Brenan de Bruyn v Brainchild Properties (Pvt) Ltd and Martsmart (Pvt) Ltd

### Preamble
1
HH853/22
HCHC46/22
BRENAN DE BRUYN
versus
---------


==============================

BRENAN DE BRUYN

versus

BRAINCHILD PROPERTIES (PVT) LTD

and

MARTSMART PVT LTD

HIGH COURT OF ZIMBABWE
COMMERCIAL DIVISION
CHIRAWU-MUGOMBA J
Harare, 17 October 2022

OPPOSED APPLICATION

R. Mutero, for the applicant
M. Matshiya, for the respondents

CHIRAWU-MUGOMBA J

1. On the 17th of October 2022, I dismissed this application ex tempore with costs on the ordinary scale. I have been requested to give reasons and these are they.

2. The applicant filed an application for a declaratur in terms of s14 of the High Court Act, [Chapter 7:06]. He sought an order that the sale of shares agreement dated the 30th of January 2017 entered into between himself and the 2nd respondent in respect of shares in the 1st respondent be declared null and void and consequently that he be declared holder of 50% shares in the 1st respondent. He also sought costs on a higher scale against the 1st respondent, “only in the event of opposition”.

3. The background to the matter as submitted by the applicant is as follows. Sometime in December 2015, he purchased a certain piece of property called stand 7612 Kwekwe Township from the City of Kwekwe (the property). He approached the 2nd respondent with a view to bringing him on board as an investor. This culminated in a joint venture agreement. The purpose was for the development of the property. A material term was that he would hold 50% shareholding in the property and cede another 50% to the 2nd respondent thus they would become equal owners.

4. A further term was that a special purpose vehicle company would be formed and would be tasked with developing the property. The shares that the parties held would be transferred to the company and they would still remain with a 50% stake each. The parties then entered into a share’s sale agreement. The applicant’s 50% shares were sold to the 2nd respondent in the yet to be formed special purpose company leaving applicant as a non-executive director in the yet to be formed company. The special purpose company was subsequently formed hence the existence of the 1st respondent.

5. In 2019, the respondents filed an application under case number HC8934/19 seeking an order to compel transfer of the applicant’s rights and interest in the property to the 1st respondent. The order was granted under HH-411-21 and has since been upheld by the Supreme Court under SC315/21.

6. While the applicant avers that he has no qualms with the order to compel transfer, he takes issue with the disposal of his shares that he claims he held in the yet to be formed company because it was not in compliance with s32 of the Companies and Other Business Entities Act [Chapter 24:31]. He submits that the sale of his shares in an agreement that pre-existed the 1st respondent could only be ratified as per the dictates of s32 of the act. Further that upon registration of the 1st respondent, it should have included as one of its objects the ratification of the disposal of shares in terms of the sale of shares agreement. That no rights can flow from the sale of shares from a company than was not yet formed. This point was raised in HC8934/19 but was not dealt with by the court on the basis that it had not been pleaded.

7. Applicant seeks to ‘release’ himself from the sale of the shares on the basis of breach of s32. If the court agrees with him, he will still then retain a 50% stake in 1st respondent.

8. The respondents strenuously opposed the application. They made the following averments. That the 1st respondent has 100% rights in the property in accordance with the judgment in HC 8934/19 as confirmed by the Supreme Court. That the 2nd respondent is the 100% shareholder in the 1st respondent and as such is the beneficial owner of the property.

9. The sale of shares by the applicant as stated in his founding affidavit was due to financial difficulties that he faced. The financial dues for the property were settled through payment to the applicant and through payment of obligations owed to the City of Kwekwe. Upon the incorporation of the 1st respondent, the applicant and the 2nd respondent visited City of Kwekwe and the applicant advised them that he wanted to cede his rights, title and interest in the property to the 1st respondent.

10. The applicant experienced a change of heart and attempted to fraudulently have the property ceded into a company that he owned. That is when the respondents successfully approached the courts as already alluded to. Accordingly, the matter is res judicata especially when regard is had to the fact that the applicant opposed the matter on the same fraudulent ground that the sale of shares agreement was null and void based on the violation of the principles of contract law. Applicant also raised a defence that the property was not his but belonged to a third party, being his company Advance Africa Holdings (Pvt) Ltd, therefore the agreement was null and void.

