1. EDWARD BUWU CASE NO. HC 7760/18
FANI LESLY BUWU
VILLAGE INN (PVT) LTD
SHERPHARD T. CHIMUTANDA
TATIPANO PROPERTIES (PVT) LTD
THE CHIEF REGISTRAR OF DEEDS
2. EDWARD BUWU CASE NO. HC 7843/18
FANI LESLY BUWU
FOLAY INVESTMENTS (PVT) LTD
SHERPHARD T. CHIMUTANDA
PARADISE ROAD (PVT) LTD c/o MR. MUDYIWA EDSON PADYA
THE CHIEF REGISTRAR OF DEEDS
HIGH COURT OF ZIMBABWE
HARARE 10 December and 13 January 2021
W. Jiti, for plaintiffs
N. Chinhanhu, for 1st and 2nd defendants
M. Hogwe, for 3rd defendant
No appearance, for 4th defendant
T. Gombirwa, for 5th defendant
TAGU J: The plaintiffs are praying for an order against the defendants to the effect that the agreements of sale be and are hereby cancelled. That the fourth defendant be and is hereby restrained from effecting transfers in terms of the agreements. That the 2nd defendant bears costs on the higher scale of client- attorney.
On 14 May 2019 Honourable Justice Chitapi granted an order for the consolidation of the two matters, HC 7760/18 and HC 7843/18 during the Pre-Trial Conference hearing, which order is now dated 30th September 2019 and filed of record for purposes of this trial.
The plaintiffs in HC 7760/18 are plaintiffs in HC 7843/18.
CASE NO. HC 7760/18
The first plaintiff is Edward Buwu, a member and 90% shareholder of the first defendant, Village Inn (Private) Limited. The second plaintiff is Fani Lesley Buwu, a member and 10% shareholder in the first defendant. The first defendant is Village Inn (Private) limited an associate company of Atrax Holdings Limited both duly incorporated in accordance with the laws of Zimbabwe. The second defendant is Shepard T. Chimutanda an accountant operating under name and style STC International. He is cited herein in both his personal capacity and as the Scheme Manager/Administrator of Atrax Holdings limited Associated Companies scheme of arrangement and compromise in terms of a Court Order. The third defendant and now fifth defendant in the consolidated matter is Tatipano Properties (Private) limited, a company duly incorporated in accordance with the laws of Zimbabwe. The fourth defendant is the Chief Registrar of Deeds cited herein in that capacity only being the authority responsible for effecting transfer of title in immovable property from one person to another.
CASE NO. HC 7843/18
The first plaintiff is Edward Buwu a member and 90% shareholder of the first defendant Folay Investments (Private) limited. The second plaintiff is Fani Lesley Buwu also a member and 10% shareholder in the first defendant Folay Investments (Private) limited. The second defendant is Shepard T. Chimutanda the same as in Case no. HC 7760/18. The third defendant is Paradise Road (Private) limited, a company duly incorporated in accordance with the laws of Zimbabwe. The fourth defendant is Chief Registrar of Deeds as in HC NO. HC 7760/18
On 17 January 2018, before the Honourable Ms. Justice Mushore, a scheme of arrangement involving the following parties was sanctioned by the Court.
Atrax Holdings (Private) limited;
Atrax Milling (Private) limited;
Atrax Petroleum (Private) limited,
Folay Investments (Private) limited;
Commands Investments (Private) limited t/a Nyanga Downs Farm and
Village Inn (Private) limited.
The order by mushore j reads as follows-
“IT IS ORDERED THAT:
- The scheme of arrangement which was approved by the requisite margins in the meeting of the scheme creditors of Atrax Holdings Private limited, Atrax Milling Private limited, Atrax Petroleum limited, Folay Investments Private limited, Commulands Investments Private limited t/a Nyanga Downs Farm and Village Inn Private limited held on the 10th of November 2017, a copy of which is attached as Annexure 1, be and is hereby sanctioned in terms of Section 191 (2) of the Companies Act (Chapter 24.03).
- Mr. Shepard Chimutanda be and is hereby appointed as the Scheme Manager.
- The Scheme Manager is hereby directed to implement the proposed scheme, in terms of the court order HC 5869/17 dated 5th July 2017, minutes of the scheme meeting held on the 10th November 2017 and the outcome of the voting as reported in the Scrutineers report dated 07 December 2017.
- All six applicants are hereby removed from judicial management in terms of Section 314 of the Companies Act (Chapter 24. 03).
