Court name
Supreme Court of Zimbabwe
Case number
SC 42 of 2007
Civil Appeal 275 of 2006

Prime Sole (Pvt) Ltd. v Kazi (275/06) (SC 42 of 2007, Civil Appeal 275 of 2006) [2007] ZWSC 42 (25 November 2007);

Law report citations
Media neutral citation
[2007] ZWSC 42










REPORTABLE ZLR (
37)





Judgment
No. 42/07


     Civil
Appeal No. 275/06








PRIME
SOLE (PRIVATE) LIMITED v MUNIR KAZI








SUPREME
COURT OF ZIMBABWE


CHEDA JA,
GWAUNZA JA & GARWE JA


HARARE,
JUNE 26 & NOVEMBER 26, 2007









H Zhou, for the appellant



L Mazonde, for the respondent









GWAUNZA JA: The appellant approached the High Court seeking an order
placing the estate of the respondent under provisional sequestration.

It also sought an order for the appointment of a trustee to run and
manage the financial and business affairs of the respondent.
The
High Court found that the appellant had failed to prove it was owed
any money by the respondent, or that the respondent had
committed an
act of insolvency as defined in the Insolvency Act [Cap 6:04]
(“the Act”). The court was also not satisfied on the facts
before it that there was justification for declaring the respondent
a
debtor as defined by the Act. The court a quo having,
consequently, dismissed the application, the appellant has now
appealed to this Court.







In its grounds of appeal, the appellant alleges error and
misdirection on the part of the court a quo in finding




  1. that the respondent had not committed an act of insolvency; and



  2. that it (the appellant) had failed to establish the respondent’s
    liability to it.








The appellant also charges that the court a quo misdirected
itself in failing to find that the respondent had “executed a
premeditated fraud on the appellant and deliberately generated
invoices in the name of a third party and spread payments
through his
other companies and nominees as a way to disguise his plot to defraud
the appellant of its money”.







The facts of the matter are largely undisputed. The appellant and
the respondent negotiated an agreement, (which they did not
reduce to
writing) in terms of which the latter was to see to it that the
former’s obligations to its suppliers in South Africa,
to the value
of US$108 950.00, were met. This was to be effected through the use
of free funds held outside the country. The applicant
in its turn was
to pay, in local currency, and in Zimbabwe, the Zimbabwean dollar
equivalent of the funds owing, which was worked
out
at $5 687 839 653.75. With discount, the amount
was reduced to $5 289 690 877.00.







The applicant thereafter made staggered payments between 12 July
and 17 August 2005, totaling the discounted amount referred
to.
However none of the payments were made directly to the respondent.
Instead, the payments were made to three companies, Maniam

Investments, Guistein Investments, and Gangnet Interprises, while one
payment was made to someone referred to as I. Sutcliffe.







Despite these payments and contrary to the agreement between the
parties, the appellant’s obligations to its suppliers in South

Africa were for the most part not met, since only ZAR55 830 had been
paid towards the discharge of such obligations. Going by
the then
prevailing exchange rate, this amount was said to represent US$8
589.00. This therefore left obligations worth US$100
361.00 still to
be discharged. When it became evident that the rest of its
obligations, despite promises from the respondent,
were not to be
met, the appellant made repeated demands for re-imbursement of the
US$100 361.00. These demands yielded no results,
a circumstance that
prompted the appellant to write to the respondent, threatening to
take legal action against him. It was then
that the appellant
received three undated cheques each with a face value of $450 000
000.00 and drawn on the account of Guisten
Investments. It is not in
dispute that these cheques, which bore the signature of the
respondent, were dishonoured by the bank
upon presentation. The
reason was that the account on which they were drawn had been closed.
The appellant avers that it received
no further repayment of the
money that it had paid. It therefore proceeded to take the legal
action it had threatened to take,
which took the form of an
application in the court a quo for the provisional
sequestration of the respondent’s estate.







The main dispute between the parties relates to the capacity in which
the respondent acted in negotiating the agreement in question.
He
contends he was acting as a representative of Maniam Investments, the
company that had issued to the appellant, two invoices
totaling the
amount that it was to pay in terms of the agreement. The respondent
argues on the basis of this that it is to Maniam
Investments, and not
him, that the appellant should look for repayment of the US$100
361.00. The appellant, on the other hand,
insists that the
respondent acted on his own behalf when he negotiated the agreement,
and was therefore personally liable in terms
of the Insolvency Act.







According to s 13 of that Act, the High Court shall not grant
an order of provisional sequestration unless it is of the
opinion
that, prima facie -




  1. the debtor has committed an act of insolvency; and



  2. there is reason to believe that it will be to the advantage of
    creditors of the debtor if his estate is sequestrated; and



  3. the petitioner has a claim against the debtor to the extent referred
    to in subs (1) of s 12 (of the Act).