11. Applicant raised a point of law on ratification of pre-incorporation contracts but the court refused to aid his fraud and ordered that he cedes his rights and interest in the property.

12. The respondents view the applicant’s actions as those of seeking to overturn the judgments of the High and Supreme Courts clandestinely.

13. In the alternative, issue estoppel applies. The issue of the legality of the sale of the shares has been determined by the courts already. In ordering applicant to cede his rights and interests, the courts gave effect to the legality of the sale of shares agreement.

14. The applicant is not a director of the 1st respondent as he claims and the CR 14 confirms his resignation. The application is therefore ill-conceived and should be dismissed with costs on a punitive scale.

15. It is noted that the applicant in its answering affidavit raised an issue to the effect that the respondents were barred for lack of compliance with R32(3) of the Commercial Division rules of 2020. However, at a session held virtually on the 29th of September 2022, it was noted that the respondents had faced challenges in uploading the notice of opposition. The applicant had filed an application for default judgment which was abandoned at the hearing. Thereafter the parties were given directives on filing of further pleadings.

16. In its heads of argument, the applicant put five issues in contention. (1) whether the respondents are barred (2) whether the matter is res judicata (3) whether the defence of issue estoppel is available to the respondents (4) whether any rights and obligations flow from the sale of shares agreement post the incorporation of the 1st respondent and whether the sale of shares agreement was consummated? The issue of the bar on the respondents need not detain the court as it was dealt with at a case management meeting.

17. In motivating the application, the applicant amplified the issues in the heads of argument as follows. That HC 8934/19 was an enforcement of the joint venture agreement between the applicant and the 2nd respondent. That the issue had nothing to do with the sale of shares agreement that is the causa in this matter. The sale of shares agreement has no effect on the joint venture agreement because the High Court matter only sought cession of the property into the 1st respondent’s name. The issue of pre-incorporation contracts was raised in the earlier matter but only in respect of the joint venture agreement. The question was not determined by neither the High or Supreme Court. The present matter only relates to the shareholding of the applicant in the 1st respondent. Issue estoppel similarly does not apply. The agreement relating to shares was concluded on the 30th of January 2017, prior to the incorporation of the 1st respondent. It is thus a pre-incorporation contract that is regulated by s47 of the Companies Act [Chapter 24:03] as succeeded by s32 of the Companies and Other Business Entities Act. The 1st respondent’s constitutive documents do not relate to ratification. It has not been able to show that it has complied with the law. The contract therefore never became binding and cannot be enforced. The sale of shares agreement was never consummated and hence was never binding on the parties.

18. In their heads of argument, the respondents made the following submissions. That the filing of this application constitutes an abuse of court process. The application rehashes arguments already made over a cause already decided. The applicant seeks an order which has the effect of returning him into co-ownership of an asset that he sold. The matter is res judicata based on the order in HC8934/19. The judgment was based on the principal argument that the agreement of sale that forms part of these proceedings is valid, enforceable and ought to be performed. The High court has already decided that the agreement between the parties is valid. Issue estoppel applies because the validity of the sale has already been decided. The arguments made in *casu*, were also raised before TSANGA J and was dismissed because it has been improperly taken. On the impact of s32 of the Companies and Other Business Entities Act, it is trite that there is a presumption against retrospectivity.

19. At the hearing, Mr Mutero made the following submissions for the applicant. In relation to res judicata and issue estoppel, what was in issue in HC 8934/19 was a declaration of nullity of the agreement between Advance Africa Holdings (Pvt) Ltd and City of Kwekwe. That is the matter that the court dealt with. That case was never about the sale of shares. The court did not deal with the issue of pre-incorporation contract. The law was not complied with, i.e s32 of the act.

20. Mrs Matshiya, on the other hand submitted as follows. The ownership dispute was decided in the previous litigation. The applicant’s contention on shareholding has been overtaken by events. Applicant has not shown any interest in the asset, i.e the property because the 1st respondent is the registered owner. The issue of the pre-incorporation contract is out of the hands of the applicant and it is only the respondents that can deal with that.

