor Refrigerator Co. Ltd(2) contended that the appointment of a Receiver takes effect when the notice of appointment is handed : J8 : to the Receiver who accepts the appointment. Section 109(4) of the Companies Act reads as follows:- (4) On lodgment of a notice under subsection (I) or (3), the Registrar shall cause a notice of the appointment of the person as receiver, or that the person has ceased to act as receiver, as the case may be, to be published in the Gazette. We are satisfied that although there is no time limit fixed for the publication in the Gazette and no provision as to what happens upon failure to publish the Receiver’s appointment, the Section is couched in mandatory terms. However, the obligation to cause a notice of appointment of a Receiver to be published in the Gazette is on the Registrar of Companies. We agree that publication affects third parties and that in the instant case there was no evidence that the Registrar had not published the notice. We also agree with the proposition that the appointment takes effect when it is handed to the Receiver and he accepts it. Ground two of the appeal also succeeds. The third ground of appeal was that the learned trial judge erred in law by not making a finding on the defendant’s counter-claim. The short arguments on this ground were that the defendant made a counter-claim in the affidavit in opposition and at the time of the submissions. That the plaintiff admitted in its affidavit of its indebtedness to the defendant. Mr. Dudhia prayed for an order on the counter-claim. I : J9 : Mr. Chisi conceded that no finding nor ruling was made on the counter-claim. He further conceded that the judgment only dealt with the issue of receivership but that it addressed the defendant’s money by the appointment of the interim Manager. Paragraph 31 of the affidavit in opposition setting out the counter­ claim reads as follows:- “ZVCF counterclaims for an Order that the Plaintiff company repay the L'SSI50,000.00 that it borrowed with all accrued interest. Furthermore ZVCF counterclaims for damages suffered by it due to the mismanagement of the Plaintiff company by Mr. Nebwe and his family.11 The reply to the above paragraph states:- “It is not disputed that the plaintiff company is indebted to the 1st Defendant and to the Nebwe family, as both shareholders have invested in the company. However it is averred that the current financial predicament was caused by the failure of the shareholders to agree on various issues, includimg the expansion process. Despite the unfavourable working conditions between the shareholders it was agreed that the plaintiff business could be salvaged by the appointment of an interim Manager and restructuring exercise to be conducted by Deloitte and Touche. There is now produced to me and marked “ESN 2a and b” copies of the correspondence in relation to the business turnaround. ” We agree that the counter-claim is admitted and that no order was made on it. We, therefore, enter judgment in favour of the defendant on the counter-claim in the sum of US$150,000.00 that the plaintiff borrowed with all accrued interest. We also enter judgment in favour of the defendant on the counter-claims for damages suffered by it due to mismanagement of the plaintiff company to be assessed by the Deputy Registrar. Ground three also succeeds. : J10 : The fourth ground of appeal was in two parts. The first part attacked the grant of specific performance of an agreement to appoint a Manager as there was no evidence of any agreement to be specifically performed. The second part, which was in the alternative, was that the trial judge misdirected himself when he appointed Messrs. Deloitte and Touche as Managers of the plaintiff company as they were not parties to the action and had at no time agreed and accepted the appointment and that the learned judge ignored the issue of how their costs would be paid as the plaintiff company was insolvent. The contention on behalf of the defendant was that there was no ascertained agreement and that even if there was one, the learned trial judge erred in appointing Deloitte and Touche for one year when the plaintiff company claimed for six months. The submission on this argument was that the court, on the authority of Gadsden V Chila (3) wrongly non-suited the defendant. We were further invited to find that the learned judge should not have granted specific performance because the terms of the alleged agreement were not certain or specific and that even if a binding agreement existed between the parties, Section 357 of the Companies Act makes it illegal for a company to continue to trade when it is insolvent. In the instant case, it was pointed out that the agreement would be impossible to perform because the company had no financial means to continue trading. In reply on this ground, Mr. Chisi submitted that the enforcement of the agreement in the present case was by appointment of a Receiver but only after Gazetting the appointment. Mr. Chisi contended that as a matter of fact, it is the : JU: defendant who suggested that Deloitte and Touche should take a role in the management of the plaintiff company. Counsel submitted that the learned trial judge was merely effecting what the parties intended to do. We have examined the various documents on record. We are satisfied that the parties had engaged themselves into discussions concerning the business turnaround of the plaintiff and that Deloitte and Touche should play a role in management of the plaintiff company. But, as admitted by both parties, there was failure by shareholders to agree on various issues including the expansion process. By a letter dated 8th November 1999, to Deloitte and Touche, the defendant were still looking forward to hearing from them on the company’s business turnaround. We are satisfied that there was no evidence of a certain agreement to appoint a Manager to be specifically performed. Above all, it was common cause the plaintiff was in serious financial problems even at the material time of the discussions concerning management of the plaintiff company. Further, the plaintiff claimed for an order for specific performance of the agreement to have an interim manager for six months only to reorganise the operations of the plaintiff company. On the evidence on record there was no basis for ordering specific performance of non-existent agreement to appoint a Manager. We agree that Deloitte and Touche were not party to this action. There was in addition no evidence that they had agreed and accepted the appointment. Ground four too succeeds. : J12 : The fifth and final ground was that the learned judge’s finding that the plaintiff company’s demise is at 50% and that the plaintiff company “can see a new lease of life” is erroneous as it is not supported by the evidence. The submission on this ground was that there was no basis for this finding; that there was no explanation for the conclusion; that the finding overlooked the financial condition of the plaintiff Mr. Chisi’s response to this ground was basically a complaint that the plaintiff s indebteness was partly caused by arguments between the plaintiff and the defendant over the expansion programme which would have increased the sales. The fact of the plaintiff company’s financial predicament was common cause. Unfavourable working conditions between the shareholders were not in dispute. There was no agreement as to the “Business Turnaround”. We agree that on the documentary evidence on record, the finding that the plaintiff company’s demise was at 50% and that the company could see a new lease of life was erroneous and not supported. This last ground of appeal also succeeds. The appeal is successful on all the five grounds. It is therefore allowed with costs D. M. Lewanika, AG. DEPUTY CHIEF JUSTICE. E. L. Sakala, SUPREME COURT JUDGE. D. K. Chirwa, SUPREME COURT JUDGE.