CFI Holdings Limited v Stalap Investments (Private) Limited & 3 Ors

### Preamble
Judgment No. 21/25
Civil Appeal No. SC 58/24
1
REPORTABLE (21)
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REPORTABLE	(21)

CFI     HOLDINGS     LIMITED

v

STALAP     INVESTMENTS     (PRIVATE)     LIMITED (2)     NICOZ     DIAMOND     INSURANCE     LIMITED (3)     RICHMOND     LOUIS     HAMILTON   (4)     FIRST     TRANSFER     SECRETARIES     (5)     SECURITIES     AND     EXCHANGE     COMMISSION     OF     ZIMBABWE

SUPREME COURT OF ZIMBABWE

MAKONI JA, CHITAKUNYE JA & MWAYERA JA

HARARE: 11 JULY 2024

T. Mpofu with T.S Nyawo, for the appellant

T. Magwaliba, for the first respondent

No appearance for the second, third, fourth and fifth respondents

MAKONI JA:

This is an appeal against the entire judgment of the High Court (“the court a quo”), wherein it dismissed the appellant’s application for condonation for the late filing of an application for the upliftment of the bar, to file an appearance to defend, as well as the application for the upliftment of the bar itself.

After hearing submissions from counsel, the Court granted the following order:

“1. The appeal be and is hereby allowed with costs.

The judgment of the court a quo is hereby set aside and in its place is substituted with the following:

The application for condonation for the late filing of an application for the upliftment of bar be and is hereby granted.

The application for upliftment of bar be and is hereby granted.

The applicant shall enter an appearance to defend case HH1855/20 within two days of service upon it of this order. Thereafter, the applicant shall file its plea or some such answer to the first respondent’s claim within a further three days of its entry of appearance to defend after which the matter shall proceed in terms of the rules.

The costs of the matter shall be borne by the first respondent.”

The court indicated that the reasons for the order will be furnished in due course.  Below are the reasons for judgment.

FACTUAL BACKGROUND

A dispute arose between the first respondent (Stalap Investments) and third respondent (Louis Hamilton) concerning the ownership of a certain parcel of shares that the fourth respondent (First Transfer Secretaries) transferred to Louis Hamilton.  Stalap Investments claimed that in 2017, it was the registered owner of 43 414 577 ordinary shares in the appellant (CFI Holdings).  It arranged for 1 848 644 of its shares in CFI Holdings to be held by the second respondent (NICOZ Diamond) as a nominee shareholder.  However, on                   29 March 2018, without Stalap Investments’ consent or knowledge, NICOZ Diamond entered into a sale agreement with Louis Hamilton for 1 867 841 shares, which included the 1 848 644 ordinary shares held by NICOZ Diamond as a nominee shareholder on behalf of Stalap Investments.

Pursuant to the purported agreement of sale, CFI Holdings reduced Stalap Investments’ shareholding on its share register from 43 415 577 to 41 566 933 shares resulting in a total loss of 1 848 644 shares.

PROCEEDINGS IN THE COURT A QUO

Stalap Investments issued summons on 12 March 2020 against CFI Holdings and the other respondents in the court a quo seeking the following relief:

“(a) An order setting aside and declaring as null and void an agreement of sale of shares executed on the 29th of March 2019 between the first and second Defendants in respect of 1 867 841 ordinary shares in the third Defendant’s company to the extent of Plaintiff’s ordinary shares.

An order declaring the Plaintiff as the owner of a total of 1 848 644 ordinary shares in the third Defendant’s company held by the first Defendant as a nominee shareholder of the Plaintiff.

Costs of suit to be borne by the first and second Defendants jointly and severally, the one paying to absolve the other.”

CFI Holdings did not file any papers in response to the summons issued by Stalap Investments even though it was cited as a party to the proceedings.  On its part, the appellant took the view that the claim was not brought against it. It however, kept itself apprised of developments in the matter and even attended all the pre-trial processes.  It took the view that it was a nominal defendant as the relief sought had no bearing on it.  Also, on the issue of costs, Stalap Investments had only sought costs against NICOZ Diamond and Louis Hamilton.  Its relief did not warrant costs from the other parties to the action.  On that basis, CFI Holdings decided to abide by the decision of the court and maintained a watching brief during the court proceedings.