21. In my view, the critical issue relates to the effect of the judgment in HC8943/19. Did it have an impact on the sale of shares agreement? Did it have an impact on the aspect of pre-incorporation contract?

22. To place this matter into perspective, it is critical to pin point the critical findings in that judgment and thereafter relate them to this matter.

a. The respondents fulfilled their obligations in terms of the transactions and therefore had a legitimate expectation that the property should be transferred to them.

b. The intention of the parties was very clear, mainly that a company would be formed to which cession would be made.

c. The non-ratification of the pre-incorporation contract was never pleaded.

d. Paragraph 24 in whole reads;

“Regardless of this accepted principle, it is also true that the court also takes the view that pleadings are made for the court and the not the court for the pleadings. But it is certainly not a discretion that a court would exercise lightly to find that an issue that has not pleaded explicitly in an opposing affidavit for instance is nonetheless fundamentally intertwined to those issues that were raised. This is particularly more so in this case where, as stated, it crystal clear that the agreement that the applicant entered into was with the first respondent and that there was no question of any mistake at the time. This was simply an afterthought to resile from the agreement. Moreover, as stated the City of Kwekwe is categorically clear that in acted out of error in permitting the alteration of the agreement to reflect the name of Advance Africa as the purchaser backdated in 2015. It also has no objections to transferring the property to the applicants”.

e. The attempt to resile out of the contract by the applicant is *mala fide*.

23. In my view, the judgment confirmed that there was a sale of shares by the applicant to the 2nd respondent. The sale was never partly but wholly. As per the court order in HC 8934/19, the 1st respondent is the owner of the property. The respondents have pleaded res judicata or issue estoppel.

24. Herbstein and Van Winsen in, *The Civil Practice of the High Courts of South Africa*, Vol 1. 5th Ed 2016 at page 611 quoted a passage from *Bafokeng Tribe v Impala Platinum Limited*, 1999 (3) SA 517 (B) as follows: -

...The doctrine of issue estoppel has the following requirement; (a) where a court in a final judgement on a cause has determined an issue involved in the cause of action in a certain way, (b) if the same issue is again involved, and the right to reclaim depends on that issue, the determination in (a) may be advanced as an estoppel in a later action between the same parties, even if the later action is founded on a dissimilar cause of action. Issue estoppel is a rule of *res judicata* but is distinguished from the Roma-Dutch exception in that in issue estoppel, the requirement that the same subject matter or thing be claimed in the subsequent action is not required.

25. In, *Madeyi vs the State*, HH-34-13 HUNGWE J (as he then was) discussed extensively the doctrine of issue estoppel as follows: -

The doctrine of issue estoppel has been embraced by the Supreme Court as part of the law of Zimbabwe under the general rule of public policy that there should be finality in litigation. The doctrine prevents a party to civil proceedings, except in certain circumstances, from raising a contention of fact or of legal consequences of facts, where he raised the contention as an essential element of his case in previous civil proceedings between the same parties or their predecessors in title, and the contention was found by the Court, in a final judgment in those proceedings, to be incorrect, unless further material which is relevant to the correctness or incorrectness of the assertion, and could not, by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him. See Willowvale Mazda Motor Industry (Pvt) Ltd v Sunshine Rent-a-Car (Pvt) Ltd 1996 (1) ZLR 415 (SC); Galante v Galante (2) 2002 (1) ZLR 144 (HC).

English law recognizes that the same issue should not be open to successive determinations: nemo debit bis vexari pro una et eadem causa and interest rei publicae ut finis litium sit (“no one should be disturbed twice in the same matter” and “it is in the public interest that law suits should have an end”). These maxims underpin the doctrine of res judicata, which has two main applications, “cause of action estoppel” and “issue estoppel”. The House of Lords in Arnold v National Westminster Bank p.l.c. (1991) 2 W.L.R. 1177 was concerned only with the latter species of estoppel, but Lord Keith took the trouble to define both in the following passages (at 1183, 1184:

“Cause of action estoppels arises when the cause of action in the later proceedings is identical to that in the earlier proceedings, the latter having been between the same parties or their privies and having involved the same subject matter....(The) bar is absolute in relation to all points decided unless fraud or collusion is alleged..... Issue estoppel may arise when a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue.”

