Tamira Overseas SA v Taleb Mohammed and Sandra Magdalene Van Rooyen and Aquirium Trading (Private) Limited and The Master of the High Court

### Preamble
1
HH 524-18
HC 6806/17
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TAMIRA OVERSEAS SA

versus

TALEB MOHAMMED

and

SANDRA MAGDALENE VAN ROOYEN

and

AQUIRIUM TRADING (PRIVATE) LIMITED

and

THE MASTER OF THE HIGH COURT

HIGH COURT OF ZIMBABWE

CHITAPI J

HARARE, 20 June 2018 & 12 September 2018

Opposed application

C Damiso, for the applicant

A Muchedahama, for the 1st and 2nd respondents

J Masotcha, for the 3rd respondent

CHITAPI J: When the matter was called, the three counsel indicated that they had nothing further to add to their heads of argument which they requested the court to consider as their submissions and determine the application on the papers. I proceed to do so.

The applicant prays for the following relief as set out in its draft order:

“IT IS ORDERED THAT

The first and second respondents be and are hereby declared personally liable to pay the 	applicant:

The sum of Two Million, Seven Hundred and Fifteen Thousand United Sates Dollars (US$ 2 715 000,00).

Interest on the sum of US$2 715 000.00 at a rate of 15% per annum from the 27th May 2013 to date of payment in full.

Costs of suit on a legal practitioner client scale.”

This application is made in terms of s 318 of the Companies Act, [Chapter 24:03] which provides as follows:

“318. Responsibility of directors and other persons for fraudulent conduct of business:

If at any time it appears that any business of a company was being carried on-

recklessly; or

with intent to defraud any person or for any fraudulent purpose;

the court may on application of the Master, or liquidator or judicial manager or any creditor 	of or contributory to the company, if it thinks it proper to do so, declare that any of the past or 	present directors of the company or any other person who were knowingly parties to the 	carrying on of the business in the manner or circumstances aforesaid shall be personally 	responsible, without limitation of liability, for all or any of the debts or other liabilities of the 	company as the court may direct.”

It is common cause that the applicant company is a peregrine in that it is incorporated in Belize. It is also common cause that the 1st and 2nd respondents are directors of the third respondent. The third respondent is a locally incorporated company under judicial management, hence the citation or inclusion of the fourth respondent as a party since he oversees inter alia to the administration of companies under judicial management.

The applicant’s claim to have the first and second respondents as directors of the third respondent personally liable as claimed arises from a claim which the applicant had against the third respondent. The applicant claims to have lost the sum of US$2 715 000. 00 to the third respondent which money was meant as its investment in the third respondent. The applicant claims that the first and second respondents misrepresented the true worth of the third respondent thereby inducing the applicant to act on the strength of the misrepresentation to its detriment and it lost the amount which it now claims directly from the first and second respondents in terms of the Companies Act as aforesaid. The allegations aforesaid largely inform the foundation or basis to found that the first and second respondents acted fraudulently albeit purporting to advance the interests of the third respondent.

The applicant also claims that the first and second respondents acted negligently in conducting a substantial portion of the third respondent’s business on a cash basis for which they failed to satisfactorily account for the cash transactions.

The applicant relies for evidence of alleged negligent culpable and fraudulent conduct of the first and second respondents on a forensic audit report which is attached to the founding affidavit as Annexure B. The audit report was compiled in pursuant to an investigation of the third respondent initiated at the instance of the applicant. The report was directed to the Judicial Manager of the third respondent Mr Masomere with copies for the fourth respondent and first respondent among other addresses. Upon a perusal of the forensic report it is noted that it contains a disclaimer by the forensic investigating company. The report is classified and purports to contain confidential information intended solely for the consumption of the third respondent’s judicial manager, the fourth respondent and “other stakeholders”. More significantly the forensic investigation company recorded in the disclaimer that “No part of this report may be quoted, referred to or disclosed in whole or in part by any party without our prior written consent.”

In the opposing affidavit, the first and second respondents put the accuracy of the forensic report into issue. They contended that the report contained misleading and contested issues. They contended that they were not interviewed nor consulted during the forensic investigation. In para 20-2 of the opposing affidavit, the first and second respondents summed up their position vis-à-vis, the forensic report as follows;

“20.2 For the record, I deny the findings in the audit report in so far as it relates to me 	and the second respondent.”

Further in para 21 of the first and second respondents opposing affidavit, they depose as follows through the deponent to the affidavit;

“21 Ad para 16

This is denied. I doubt the qualifications of BCA Forensic Audit Services. To say they are one 	of the leading forensic auditors in the country is just flattery. I challenged them to lay bare 	their qualifications and the fact that they are even authorized to practice as public 	accountants.”

