Millitech Investments (Pvt) Ltd v Northwing Housing Cooperative

### Preamble
1
HH 820-18
HC 923/18
---------


MILLITECH INVESTMENTS (PVT) LTD

versus

NORTHWING HOUSING COOPERATIVE

HIGH COURT OF ZIMBABWE

MUZOFA J

HARARE,7, 9 November &17 December 2018

Civil Trial

W Chagwiza, for the plaintiff

M Mazani, for the defendant

MUZOFA J: The plaintiff issued out summons claiming $54 280.00 for services rendered in terms of a contract between the parties and interest at the prescribed rate from the date of summons to the date of payment in full.

At the pre-trial conference the parties agreed that a determination on the following issues will dispose of the matter.

Whether plaintiff rendered hole-drilling and blasting of rock services at Atherstone Park, Marondera at the request and instance of defendant’s predecessor(s) for which payment is due to it.

If so, the amount due and payable for the aforesaid services.

Whether the defendant is legally liable to fulfill the contractual obligations incurred by its predecessor(s).

The following issues were not in dispute. The defendant was initially formed as a Cooperative in 2005 known as Northwing Cooperative ‘the Cooperative’. In 2010 the leadership of the Cooperative formed a company known as Northwing Land Developers (Pvt) Ltd. The company was a successor of title, obligations and the membership thereof of the Cooperative. In 2014 the company reverted to a Cooperative known as Northwing Housing Cooperative. At all times during the changes the entity served the interests of prospective land owners in Artherstone Park in Marondera. One Makayikayi   the plaintiff’s sole director was one of the founding members of the Cooperative. He was in the leadership of the Cooperative and was part of the leadership that registered the company. After the formation of the Company the residents formed a residents’ association. Serious disputes ensued between the leadership of the company and the residents’ association. The Ministry of Small and Medium Enterprises and Cooperative Development ‘the Ministry’ had to intervene and caused a new leadership to be elected for the plaintiff, thus relieving the Makayikayi leadership of its duties.

Two witnesses gave evidence for the plaintiff. The evidence was to the effect that the plaintiff and the defendant entered into a contract, in terms of which plaintiff was to blast stones and drill 6 000 holes at Atherstone Park at a cost of $12.60 per hole. The total cost for services was $75 600. The contract was produced as an exhibit. The plaintiff commenced the blasting and drilling and was paid upon the production of an invoice showing the work done. The job card showing the work done and amounts paid was produced as exhibits. The job card showed that a total of $15 600 had been paid to the plaintiff. Plaintiff then completed the work as per the contract after drilling 6 000 holes and 92.4% blasting done. The plaintiff then presented an invoice for the payment of $60 000.00 to the defendant. There was no explanation why plaintiff’s invoice was for $60 000.00 yet the claim is for $54 280.00.  A progress report dated 18 September 2017 was produced showing the work done and outstanding work by plaintiff at Atherstone Park, Marondera.

Although Makayikayi was part of the defendant’s leadership, the defendant’s constitution provided that members could be contracted for service provision to the defendant. There was no conflict of interest. After the election of the new leadership, the Ministry listed documents for handover to the new leadership. These documents were delivered to the Ministry but the new leadership did not collect all the documents. It was explained that the former leadership did not hand in the receipt books because it needed those for the administration of the areas they still were managing. The new leadership took over the administration of Atherstone Park only.

One witness, the vice chairperson of the defendant gave evidence for the defendant. He was a member of the defendant cooperative. During the subsistence of the former leadership the members were disgruntled. They formed a resident’s association which subsequently clashed with the leadership. Generally there was poor management; decisions were made excluding members against the defendant’s constitution. Eventually the Ministry intervened and facilitated the election of a new leadership that is when he became the vice chairperson. The new leadership required a proper handover and take over from the old leadership but no documents were provided. The former leadership was supposed to deliver the documents to the Ministry but it did not deliver what the witness referred to as source documents. They received the membership register, rates arrears register and the arrears register. At one point the new leadership filed an application with the Marondera Magistrates court for the former leadership to produce the outstanding documents. The application was dismissed on a technicality. It was conceded in cross examination that whatever contracts were entered into by the company were binding on the defendant. The witness could not confirm whether or not the blasting and drilling was done because at the relevant time he was not in the leadership. The witness insisted that if Makayikayi produced the source documents, which show that there was an agreement plaintiff would pay.

The defendant’s witness struck me as an emotional witness who had so many issues to settle with the previous administration .His intended outcome of this court case was to force Makayikayi to produce the said source documents and the rest of the documents that they required. It is clear that the Makayikayi administration may not have discharged their duties properly, however what determines this case is not so much about the outstanding documents but whether the plaintiff has proved its case to avoid unjust enrichment of any party.