In response to the summons, Louis Hamilton filed an exception to the summons on the basis that the claim lacked the necessary averments to establish a cause of action making it impossible for him to plead.  By consent of the parties, the court a quo upheld the exception.  As a result, on 26 October 2021, Stalap Investments then filed a notice of amendment of its summons and declaration. The amendment, relevant to the present application, was that Stalap Investment’s declaration now expressly alleged that notwithstanding its full knowledge of the ownership of the impeached shares by Stalap Investments, CFI Holdings went on to reduce Stalap Investments’ shareholding by the number of the impeached shares, and to increase Louis Hamilton’s stake by the same quantum.

It sought the following relief:

“(a) An order for the rectification of the third Defendant’s register with the resultant effect that it reflects that the Plaintiff is the holder of 43 415 577 shares in the third Defendant.

(b) Costs of suit.”

CFI Holdings maintained the view, rightly or wrongly, that the substantive dispute was between Stalap Investments, Nicoz Diamond and Louis Hamilton.  The resolution of that dispute would not alter appellant’s share structure.  If Stalap investments succeeded, shares would be transferred, by the transfer secretaries and not even by appellant, from Louis Hamilton to it.  If the claim failed, the status quo ante would be maintained.  Thus, whilst CFI Holdings’ joinder was important for convenience, it played no part, at least in its view, in the resolution of the dispute between the parties.

To the amendment, only Louis Hamilton reacted.  He filed a second exception.  However, he did not pursue it.  He then pleaded over to the merits.  CFI Holdings in particular filed nothing.  The main action was prosecuted all the way to trial.  In between, a couple of case management and case mapping sessions were held.  CFI Holdings was represented in all sessions but took no active role.  It maintained a watching brief even after the amendment of the summons and declaration.

The matter was set down for trial on 19 June 2023.  Before commencement of trial another case management meeting was held.  The trial judge raised a number of queries or concerns regarding Stalap Investments’ claim against Louis Hamilton and its apparent inaction against the rest of the other defendants.  Further, the trial judge went on to highlight that it was not the obligation of Stalap Investments to speculate whether CFI Holdings was going to comply with the order for rectification and whether its shares were the ones transferred to Louis Hamilton.  Acting upon the remarks of the court a quo, Stalap Investments withdrew its claim against Louis Hamilton and sought default judgment against CFI Holdings.

CFI Holdings, seeing that the relief being sought by Stalap Investments, minus Louis Hamilton, had the effect of altering its register in the absence of any input from its shareholders, on 5 July 2023, filed a chamber application for condonation of late filing of an application for upliftment of the bar and an application for upliftment of the bar in terms of r 60(1) as read with r 20(7) and 39 (4) of the High Court Rules, 2021.

CFI Holdings, in its chamber application, highlighted that the basis for filing the application was that with Stalap Investments withdrawing its claim against Louis Hamilton, it became a substantive respondent in the proceedings in the court a quo.  It contended that the relief sought by Stalap Investments had the net effect of altering its share register without the input from its shareholders.  This would in turn dilute the interests of its shareholders and cause confusion in the process.

Stalap Investments opposed the chamber application.  It argued that CFI Holdings could not rely on the defense that the real contest was between Stalap Investments, NICOZ Diamond and Louis Hamilton when in fact it was responsible for issuing a share certificate to Louis Hamilton despite knowing that the shares belonged to it with NICOZ Diamond holding them in a nominal capacity.

SUBMISSIONS BEFORE THE COURT A QUO

CFI Holdings argued that the reason it did not enter an appearance to defend was because Stalap Investments’ claim was mainly against NICOZ Diamond and Louis Hamilton.  It contended that even though it maintained a watching brief over the proceedings, no real relief was being claimed against it even after the amendment.  CFI Holdings went on to further argue that it was only after Stalap Investments withdrew its claim against Louis Hamilton that it became seriously exposed.  The rectification of its share register would result in the diminution of the shareholding by other shareholders who were not cited as parties to the proceedings.  It was contended by CFI Holdings that this would be highly prejudicial as the shares to be restored to Stalap Investments could only come from the stock held by the other innocent shareholders.