For its part and in regard to the forensic report the third respondent under judicial management accepted it despite pointing out that it was not prepared at the instance of the third respondent. The third respondent’s legal practitioners prepared a three paged analysis of the report in which they pointed out to some inadequacies in the report. In the analysis, the legal practitioners ended by stating of the forensic report that “… it lacks specificity, clarity and detail in most cases. However, the Auditor is to be forgiven because of the urgency and pressure he was subjected in to complete the report.”

What is therefore significant to note in so far as the first, second and third respondents are concerned is that, they did not challenge the production of the report on the basis of the disclaimer which the court has alluded to. In fact they did not challenge its production on any other basis other than its containment of alleged inaccuracies, inadequacies and thus its evidential value.

The first and second respondents raised points in limine which included the allegation that the applicant should have provided security for costs since it is a peregrine. The applicant denies that it is required to provide security for costs. There further point in limine  taken by first and second respondents was that the applicant should not be granted audience by the court on the basis of previous taxed costs unpaid in case No. HC 2020/14. Again the applicant denies liability for the taxed costs. A third point in limine taken by the first and second respondents is that the claim made by the applicant is res judicata by reason of an arbitral award which settled it. The applicant denies the contention and avers inter –alia that the parties in this application were not the same parties in the arbitration which culminated in the arbitral award referred to. A fourth point in limine taken by first and second respondents is that of lis pendens on case No. HC 6202/16 being a claim for provisional sentence in which the applicant is suing the first respondent in his personal capacity. The applicant denies the contention and avers that Case No. HC 6202/16 does not concern the issue of personal liability of the first respondent as director of the third respondent in terms of section 318 of the Companies Act. A fifth point in limine again raised by the first and second respondents was that the application raises serious disputes of fact because of its reliance on what the first and second respondents described as a discredited audit report which contains misleading and contested issues. This point will be revisited later. The last point in limine raised by the first and second respondents is that the applicant did not first obtain the leave of the court to institute proceedings against the third respondent which is under judicial management by virtue of the order of this court granted under case No HC 2020/14 on 22 October, 2015. The applicant denies that leave is necessary because it seeks relief only from the directors, the first and second respondents and not from the third respondent company which is the one under judicial management.

The third respondent in its opposing affidavit does not raise any points in limine. It does not deny that the claim made in terms of s 318 of the Companies Act by the applicant is competent. It however makes note that the applicant has brought this application. “….after a host of other court applications against the same respondents the finalization of which will address the order being sought herein.” The third respondent did not give details of the “host of other court applications” that it refers to. In the third respondents’ heads of argument reference is made to Case Nos HC 595/17; HC 1868/17, HC 7205 (no year of case no. is shown). The third respondent needed to have referred to these cases in the opposing affidavit and explained their significance and relationship with this application.

After going through the bulky court record constituting this application, I determined that it was not possible for the court to make a fair, balanced and judicious judgment on papers as they stand. I have already indicated that I would revisit the issue of disputes of fact not capable of resolution on the papers, being a point in limine raised by the first and second respondents. I am persuaded to agree that there are serious and material disputes of fact which the court cannot resolve on the papers without evidence.

This application is based on s 318 of the Companies Act. In terms thereof, personal liability of directors of a company can be imputed to the directors where they have conducted themselves in the manner as already noted upon reference to the provisions of s 318 (1) (supra). Directors may, where such conduct has been proved that they explicitly or condoned the reckless operation of a company or acted fraudulently be personally liable to creditors or contributories of the company concerned. The conduct which is described in section 318 (1) is of a criminal nature. The standard of proof to prove fraud for example is the same as in common law. There is no civil fraud and criminal fraud. Fraud is defined in s 136 of the Criminal Law (Codification and Reform) Act, [Chapter 9:23]. It must be proved that the company committed a fraudulent act and that the directors were complicit directly or constructively. Before the court can invoke personal liability of directors, there should be conclusive evidence that the requirements of section 318 have been proven. See Al Shams Global BVI Limited v Christopher Sambadza HH 373/2016.

A company is a juristic person. It acts through its directors because they oversee its operations. Reckless and fraudulent conduct is therefore committed by natural persons. It must be proved that the natural persons committed the reckless and fraudulent acts, such acts being specifically defined. Once proved, the next rung is to consider whether the proven reckless and/ or fraudulent acts were done with direct or constructive knowledge of directors. Liability will then attach to or be imputed upon the directors following conclusive evidence being adduced in proof thereof. In other words the company’s corporate veil should be lifted where there is proof of involvement of directors in reckless or fraudulent operations by the company.