I will address the issues for determination.

Whether the plaintiff rendered hole-drilling and blasting services at the defendant’s predecessor(s) instance.

The plaintiff established that it entered into a contract with the defendant’s predecessor for services. This was not denied by the defendant’s witness. However defendant in its plea alleged that, if plaintiff entered into a contract for such services, it did so with Northwing Housing Land Developers (Pvt) Ltd and not with the defendant. The defendant referred to the letter head wherein the contract was written that it had an inscription ‘Land Developers’ therefore the other party was not the defendant. I do not agree with this perception. Parties to a contract are not identified by way of the document the contract is written. Parties are as identified in the contract. From the copy of the contract produced, the contract was entered between ‘Northwing Housing Co-op’ and Millitech Investments signed on 18 February 2011. The chairperson, the vice chairperson and the bookkeeper signed on behalf of the ‘Co-op’. This was not disputed. As already stated it is common cause that from 2010 to 2014 the cooperative had become a company. I accept that, despite the other party being identified as Northwing Housing Co-op in the agreement, it is the plaintiff that contracted the Co-op is just but an abbreviation of the Cooperative.

Pursuant to that agreement, the plaintiff produced documentary evidence which showed that it provided services at intervals, a job card was produced, letters from defendant acknowledging the work done, one such letter is dated 24 June 2011, acknowledgments of payments by the plaintiff, an invoice for the outstanding balance of $60 026 and a progress report dated 18 September 2017. The progress report outlines what the plaintiff did and as at the date of the report 92% blasting had been achieved and 97% at the drilling had been completed. This evidence was not controverted. The defendant’s witness simply said he did not know whether the services were rendered or not, he was not in leadership. In light of the evidence provided by the plaintiff I accept that the plaintiff provided blasting and drilling services as agreed between the parties.

Whether the defendant is liable to fulfill the contractual obligations incurred by its predecessors.

In his evidence Mr. Tsangamidzi for the defendant confirmed the transition of the defendant’s identity from a cooperative, to a company and back to a cooperative. The entity’s mandate remained the same to administer the affairs of its membership at Atherstone Park. He also accepted that the defendant can fulfill the contractual obligations incurred by its predecessors. However the only caveat was that on condition Mr. Makayikayi produced the source documents for defendant to confirm the liabilities. My understanding of defendant’s issue is that it does not deny liability. The only bone to chew is that the former leadership did not handover all the documents that defendant required. In its wisdom this claim was going to force Makayikayi to produce the documents. However that is not the issue. Mr Makayikayi and plaintiff are different. Plaintiff is a separate legal persona that is why it sued in its name. If defendant has issues with the former leadership it can pursue other legal recourses available to it.

In this case plaintiff produced the necessary documents to prove its claim. I was encouraged to pierce the plaintiff’s corporate veil in order to see the people behind the plaintiff. It was alleged that the registration of the company could have been done to perpetuate fraudulent activities. One such fraudulent activity was awarding service contracts to directors as in this case. The established principle of law enunciated in Salomon v Salomon & Co Ltd [1897] AC 22 (HL) that a company is a separate entity distinct from its members has been consistently followed in our jurisdiction. Nevertheless there are few exceptions to the principle grounded on policy considerations. In Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd & Others 1993 (2) SA 784 (c) at 816-818 the court aptly captured the exceptions thus;

“…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 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 cases are authority that the sanctity of corporate personality should be preserved and the corporate veil should not be lightly lifted. To that end there must be evidence that the entity was established for use or was used as a conduit to perpetrate or further some illegality.

In this case, there was an allegation of fraudulent activities that Mr Makayikayi was being awarded contracts illegally. There was nothing to prove this averment. For the plaintiff evidence was led that the company constitution provided that members could contract with the defendant for services. This was not denied. What is crucial is that the plaintiff contracted with the defendant and actually provided the service. There is no illegality in so far as the service provision is concerned. There is no need to lift the corporate veil if there was a conflict of interest that would not entitle lifting of the veil. The defendant is therefore liable.

The amount payable for services

The plaintiff produced an invoice for $60 026.40 and also a letter of demand written to the defendant for $60 000.The plaintiff’s claim is for $54 280.00 no explanation was given for the variance in figures. The defendant did not raise any issues on this. I will therefore take it that the claim has been reduced to the claimed amount.

From the foregoing the plaintiff has managed to prove its case. It is ordered that,

The plaintiff’s claim is granted with costs.

The defendant is ordered to pay the sum of $60 026.00 with interest at the prescribed rate calculated from the date of summons to the date of payment in full.

Kwenda and Chagwiza, plaintiff’s legal practitioners

Mazani and Associates, defendant’s legal practitioners