- The cost of these proceedings shall be costs of the scheme of arrangement.”
In their declarations the plaintiffs allege that upon being informed of court order by Mushore J and before registration of his appointment by the Chief Registrar of Companies in order for him to become operative according to law, the second defendant reneging on his primary role and function in terms of the court order to set into motion the scheme of Arrangement and Compromise sought to sell first defendant’s assets before having legal capacity to do so. The second defendant then purportedly entered into agreements of sale with the third defendant for Village Inn Hotel at Nyanga owned by the first defendant and Folay Investments (Pvt) ltd respectively. Despite being informed of the irregularity by the plaintiffs, the third defendant went ahead. The second defendant received the purchase prices of US$850 000.00 and US$300 000.00 respectively and proceeded to instruct the conveyancers to distribute the moneys.
The plaintiffs now want the Agreements of Sale to be cancelled and the fourth defendant to be restrained from effecting transfers in terms of the Agreements, and that the second defendant bears costs on the higher scale of client- attorney.
All the defendants except the fourth defendant entered appearance to defend the claims and filed their pleas.
The issues for determination in these matters are captured in the Parties’ Joint Pre-Trial Conference Minute filed of record as follows-
- First and Second Plaintiffs hold the entirety of the issued shares in the capital of the First Defendant companies in both matters, HC 7843/18 and HC 7760/18.
- First Defendants in both matters are currently under a scheme of arrangement sanctioned by an order of the High Court sanctioning the scheme on 17 January 2018.
- Prior to the placement of the 1st Defendant in both matters under a scheme of arrangement, the two companies were under judicial management, Cecil Madondo as the Judicial Manager.
- On the 14th May 2018, Second Defendant’s Legal Practitioners in both matters filed documentation for the “registration of the scheme” for the First Defendants in both consolidated matters with the Registrar of Companies (Fourth Defendant in both matters).
- Company resolutions and statutory returns which were presented and filed with the Fourth Defendant and purportedly signed by the First Plaintiff were in fact signed by the Judicial Manager.
- On 22nd May 2018, the First Plaintiff communicated with one Supa Mandiwanzira in his capacity as the majority share holder of 3rd Defendant and tried to dissuade him from processing with the transaction in respect of HC 7760/18.
- On the 5th and 6th June 2018, Second Defendant concluded an agreement of sale of the entirety of the business of First Defendant with the Third Defendant (HC 7760/18).
- On the 25th July 2018, the Second Defendant concluded an agreement of sale with the Third Defendant for the sale and First Defendant’s property known as Stand 264 Beverly East Township held under Deed Number 12905/19 in favour of the First Defendant.
- The Second Defendant represented the First Defendants in both transactions (under HC 7843/18 and HC 7760/18)
The following facts are in dispute
- Whether the First and Second Plaintiffs’ had knowledge of the sale transactions and if yes, the extent of their participation in the disposal of the First Defendants in both cases.
- Whether or not the scheme and Arrangement was properly registered with the Registrar of Companies.
- The Validity and legality of the sale transactions in both matters.
- Whether or not the First and Second Plaintiffs have locus standi?
- Whether or not the Scheme of Arrangement and Compromise was/is registered in terms of the law if so, what are the implications?
- Whether the 1st and 2nd Plaintiff acted as agents in the sale of property to the 3rd Defendants in both cases.
- Which party (ies) bear costs and scale thereof?”
At the commencement of the trials of these matters counsels for the first, second, third and fifth defendants applied that the first issue be determined first before any evidence on the rest of the issues is led. The plaintiffs did not object to this procedure.
The court was also of the same view that in the event that the first issue is answered in the negative, it being a point of law capable of disposing of the two matters, that would be the end of the matter. In the event the first issue is answered in the positive, then the trial in rest of the rest of the issues would be proceeded with.
- WHETHER OR NOT THE FIRST AND SECOND PLAINTIFFS HAVE LOCUS STANDI?
In their pleas the first and second defendants raised special pleas that the first and second plaintiffs have no locus standi as shareholders to bring this action. They said the contractual nature of the relationship between the company and its creditors cannot be altered by shareholders. The shareholders have no capacity to challenge a contract between a company and a third party. In casu the first defendant is a company which is under a scheme of arrangement. The scheme was sanctioned by the court on 17th of January 2018 and the court order was delivered to the registrar of companies in March 2018. It was their contention that this action has been brought without the leave of the court being sought and obtained. Hence the action is accordingly incompetent and it must be dismissed with costs. In its plea the third defendant also pleaded that the first and second plaintiffs have no locus standi in the action hence there is no basis upon which they can interfere with the contract between the first defendant and the third defendant which was permitted by means of a sanctioned scheme of arrangement and court order. It said in order to establish locus standi with regard to the matter the applicants ought to have sought the leave of the court to contest the order thereof, which they have not. It prayed that the action should be dismissed on this basis alone.