The court a quo correctly considered, as a starting point,
whether on the facts before it, the respondent could be described as
a debtor as defined
in the Act. It found that he could not, and
opined as follows at p 8 of the judgment:







“The applicant in the circumstances was under a most onerous
burden to establish that the respondent was a debtor as defined by
the
Act. The applicant describes the companies into whose account it
paid monies as the nominees of the respondent and yet has adduced
no
evidence to that effect. The respondent is alleged to be the
principal officer of one of these companies, but that does not
make
the company in question a nominee of the respondent. It is trite
that a company is separate from its members and the applicant
has not
even alleged that the respondent owns shares or is the controlling
shareholder in any of the companies. The applicant
has not made any
effort to open up the relationship between the respondent and the
companies it calls the nominees of the respondent.
Without lifting
the corporate veils of the said companies they remain distinct and
separate from the respondent.”







I respectfully agree with the learned Judge’s reasoning and
conclusion as outlined.







The relevant part of the definition of “debtor” in the
Insolvency Act defines debtor as a person who “is a debtor in
the usual sense of the word”.
The definition specifically
excludes a body corporate or company or other association of persons
which may be placed in liquidation
or wound up in terms of the law
relating to companies. Thus a debtor, according to this definition,
must be a natural person.
Such person is defined in the Concise
Oxford Dictionary as “as one who owes money or an
obligation
”.







While the appellant clearly dealt with the respondent in negotiating
the agreement in question, it has not tendered any proof that
the
respondent was representing himself personally. Given the latter’s
averment that he negotiated with the appellant in his
capacity as a
representative of Maniam Investments, the appellant did indeed have
the onerous burden of laying a basis for a finding
by the court that
the respondent was acting on his own personal behalf. The appellant
has not discharged that burden. Quite clearly,
the appellant took a
risk when it failed to ensure that a weighty transaction such as the
agreement in question, was reduced to
writing.







It may very well be true that the respondent did not deal with the
appellant in good faith, and that he also engineered events
in such a
way as to shield himself from personal liability. However, in the
absence of evidence to corroborate the appellant’s
assertions, it
is difficult to accept its say-so as regards the respondent’s
allegedly fraudulent conduct towards it.







As for the companies to which payment of the disputed amount was
made, it is evident the appellant has not said anything to dispute

their existence. The contrary is, in effect, suggested by the fact
that such companies held active bank accounts into which the
funds in
question were deposited. In the face of this, the court a quo
was correct to observe that as long as the appellant did not lift the
corporate veil of these companies, they remained separate
and
distinct from the respondent. Thus, when one of these companies,
whose separate identity from the respondent the appellant
has failed
to challenge, generates invoices and the appellant of its own accord
makes payment to that company, it becomes difficult
to challenge the
respondent’s assertion that he had negotiated the agreement in
question on behalf of that company. If anything,
such documentary
evidence as the invoices and Real Time Gross Settlement, (RTGS) forms
in favour of Maniam Investments does more
to substantiate the
respondent’s assertions than disprove them.







The learned Judge was also correct in her finding that nothing much
turned on the fact that the respondent had signed the three

dishonoured cheques that were drawn on a closed Guisten Investments
account. Companies, being artificial persons, do act through
natural
persons, and that includes the signing of cheques. Signing a cheque
on behalf of a company - even where the account on
which the cheque
is to be drawn may be closed - does not of itself transfer the
liability of the company to the individual who
signs the cheque. That
such an act might have implications in respect of criminal law is not
relevant to the dispute at hand. The
argument that companies act
through natural persons without the latter assuming the former’s
liabilty applies with equal force
to the appellant’s submission
that the respondent was the principal officer of one of the companies
concerned.







It was therefore evident in view of the foregoing, that the appellant
failed in all respects to prove that the respondent was a
debtor with
regard to the debt in question, and in any case, for purposes of the
Insolvency Act,







Having failed to prove that the respondent was its debtor, it
followed that whatever act of insolvency the respondent might have

committed had no bearing on the appellant’s claim. In terms of s 11
(f) of the Insolvency Act, a debtor shall be deemed to have
committed
an act of insolvency if –







“he gives notice to any of his creditors
that he has suspended or is about to suspend payment of his debts or
if he has suspended payment of his debts; or...” 
(my
emphasis)







The meaning of this provision is, in my view, quite clear. A person
who owes money or other obligation, i.e. a debtor, commits
an act of
insolvency if, rather than pay such debt, he lets the people that he
owed the money to, that is, his creditors, know
that he has suspended
or is about to suspend payment of what he owes.







I have already determined that the respondent in his personal
capacity was not the appellant’s debtor nor, conversely, was the

appellant the respondent’s creditor. As correctly observed by the
court a quo, the respondent’s conduct can only be examined
in circumstances where he could be termed a debtor in terms of the
Act.




The finding of the Court on the questions of whether the respondent
was a debtor, or had committed an act of insolvency, is disposive
of
this appeal and makes it unnecessary for me to consider the other
requirements listed in the Act for a provisional sequestration
order.




I find in the result that the appeal has no merit.







It is accordingly ordered as follows –







The appeal be and is hereby dismissed with costs.



















CHEDA JA: I agree



















GARWE JA: I agree



















Gill, Godlonton & Gerrans, appellant’s legal
practitioners



Ahmed & Ziyambi, respondent’s legal practitioners