Deputy Sheriff Harare v Trinpac Investments (Private) Limited and Christopher William Barnsley

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                                                                                HH 121-2011
                                                                                 HC 9019/10
DEPUTY SHERRIF HARARE (Applicant)
and
TRINPAC INVESTMENTS (PRIVATE) LIMITED (Claimant)
and
CHRISTOPHER WILLIAM BARNSLEY (Judgment Creditor)

HIGH COURT OF ZIMBABWE
PATEL J

Opposed Application

HARARE, 24 March and 14 June 2011

T.E. Gumbo, for the applicant
N. Bvekwa, for the claimant
P. Kawonde, for the judgment creditor


        PATEL J:        The applicant herein presently holds certain equipment attached
by him pursuant to execution of judgment in Barnsley v Harambe Holdings HC
6651/10. The judgment creditor obtained an arbitral award in September 2010 for the
payment by Harambe Holdings of arrear salary amounting to US$61,879. After the
registration of the award with this Court, the notice of seizure and attachment of the
equipment in question was issued in October 2010.
        The claimant is a wholly owned subsidiary of Harambe Holdings. However, it
asserts that the seized property belongs to it and not to Harambe Holdings. The
judgment creditor disputes this on the basis that the judgment debtor is inseparable
from its subsidiaries and that any separation within the Harambe Holdings Group is
deceitful.
        On these facts, the principal issue for determination is whether the Harambe
Holdings Group is a single entity or whether it should be separated for purposes of
civil liability and execution.

The Arguments
        Mr. Bvekwa submits that the claimant is a separate company controlled by
Harambe Holdings as its subsidiary. If Harambe Holdings were claiming the seized
property, it would be possible to lift the corporate veil against it as it is a shareholder
in the claimant. However, the veil cannot be lifted in the converse situation presently
under consideration. What the judgment creditor should have done is to first apply for
the veil to be lifted and, if it succeeded in so doing, it could then seize the assets of the
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subsidiary company. In interpleader proceedings, the property of the subsidiary entity
cannot be seized without a court order lifting the corporate veil.
         Mr. Kawonde counters that the veil should be lifted because the claimant is a
vehicle through which Harambe Holdings carries out its operations. The judgment
creditor was employed by the latter as its Chief Engineer, deployable to serve any
entity within the Harambe Holdings Group, including the claimant. All the Group
subsidiaries are located together at the same address with Harambe Holdings.
Moreover, various documents (including letters, brochures and annual returns, as well
as newspaper articles and the pleadings in Case No. HC 5756/10) all demonstrate that
the claimant is an integral entity within the Harambe Holdings Group. The claimant’s
plea is merely a ruse to avoid attachment so as to defeat the judgment creditor’s just
claim.

Lifting or Piercing the Corporate Veil
         The cardinal principle of company law, as enunciated in Salomon v Salomon
& Co Ltd [1897] AC 22 (HL) and Dadoo Ltd & Others v Krugersdorp Municipal
Council 1920 AD 530 at 550, is that a company is a separate entity distinct from its
members. Nevertheless, there are well established exceptions to the principle
grounded in policy considerations. As was held in US v Milwaukee Refrigerator
Transit Co (1905) 42 Fed 247 at 255:
                 “…when the notion of a legal entity is used to defeat public
         convenience, justify wrong, protect fraud or defend crime, the law will regard
         the corporation as an association.”

         This approach has been regularly adopted and consistently followed in our
law. See Lategan & Anor NNO v Boyes & Anor 1980 (4) SA 191 (T) at 200-201; Van
Niekerk v Van Niekerk & Ors 1999 (1) ZLR 421 (S) at 427; Mawere v Minister of
Justice 2005 (1) ZLR 317 (H) at 327. In Cape Pacific Ltd v Lubner Controlling
Investments (Pty) Ltd & Ors 1993 (2) SA 784 (C) at 816-818, it was observed that:
                 “…when the corporation is the mere alter ego or business conduit of a
         person, it may be disregarded. This rule has been adopted by the Courts in
         those cases where the idea of the corporate entity had been used as a
         subterfuge and to observe it would work an injustice….
                 In cases of fraud, whether actual or constructive, the Courts regard the
         real parties responsible and grant relief against them or deny their claims and
         defences based on the principles of equity…. So, where a corporation is
         organised or maintained as a device in order to evade an outstanding legal or
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       equitable obligation, the Courts, even without reference to actual fraud, refuse
       to regard it as a corporate entity.”