In oral submissions Mr. N. Chinhanhu maintained that the first and second plaintiffs are only shareholders of a company under scheme of Arrangement. He said the scheme of arrangement is between the company and third defendant only. The plaintiffs seek to interfere with the scheme of arrangement of which they are not contracting parties. The plaintiffs are therefore acting alone without even citing the third defendant which brings into light the privity of contract.
Mr. M. Hogwe for the third defendant told the court that he fully associate himself with the submissions made by counsel for the first and second defendants. He said he needed to add that a company acts through its directors and not shareholders. He said it is trite that a company is a person in its own right distinct from its shareholders. For that reason shareholders of a company are absolutely unqualified to challenge a transaction entered by a company. He said the effect of the action brought up by the plaintiffs is effectively to set aside transactions entered into by a company. The issue of plaintiffs’ capacity effectively goes to the root of them being before this court. He submitted that this matter should be disposed of at this stage.
Not to be outdone the fifth defendant’s counsel Mr. T. Gombiro also told the court that he associated with the views for counsel for 1st and to 3rd defendants. He referred the court to the case of Zimbabwe Alloys limited and Zimbabwe Alloys Chrome (Private) Limited v Balasore Alloys limited and Benscore Investments (Private) limited and Rosemarket (Private) limited and Cometal Trust and Cometal SA HH 597-19 where this court made certain comments on the issue of locus standi. He said the interest of the plaintiffs must be measured against the relief sought. He said in casu the plaintiffs seek to attack the procedure tabulated that led to Court order in para 3. He said further that the plaintiffs seek to cancel the agreements but do not do anything to cancel the scheme. There is therefore no justification at law to skip processes of properly done procedures. He added that plaintiffs are not directors, they have jumped the gun and run to address a consequence and not the act enabling that consequence. According to him the locus standi must not only be limited to the subject matter but to cause of action adopted by a litigant in support of their cause of action. He said the presence of the plaintiffs before this court is of no force or effect. They lose standing in that the relief they seek conflicts the position they adopt.
In opposing the submissions by the defendants Mr. W. Jiti for the plaintiffs submitted that the long and short of the argument by the defendants can be resolved via the single test of locus standi. He said the test is of sufficient interest. He said the question before the court is whether the parties before the court are clothed with the interest to litigate. According to him the interest is a legal one. He referred the court to the case of National Party SWA v Constitutional Party 1987(3) SA 544 where it was held that the test for standing is sufficient interest. He said it is common cause that the plaintiffs are the shareholders of the 1st defendant in both matters. The first plaintiff holds 90% shares and second plaintiff holds 10% shares in both defendants. It therefore goes without saying that a shareholder has an interest in a company he has invested. Further, he submitted among other things that a reading of Section 191 of the repealed Companies Act clearly includes members as interested parties in a scheme of arrangement. He submitted further, that the argument posed by his colleagues would create an ugly scene to investors in a company since it is inconceivable that a member who has approached a judicial Manager voluntarily is later told assets of the company have been disposed of without their knowledge and consent to that agreement.
He disputed the suggestion that a scheme of arrangement is between creditors and a company. On the issue of privity of contract he submitted that the second defendant had no lawful authority to transact in the properties in issue, and this will nullify the agreements between second and third defendants. He also attacked the argument by the counsel for the third defendant on the capacity of the company to transact. His argument being that directors are mere agents who report to the members. In casu he said the plaintiffs are also directors in those two respective companies hence have interest.
In response to the counsel for the plaintiffs’ suggestions the counsels for the defendants maintained that only parties to a contract can sue. In this case the defendants said the plaintiffs have no locus standi to bring this action.
In these two cases the two plaintiffs are claiming for an order that the Agreements of Sale entered between Village Inn (Private) limited, the first company and Tatipano Properties (Private) limited, a second company as well as Folay Investments (Private) limited a third company and Paradise Road (Private) limited, a fourth company, be and are hereby cancelled.