Per contra, Stalap Investments contended that at all material times, the relief that it sought affected CFI Holdings.  Failure by CFI Holdings to file an appearance to defend, when the relief sought at all material times affected it, was its own fault.  It further contended that the period of delay was too long and inordinate.  CFI Holdings had not filed an appearance to defend for three long years and that could not be condoned.  It further argued that CFI Holdings had not provided a proper explanation for its failure to file an appearance to defend in time and thus the application had no merit.

FINDINGS BY THE COURT A QUO

Before coming to its decision, the court a quo acknowledged that in an application for condonation, the factors to be taken into account need to be considered cumulatively and conjunctively, not disjunctively.  The court a quo dismissed CFI Holdings’ application because it found the delay to be extensively inordinate and the explanation for the delay to be quite unreasonable.  It reasoned that summons were served in March 2020 but CFI Holdings only filed the application for condonation in July 2023.  Further, the court a quo held that the relief sought by Stalap Investments, even before the amendment, had the net effect of altering CFI Holdings’ share register.  Hence, the withdrawal of the claim against Louis Hamilton by Stalap Investments was of no consequence as far as CFI Holdings’ position was concerned.

THE APPEAL

Aggrieved by the decision of the court a quo, CFI Holdings noted the present appeal.  The grounds of appeal were couched as follows:

“The court a quo erred in resolving the matter before it on the basis that there was an inordinate delay in the bringing of the application for condonation and upliftment of bar and in not taking an objective conspectus of the factors relied upon by the appellant as is required by law.

Appellant’s interest having been triggered by the change in first respondent’s approach which was itself triggered by the unsolicited advice given first respondent by the court, the court a quo erred in not reckoning the question of delay from the date when the dynamics in the matter changed.

A fortiori and reckoning the period of delay from the date on which appellant’s interests first became imperilled, the court a quo erred in concluding that there was a delay the effect of which was to non-suit appellant.

The court a quo erred at any rate in not holding that any delay that may have eventuated had been fully explained away by appellant in the motivation it gave of its conduct, namely, that it had taken no action to defend the matter because no relief was being sought against its interests.

The court a quo erred in not holding that any failure to afford relief would lead to an untenable situation whereby incompetent but invasive relief would be granted against appellant alternatively, any relief to be granted would impact on third parties not joined to the proceedings.”

SUBMISSIONS ON APPEAL

Mr Mpofu for CFI Holdings, submitted that Stalap Investments approached the court a quo regarding commission of fraud between NICOZ Diamond and Louis Hamilton.  The relief sought was never against CFI Holdings.  Counsel further submitted that the restoration of shares could only be effected when the shares held by Louis Hamilton were transferred back to Stalap Investments.

He further argued that the need for CFI Holdings to participate in the matter arose when Stalap Investments withdrew its claim against Louis Hamilton.  Mr Mpofu also contended that the court a quo ought to have dealt with the requirements for an application for condonation wholistically and not give weight to the extent of the delay only.  He also argued that the court a quo used the wrong principle in calculating the extent of the delay.

Per contra, Mr Magwaliba, for Stalap Investments, submitted that the original summons and the amended summons had causes of action against all parties cited in the matter, including CFI Holdings.  Counsel submitted that CFI Holdings chose not to respond to the allegations in the summons.  He further argued that the right to defend the action had always been apparent.  Counsel further submitted that the appellant did not give its intended defence, to the main matter, if the application for condonation was to be granted.  He contended that if condonation of the late filing of the upliftment of the bar was to be granted, Stalap Investments would be prejudiced as this would lead to Stalap Investments responding to the plea that CFI Holdings would file, adding to Stalap Investments costs.