Cause of action estoppel binds more tightly than issue estoppel, since the latter is relaxed where special circumstances require (which are not confined to fraud and collusion). The House of Lords, faced with the question whether a change in case law might justify a departure from issue estoppel, decided to endorse a new exception.

There are two forms of the doctrine of res judicata: cause of action estoppel and issue estoppel. Both operate where the court has adjudicated the cause of action between two or more parties and one of them seeks to re-litigate on the same facts. Where the cause of action is the same, cause of action estoppel operates to prevent any litigation of any matter that was raised or should have been raised in the prior proceeding. Where the cause of action in the two proceedings is different, issue estoppel operates to prevent any litigation of any issue determined in the prior proceedings.

LORD GUEST in Carl-Zeiss Stifting v Rayner and Keeler Ltd [1966] 2 All E.R. 536 @ p 551 stated the requirements of issue estoppel as:

“……(1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and, (3) that the parties to the judicial
 HH853/22
HCHC46/22 decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies......”

In R v Hagan [1974] 2 All ER 142 Justice Hogan offered a definition of issue estoppel thus:

“Issue estoppel can be said to exist when there is a judicial establishment of a proposition of law or facts between parties to earlier litigation and when the same question arises in later litigation between the same parties. In the later litigation the established proposition is treated as conclusive between those parties.”

It is clear that issue estoppel is related to but differs from res judicata. A plea of res judicata asserts that the cause of action is the same in both the prior and the current proceeding, so that the current proceeding should not continue, whereas issue estoppel may be raised where the causes of action in the two proceedings are different, but the same particular factual issue has arisen in both.

26. In my view, the attempt by the applicant to hide behind pre-incorporation contracts is as recognised by the respondents, an attempt to hoodwink the court. Issue estoppel clearly arises. The words of TSANGA J are very apt that the raising of the issue of pre-incorporation contract was a clear afterthought and an attempt to resile from the contract. The moment that the applicant sold his shares, he lost all his rights to the as yet formed company. Similarly, the moment that the Supreme Court dismissed applicant’s appeal thus confirming the High Court order compelling him to transfer the property to the 1st respondent, applicant lost all rights he had. When I paused a question to Mr Mutero on what exactly the applicant still owned in the property, his telling response was ‘nothing’. As rightly submitted by Mrs Matshiya, what ever happens between the respondents as far as that issue is concerned, is no concern of the applicant. It is baffling that the applicant now seeks an order that will result in him if granted getting 50% shares, hence he will end up controlling 50% of the property, one that he clearly disposed off and was paid. Per TSANGA J, the issue is not even intertwined to those raised. The applicant had raised an issue of mistake and realising that he would not succeed, turned to pre-incorporation contract.

27. The court, by confirming the sale of shares and ordering cession, the conclusion is that the contract of the sale of shares became binding on the parties. The applicant cannot seek an order on an issue that is clearly extant.


The requirements that need to be satisfied by a party seeking declaratory relief, were succinctly set out by GUBBAY CJ (as he then was) in *Johsen v Agricultural Finance Corp* 1995 (1) ZLR 65 (SC) at p 72 as follows:

“The condition precedent to the grant of a declaratory order under s14 of the High Court of Zimbabwe Act 1981 is that the applicant must be an “interested person”, in the sense of having a direct and substantial interest in the subject matter of the suit which could be prejudicially affected by the judgment of the Court. The interest must concern an existing, future or contingent right. The court will not decide abstract, academic or hypothetical questions unrelated thereto. But the presence of an actual dispute or controversy between the parties interested is not a prerequisite to the exercise of jurisdiction.

28. The relief sought by the applicant is clearly incompetent. He cannot be said to be an interested person. He has no existing rights; he has no future or contingent right in the property.

29. On costs, these are always at the discretion of the court and accordingly, these shall be on the ordinary scale.

*Kwande Legal Practitioners, Applicant’s Legal Practitioners*

*Wilmot and Bennett, Respondents’ Legal Practitioners*
--- END OCR FALLBACK ---