Having heard arguments from the counsels and reading documents filed of record, the court found that it is common cause that the two plaintiffs are shareholders in the two companies under a scheme of arrangement, Village Inn (Private) limited and Folay Investments (Private) limited holding 90% and 10 % shares respectively. It is common cause that a scheme of arrangement was entered into between and among other companies which was sanctioned by this Honourable Court involving some creditors. It is further common cause that agreements of sale were entered into and that the plaintiffs are not parties to those agreements.
The sole issue for determination at this stage is whether or not the two plaintiff have locus standi to bring the current action against the defendants when they are not parties to the agreements of sale?
The contention by the defendants is that the two plaintiffs do not have locus standi. The first ground being that the plaintiffs are violating the privity of contracts. The second contention being that a company acts through its Directors in terms of the articles of association and not through the shareholders. The argument by the defendants being that it is trite that a company is a person in its own right distinct from its shareholders. For that reason the plaintiffs being shareholders of the companies are absolutely unqualified to challenge a transaction entered by a company and a third party.
On the other hand the plaintiffs claim that other than being shareholders of the companies in issue, they are also directors of those two companies. For that reason they have an interest in bringing these actions. On the question of the privity of contract the counsel for the plaintiff submitted that he is at pains as to where this argument is leading because the second defendant had no lawful authority to transact in the properties in issue, hence this will nullify the agreements between second and third defendants. To him privity of contract is a shot from the hip and must not detain this court.
In my view the two agreements the applicants want dissolved were legally entered into and are binding between the two contracting parties. I say so because for a contract to be valid, the parties must be legally entitled to enter into legally binding agreements (that is they must have locus standi in judicio). That is, the parties must be able to understand the nature of a contract and the consequences of entering into such a contract. In the present case the two parties that contracted are artificial persons. An artificial or juristic person is an entity other than a human being created by the law and recognized as a legal entity having distinct identity, legal personality and duties and rights such as a company. See Innocent Maja, The Law of Contract in Zimbabwe p 48.
This brings into question the privity of contract. Citing Innocent Maja, supra, he wrote at page 27 as follows-
“The doctrine of privity of contract provides that contractual remedies are enforced only by or against parties to a contract, and not third parties, since contracts only create personal rights (See Bhana, D; Bonthuys, E.& Nortje M. Students’ Guide to the law of Contract (2009) 18.) According to Lilienthal, (Lilienthal JW ‘Privity of Contract’ (1887) 1 (5) Harvard Law Review226, privity of contract is the general proposition that an agreement between and B cannot be sued upon by C even though C would be benefited by its performance. Lilienthal further posits that privity of contract is premised upon the principle that rights founded on contract belong to the person who has stipulated them and that even the most express agreement of contracting parties would not confer any right of action on the contract upon one who is not a party to it.”
In the present cases the contracting parties are companies. None of the plaintiffs are parties to the agreements of sale. While the counsel for the plaintiffs submitted that the plaintiffs are also Directors in the respective companies, no proof has been tendered to that effect. What the plaintiffs said in their declarations are that they are shareholders in the respective companies. Nowhere did they say they are also Directors. It is trite that accompany is represented by its directors and not shareholders unless specifically said in the articles of association. The plaintiffs are also not parties to the Agreements of Sale. So I do not see where they drive their rights to bring the present actions. While it may be correct that shareholders have rights in a company where they hold shares, that right cannot extent to them having locus standi to then challenge the agreement entered into by a company. A company is a legal persona capable of suing or be sued on its own right distinct from the shareholders. In this case the plaintiffs are individuals with own rights and cannot challenge an agreement entered by third parties when they are not parties to the agreements. At law they lack locus standi. I therefore agree with the defendants that these actions must be dismissed on the basis that the plaintiffs have no locus standi to bring the actions, especially where they seek to challenge agreements where they are not parties. For these reasons the actions are dismissed at this stage and the plaintiff have to pay costs on legal practitioner client scale.
IT IS ORDERED THAT
- The first issue in the joint PTC Minute is answered in the negative, that the plaintiffs lack locus standi in judicio to bring the current actions.
- The actions (HC 7760/18 and HC 7843/18) are dismissed.
- The plaintiffs are to pay costs jointly severally, the one paying the other to be absolved, on a legal practitioner-client scale.
Jiti Law Chambers, applicants legal practitioners
Scanlen & Holderness, 1st and 2nd defendants’ legal practitioners
Hogwe, Dzimirai & Partners, 3rd defendant’s legal practitioners
Chimwamurombe, Legal Practice, 5th defendant’s legal practitioners