The Court enquired on whether there was any relief sought against CFI Holdings in terms of the original summons.  Mr Magwaliba submitted that the order prayed for would have necessitated the rectification of CFI Holdings’ share register.

In reply, Mr Mpofu submitted that the relief being sought by Stalap Investments, in the original summons, was to declare the sale of shares, between NICOZ Diamond and Louis Hamilton, null and void.  Counsel pointed out that CFI Holdings was not part of any sale agreement, hence it did not see the need to participate in the dispute before the withdrawal of the claim against Louis Hamilton.

Lastly, Mr Mpofu argued that the court a quo ought to have taken an objective conspectus of all the requirements for condonation before dismissing the appellant’s application.

ISSUE FOR DETERMINATION

Whether or not the court a quo erred in dismissing the application for condonation of late filing of an application for upliftment of a bar and the application for the upliftment of the bar.

THE LAW

The case of Read v Gardner & Anor, 2019 (3) ZLR 575 (S) 578 E-G- is instructive with regards to the requirements for an application for condonation.  It provides as follows:

“Criteria for Condonation of Non-compliance

The factors to be considered in an application for the condonation of any failure to comply with the rules of court are well-established. They are amply expounded in several decisions of this Court in which the salient criteria are identified. They include the following:

•	The extent of the delay involved or non-compliance in question.

•	The reasonableness of the explanation for the delay or non-compliance.

•	The prospects of success should the application be granted.

•	The possible prejudice to the other party.

•	The need for finality in litigation.

•	The importance of the case.

•	The convenience of the court.

•	The avoidance of unnecessary delays in the administration of justice.

See Forestry Commission v Moyo 1997 (1) ZLR 254 (S); Maheya v Independent African Church SC 58/07; Paul Gary Friendship v Cargo Carriers Limited & Anor 2018 (1) ZLR 1 (S).  As was observed in the latter case, the factors listed above are not exhaustive.”

In Cordier v Cordier 1984 (4) SA 524 (C) at 528I-529B, on the length of the delay, it was said:

“... [The] defendant does not allege that he will be prejudiced by the condonation of Plaintiff s long delay in pursuing his amendment.  Apart from the delay itself, defendant advances no good reason why condonation should not be granted.  Long delay per se is not necessarily a good reason for refusing condonation.  It is the long delay that necessitates condonation in the Court's discretion, and to say that long delay is a reason to refuse condonation is to argue in a circle.  In Park Finance Corporation (Pty) Ltd v Van Niekerk 1956(1) SA 669 (T) at 677 ramsbottom j pointed out that long delay alone should not debar the grant of an amendment where the amendment would facilitate the proper ventilation of the dispute between the parties.”

APPLICATION OF THE LAW

Extent of the delay

In its first ground of appeal, CFI Holdings contends that the court a quo erred in resolving the matter before it on the basis that there was an inordinate delay in the bringing of the application for condonation and upliftment of the bar and in not taking an objective conspectus of the factors relied upon by the appellant as is required by law.  The appellant submits that there was never an inordinate delay to talk of.  The appellant further submits that the findings made by the court did not have any regard to the facts of the matter as well as to the circumstances that led to the application brought by the appellant.

The court a quo in its ratio stated that it dismissed the application because it found the delay extensively inordinate and the explanation for the delay unreasonable.  The court held that CFI Holdings took a conscious decision not to defend the summons, despite the fact that it had been cited as a party and also that the relief sought, even before the amendment of the summons, would materially affect its share register.  Further, the court held that it was not explicitly explained in the application what the nature of the defense that the appellant intended to proffer was should condonation be granted.

Stalap Investments issued summons on 12 March 2020.  In terms of r 20 (2) of the High Court Rules, 2021, CFI Holdings ought to have entered appearance to defend within ten days after service of such summons.  This entails that CFI Holdings ought to have entered appearance to defend on or about 30 March 2020.  CFI Holdings only filed its chamber application for condonation on 5 July 2023, three years down the line.