       On appeal in Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd &
Others 1995 (4) SA 790 (AD) at 803-804, the notion of equity was reaffirmed as
follows:
               “It is undoubtedly a salutary principle that our Courts should not
       lightly disregard a company’s separate personality, but should strive to give
       effect to and uphold it. To do otherwise would negate or undermine the policy
       and principles that underpin the concept of separate corporate personality and
       the legal consequences that attach to it. But where fraud, dishonesty or other
       improper conduct (and I confine myself to such situations) is found to be
       present, other considerations will come into play. The need to preserve the
       separate corporate identity would in such circumstances have to be balanced
       against policy considerations which arise in favour of piercing the corporate
       veil. …And a court would then be entitled to look to substance rather than
       form in order to arrive at the true facts, and if there has been a misuse of
       corporate personality, to disregard it and attribute liability where it should
       rightly lie. Each case would obviously have to be considered on its own
       merits. ”

       The exceptions to the general principle have been extended beyond the realm
of fraudulent or improper conduct to the situation where a single economic entity
owns all the shares in its subsidiaries and controls every aspect of their operations.
Thus, in DHN Food Distributors Ltd v London Borough of Tower Hamlets [1976] 3
All ER 462 (CA) at 467, it was stated as follows:
               “Professor Gower in his book on company law says: ‘there is evidence
       of a general tendency to ignore the separate legal entities of various companies
       within a group, and to look instead at the economic entity of the whole group’.
       This is especially the case when a parent company owns all the shares of the
       subsidiaries, so much so that it can control every movement of the
       subsidiaries. These subsidiaries are bound hand and foot to the parent
       company and must do just what the parent company says. …This group is
       virtually the same as a partnership in which all the three companies are
       partners. …The three companies should, for present purposes, be treated as
       one, and the parent company, DHN, should be treated as that one.”

       The rationale for this extension, as I perceive it, is that where the operations of
an economic group are so close as to be virtually indivisible, considerations of policy
tend to militate against any legal separation of its integral units, for to do so would be
to perpetuate an essentially corporate fiction. Of course, this may not invariably be the
case, but the equities would certainly favour such an approach in dealings at arms
length with innocent outsiders.
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Disposition
       The undisputed facts in casu are these. The claimant is a wholly owned
subsidiary of Harambe Holdings and all the subsidiaries within the Group are located
together at the same physical address. The judgment creditor was employed by the
Group and was deployable to serve any entity within the Group, including the
claimant. The relevant documentary evidence amply demonstrates that the claimant is
an integral entity within the Group. To all intents and purposes, the claimant is
effectively a vehicle or instrumentality through which Harambe Holdings carries out
its bakery operations.
       On these facts, it seems to me that the claimant’s assertion of ownership over
the seized assets is nothing more than a subterfuge designed to defeat the judgment
creditor’s claim, which claim is uncontroverted and is undeniably a just one. Even in
the absence of any fraudulent or other improper motive, the overarching control
exercised by Harambe Holdings over its subsidiaries clearly justifies the treatment of
the Group as a single economic entity for the purpose of enforcing a debt incurred by
any unit within the Group, particularly where the creditor, as in this case, is a former
senior employee who was engaged to serve the entire Group.
       The remaining question is this: Is it procedurally necessary for a judgment
creditor to have obtained a prior court order lifting the corporate veil before
attempting to attach the property of a subsidiary company? Mr. Bvekwa was unable to
cite any case authority in support of this proposition. In advancing the counter-
proposition that there is no such condition precedent, Mr. Kawonde relies upon the
following passage in the later Cape Pacific case, supra, at 805-806:
               “In principle, I see no reason why piercing of the corporate veil should
       necessarily be precluded if another remedy exists. …If the facts of a particular
       case otherwise justify the piercing of the corporate veil, the existence of
       another remedy, or the failure to pursue what would have been an available
       remedy, should not in principle serve as an absolute bar to a court granting
       consequential relief. …Whatever laxity or ‘fault’ there may have been on the
       part of the appellant in failing to pursue its rights under the doctrine of notice
       pales into insignificance compared to the impropriety of Lubner’s conduct.
       Yet respondents seek to rely upon such failure to deny the appellant relief.
       Policy considerations dictate that they should not be permitted to do so. In the
       circumstances the appellant’s failure to pursue its remedy under the doctrine
       of notice does not in my view operate as a bar to the relief it seeks.”
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       While these observations may not be directly pertinent to the question at hand,
they certainly fortify the principle that mere procedural technicalities should not be
allowed to frustrate or impede the effective satisfaction of a just claim. In any event, I
see no logic or practical reason in requiring the judgment creditor to institute fresh
proceedings in this Court to pierce the corporate veil in circumstances where those
proceedings would entail the same conclusion that I have reached earlier.
       In the result, the claimant’s position cannot be sustained. Its prayer for an
order declaring the attached assets as belonging to it and for stay of execution is
hereby dismissed. The applicant is ordered and authorised to proceed with the warrant
of execution. The claimant shall pay the costs of the applicant and those of the
judgment creditor.




V. Nyemba & Associates, applicant’s legal practitioners
Bvekwa & Associates, claimant’s legal practitioners
Kawonde & Company, judgment creditor’s legal practitioners