Invariably as in this case, the operations of the company would have to be investigated. In casu, the forensic audit whose contents are disputed was intended to achieve this purpose. The first, second and third respondents do not deny the existence of the forensic report nor that the applicant caused a forensic audit of the company to be conducted. The dispute as regards the forensic report pertains to its accuracy and what the three respondents have described as inadequacies. There is no contra report which can be used to counter the one produced by the applicant. The dispute therefore pertains to its authenticity. Its authenticity and accuracy cannot be determined holistically without evidence being led on it.

The issue which l must deal with is whether or not given the disputes surrounding the authenticity of the report, I should dismiss the application or refer the matter for trial for all issues to be ventilated and an informed decision made by the court after hearing and considering all material, relevant and admissible evidence.

The court has a discretion to dismiss an application which cannot be decided on affidavits owing to disputed facts arising therefrom which cannot be resolved without recourse to hearing oral evidence. In the exercise of its discretion the court may in terms of rule 229B of the High Court Rules permit or require that “any person should be called to give evidence if it considers that it would be in the interests of justice to hear such evidence.” The court may in the further exercise of its discretion refer the matter to trial and in this regard, the court will give appropriate directions as to the pleadings to be filed so that the matter falls within the realms of action procedure. In casu, the first and second respondents have in their notice of opposition prayed for the dismissal of the application on account of a dispute of fact as mirrored by the parties’ positions in regard to the forensic audit report and other points in limine which l have touched upon. The third respondent did not pray for the dismissal of the application on the basis of the existence of disputed facts albeit it commented that the forensic audit report left a lot to be desired.

When a court exercises a discretion reposed in it, it does so judiciously. In other words, the court must consider what the interests of justice dictate in each case including prejudice to the respondents. The primary function of courts is to do justice to all as expressed in section 165 (1) (a) of the Constitution. Whenever the court has to decide a dispute between the parties, it must in the end be satisfied of its own that in applying itself impartially to the case before it, it has to the best of its ability done justice to the parties. In my reasoning, the same approach must be adopted by a court when it exercises its discretion in an application where disputed facts have arisen. The question to be asked should be whether the dismissal of the application will result in justice having been done to the parties. In this regard, a number of considerations will inform as to the nature of the discretion to be exercised.

In the celebrated case of Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949 (3) SA 1155 (T) at 1162, it is stated by Murray JA, thus,

“It is certainly improper that an applicant should commence proceedings by motion with knowledge of the probability of a protracted enquiry into disputed facts not capable of easy ascertainment, but in the hope of inducing the court to apply (what is now Rule 6) to what is essentially the subject matter of an ordinary trial action.”

In the same case, the learned judge reasoned that a dispute of fact envisaged should not be in regard to the law but to material questions of fact. The cited case has received extensive recognition in this jurisdiction. See Zimbabwe Platinum Mines (Private) Limited v Zimbabwe Revenue Authority and 3 Ors HH 169/15; Masukusa v National Foods Ltd and anor 1983 (1) ZLR 2325, Mashingaidze v Mashingaidze 1995 (1) ZLR 221.

In the case Douglas Muzanenhamo v Officer in Charge CID Law and Order and 7 Ors CCZ 3/13, Patel JA in discussing the court’s approach to dealing with motion cases where a material dispute of fact stated on p 4-5 of the cyclostyled judgment;

“A general rule in motion proceedings, the courts are enjoined to take a robust and common sense approach to disputes of fact and to resolve the issues at hand despite the apparent conflict. The prime consideration is the possibility of deciding the matter on the papers without causing injustice to either party. See Masukusa v National Foods Ltd and Another 1983 (1) ZLR 232 (S) at 235A; Zimbabwe Bonded Fibreglass v Peech 1987 (2) ZLR 338 (S) at 339 C-D; Ex- Combatants Security Co. v Midlands State University 2006 (1) ZLR 531 (H) at 534 E-F. The first enquiry is to ascertain whether or not there is a real dispute of fact. As was observed by Makarau JP (as she then was) in Supa Plant Investments (Pvt) Ltd v Chidavaenzi 2009 (2) ZLR 132 (H) at 136F – G.

A material dispute of facts arise when material facts alleged by the applicant are disputed and traversed by the respondent in such a manner as to leave the court with no ready answer to the dispute between the parties in the absence of further evidence.”