The question that should have exercised the court a quo’s mind is why the appellant needed to file an appearance to defend at this stage.  In our view the need for appellant to get involved arose from the withdrawal of the claim against Louis Hamilton.  This ought to have been the operative date.  The finding by the court a quo that the delay was some three years is more apparent than real and does not derive from the circumstances of this matter.

On that basis, it is my view that the court a quo erred in concluding that the extent of delay was inordinate.

EXPLANATION FOR THE DELAY

In its explanation for the delay, in applying for condonation and upliftment of the bar, CFI Holdings averred that it did not enter appearance to defend in March 2020 or in October 2021, when Stalap Investments amended its summons and declaration, because it was of the view that the substantive dispute was between Stalap Investments, NICOZ Diamond and Louis Hamilton.  When Stalap Investments withdrew its claim against Louis Hamilton in June 2023, CFI Holdings took the view that it had been placed in a position whereby it was being demanded to allocate to Stalap Investments shares from an unclear source.

It is further of consequence that appellant kept an eye on the proceedings.  It did not adopt a disinterested approach.  The court a quo would have preferred for it to state on paper that it would abide the judgment of the court.  That is not a legal requirement.  Appellant preferred that it would follow the proceedings closely.  That was its call.

CFI Holdings argues that it maintained a watching brief throughout the proceedings in the court a quo as the substantive argument was between Stalap Investments, NICOZ Diamond and Louis Hamilton.  It is CFI Holdings’ contention that it acted as soon as was practicable in the circumstances when it discovered that Stalap Investments had withdrawn its case against Louis Hamilton thereby forcing it to allocate shares to Stalap Investments from nothing.

CFI Holdings through its second ground of appeal submitted that it only finds itself in this position because the court a quo went too far, in its case management and case mapping, by suggesting to Stalap Investments that it withdraws the case against Louis Hamilton and get a default judgment against CFI Holdings.  In its heads of argument, CFI Holdings stated as follows:

“It also cannot be ignored that the change in the “dynamics” of the matter was triggered by the unsolicited view(s) expressed by the court.  In its judgment, the court a quo defends its right to give these views.  It did not have to do so.  What is important however, is that the court a quo ought to have accepted that it was its intervention that had changed the dynamics. Put differently, appellant’s problems were caused by the court a quo.”

This raises the important question of how far a judge can go in case management and case mapping bearing in mind that this is a new but progressive concept introduced in our jurisdiction. In terms of the High Court (Commercial Court) Rules 2020 case management and case mapping and the eventual trial are conducted by the same judge.  It is a departure from the Pre-Trial Conference procedure in terms of r 49 of the High Court Rules, 2021, where a judge who presides over a Pre-Trial Conference cannot preside over the trial.  The importance of case management was elucidated correctly, in our view, by the court a quo in para 9 of its judgment as follows:

“Case management and case mapping sessions are designed to achieve a settlement of the matter altogether as the first port of call, failing which, streamlining the issues that remain for trial. Case mapping in particular, involves, among other things, the interrogation of the nature of the claim or offence, the identity of the witness to be called, an assessment of their evidence, vis a vis, among other things, relevance, the likely trajectory of the trial process, an estimate of the date of completion, and any other aspect of the matter as may assist in the speedier settlement of a case.”

In the case of French and Smith t/a Customs Services v Inebriant Cache & Anor HH519/23 at para 9, the court outlined the purpose of case management as follows:

“Therefore, at a case management meeting, a presiding judge has a clear over-view of the matter.  A case management meeting is meant to support the speedy resolution of matters.  More often than not, matters in the commercial division are resolved at the case management stage.”

There might be need for some guidelines to assist judges conducting case management and case mapping.  In South Africa, under the Commercial Court Practice Directives (revised with effect from 1 June 2022), the Commercial Division is limited to two case management meetings after which the matter would have to be set down for trial.  Should parties request a further case management conference, the judge would have to determine whether to convene the conference upon good cause being shown and dispose of any further matters arising.  This would preclude the judge from becoming overly familiar with the parties and the case.

In our jurisdiction, the judge plays an adversarial role as opposed to an inquisitorial one.  This should guide the judge on how far to go in terms of case management and case mapping.  In the case of Konson v The State CCZ 7/15 at p 7, the court held that:

“The remarks of holmes ja in S v Sigwala 1976 (4) SA 566 (AD) are apposite.  At p 568 F-H, the learned jurist stated:

‘The principle is clear.  A judicial officer should ever bear in mind that he is holding a balance between the parties, and that fairness to both sides should be his guiding star, and that his impartiality must be seen to exist.’”

Therefore, I opine that a judge must be careful not to descend into the arena and aid a litigant in the steps to take, to have a speedy resolution of the matter, at the expense of the other litigant.  This might assist to obviate aspersions being cast on judges.

With this in mind and also taking into account that CFI Holdings maintained a watching brief over the proceedings in the court a quo from their inception, I am of the view that the appellant showed interest in the matter and could not have anticipated the sudden change in dynamics of the matter by the withdrawal of the claim against Louis Hamilton.

It is not correct, as held by the court a quo, that the amendment to the pleadings had the effect of dragging appellant into the matter.  Whilst certain allegations were made against appellant, no relief consequent upon those allegations was sought in the sense that Stalap Investments still sought its shares held by Louis Hamilton.

Thus, in the circumstances, the court finds that the appellant’s explanation for the delay was reasonable and the court a quo should have found so.

PROSPECTS OF SUCCESS

It is trite that in motivating its appeal, an appellant ought to motivate its prospects of success.  The test for reasonable prospects of success was set out in the case of Essop v S [2014] ZASCA 114 at p 9 as follows:

“What the test of reasonable prospects of success postulates is a dispassionate decision, based on the facts and the law that a court of appeal could reasonably arrive at a different conclusion to that of the trial court. In order to succeed, therefore, the appellant must convince this court on proper grounds that he has prospects of success on appeal and that those prospects are not remote, but have a realistic chance of succeeding.”

It is common cause that Stalap Investments sought to recover its shares from Louis Hamilton who had allegedly fraudulently bought the shares from NICOZ Diamond.  CFI Holdings was cited as a respondent in the court a quo because it is its responsibility of altering the share register.  The court a quo, by denying the appellant condonation and upliftment of the bar, after the withdrawal of the claim against Louis Hamilton, put it in a position in which it had to transfer shares to the first respondent from an unclear source.  The appellant eloquently explains the position in its heads of argument as follows;

“3.1. The position taken by the court a quo opens the possibility of an incompetent order being granted.  The court in its judgment postulates that it might not grant the relief sought.  It is precisely for those reasons that it might not grant relief that constitutes the prospects of appellant on the merits.  To say appellant did not deal with its prospects is unfair and unfounded.  It is however, precisely because there is a party that seeks incompetent relief that mandates appellant’s participation.

3.2.  If it happens that the court a quo grants the relief that is sought, this will open appellant to many unpalatable consequences.  It is for that reason that relief should have been availed because consideration of the matter from that angle would constitute a holistic approach to the issues.  Put differently, whilst relief is still pursued against appellant, no cause of action has been established against it.  This is the point fully made in the founding affidavit.”

It is for this reason that this Court, based on the circumstances of this matter and the law, came to the conclusion that the appellant had high prospects of success on appeal.

DISPOSITION

Looking at this matter holistically the length of the delay is not inordinate.  Even if the delay were real, appellant fully explained its position.  It explained why it did not take part in the litigation, at inception, although it followed such litigation all steps of the way. That explanation having been given and prospects of success in the main matter, having been established, good and sufficient cause for the relief sought was proven.  The court a quo therefore fell into error in dismissing the application for condonation and upliftment of the bar.

The appeal had merit hence the decision of this Court to allow the appeal.

CHITAKUNYE JA		:	I agree

MWAYERA JA		:	I agree

Nyawo Ruzive Attorneys, appellant’s legal practitioners.

Diza Attorneys, 1st respondent’s legal practitioners.

Dube, Manikai & Hwacha, 2nd respondent’s legal practitioners.

Shumba & Partners, 3rd respondent’s legal practitioners.