In this regard, the mere allegation of a possible dispute of fact is not conclusive of its existence. See Room Hire Co. (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd S – 146-86; Boka Enterprises v Joowalay & Another 1988 (1) ZLR (S) at 114B – C; Kingstons Ltd v L.D Ineson (Pvt) Ltd 2006 (1) ZLR 451 (S) at 456C – D and 458D – E. The respondent’s defence must be set out in clear and cogent detail. A bare denial of the applicant’s material averments does not suffice. The opposing papers must show a bona fide dispute of fact incapable of resolution without viva voce evidence having been heard. See the Room Hire Co. case, supra, at 1165, cited with approval in Vittareal Flats (Pvt) Ltd v Undenge & Others 2005 (2) ZLR 176 (H) at 180 C-D; Van Niekerk v Van Niekerk and others 1999 (1) ZLR 421 () at 428 F – G”

It is instructive from Patel JA’s remarks that the respondent should set out the defence in “clear and cogent detail” and that a base denial of the applicant’s averments will not suffice. At best the first and second respondents aver that the forensic audit report is “discredited and contains misleading and contested issues.” They also make general denials of some aspects of the forensic report. It however appears to me that the determination of this application turns upon an interrogation of how the first and second respondents operated the third respondent’s company. In other words, the first and second respondents would be expected to specifically deny specific allegations of impropriety made or confess and avoid the imputations of wrong doing.

In my reasoning, there can be no doubt that this case is of great importance to the parties and further impacts on public policy. The applicant is a foreign investor who pumped in money in excess of US$2.7 million into the third respondent, a local company. The applicant contends that its investment went down the drain on account of a fraud perpetrated upon it in that it acted on misrepresentations of fact regarding the viability of third respondent made to it by the first and second respondents. It also contends that the first and second respondents as directors of the third respondent operated it recklessly or allowed the third respondents to be operated recklessly. I have indicated that the case impacts on public policy because it is not the public policy of this country to condone fraudulent business conduct perpetrated against others, be the victims foreign or local. The fraudulent conduct and reckless operation of the third respondent if proved against the first and second respondents apart from its criminal implications have fiscal implications with respect to taxes and other similar liabilities as would attach to all the  respondents.

The parties herein or one or other of them have been before an arbitrator. The third respondent alleges that there are other pending matters which would put this dispute to an end. The specific details of such litigations and how they would resolve the disputes was not spelt out. The same applies to the first and second respondents’ pleas of res judicata and lis pendens. No clear and cogent details of the cases were pleaded and no connection of the cases with the dispute before me was pleaded.

Under the circumstances it would not in my judgment be justiciable to dismiss this application. It is not disputed that the applicant invested in third respondent. Equally it is common cause that an arbitrator determined that the applicant was entitled to recoup its investment back. In casu, the applicant prays for an order that the first and second respondents should be held personally liable to refund the applicant its investment and bases its claim on section 318 of the Companies Act. The applicant seeks to rely on an audit report whose accuracy the respondents take issue with. In my view, the first and second respondents have a fiduciary and legal duty to account to the applicant for its investment. The applicant went to the extent of causing a forensic of the third respondent to be carried out. A bare denial of the audit report is insufficient to persuade me to hold that this is a proper case for dismissal of the application on the basis of disputed facts. The justice of this matter demands that a full hearing be convened to determine the issue of personal liability of the first and second respondent’s arising from their alleged act of fraudulent misrepresentation and allowing the third respondent to be operated recklessly.

In the Douglas Muzanenhamo case (supra), Patel JA indicated at p 7 of the cyclostyled judgment:-

“It is of course open to the court to strike off or dismiss the application on the technical ground that the applicant has adopted the wrong procedure and should have instituted this matter by way of action in the High Court.”

From the above pronouncement, the adoption of a wrong procedure is a technical ground. Disputes between parties should not always be determined on technicalities especially so in matters where the court has a discretion to order that the dispute be determined using another procedure which the court can competently order. In saying this, I do not give a licence to litigants to adopt a wrong procedure and expect that their cases will not be dismissed.

In a proper case, a dismissal of the application will be ordered. Every case is determined on its own unique circumstances.

In casu, I consider that a just and expeditious determination will be achieved by referring the matter to trial. I will not make a determination on other technical dilatory points in limine raised by the first and second respondents. These, if the first and second respondents are advised to persist in them will properly be dealt with at trial.

It is therefore ordered that

This application is referred to trial for determination on the facts and merits.

For purposes of the trial, the applicants’ notice of application and accompanying documents in support thereof will stand as the summons and the notices of opposition and accompanying documents in support thereof filed by the 1st, 2nd and 3rd respondents shall stand as the appearance to defend.

The matter shall thereafter proceed in accordance with the Rules of this court in regard to action procedure following the entry of appearance to defend.

The wasted costs of this application shall be in the cause.

GN Mlotshwa & Company, applicant’s legal practitioners

Mbidzo, Muchadehama & Makoni, 1st and 2nd respondent’s legal practitioners

Makonyere & Pfigu, 3rd respondent’s legal practitioners