NA TZCA Dar es salaam

;-. IN THE COURT OF APPEAL OF TANZANIA

AT DAR ES SALAAM {CORAM: RUTAKANGWA, J.A., BWANA, J.A., And OTHMAN, J.A.) CIVIL REVISION N0 .. 1 OF 2009

IN THE MATTER OF INDEPENDENT POWER TANZANIA LIMITED AND IN THE MATTER OF THE COMPANIES ACT, 2002 [R.E.]

AND

IN THE MATTER OF A PETITION BY A CREDITOR FOR AN ADMINISTRATION ORDER BY STANDARD CHARTERED BANK (HONG . KONG) LIMITED (PETITIONER) (Application for Revision of the Proceedings, Ruling and Orders of the High Court of Tanzania at Dar es Salaam ) (Mihayo, J.) Dated 27th day of January, 2009 in . Miscellaneous Civil Cause No. 5 of 2009

RULING OF THE COURT 19 th March, 2009 & 9th April, 2009 RUTAKANGWA, J.A. The Companies Act, Cap. 212 R.E.2002 of the Laws of Tanzania, henceforth the Act~ came into force on 1 st March, 2006._ It repealed and replaced the Companies Ordinance· (the Ordinance). The Act also introduced a totally new legal concept in corporate management and/or governance, previously unknown in our · jurisprudence. This was_ the concept of ADMINISTRATION, which is embodied in Part VII of the Act. 1 ~\ \ j Administration, as a legal concept, is a procedure under the insolvency laws of a number of common law jurisdictions, including the U.S. It functions as a rescue mechanism for insolvent companies and allows them to carry on with their business instead of being liquidated. The process is usually referred to as going into administration and the entire concept is better known as the RESCUE CULTURE. In the U.S. the process is known as going into Chapter 11. Independent Power Tanzania Limited (I.P.T.L. as popularly known by this acronym), henceforth the Company, is a body corporate operating in Tanzania. It was incorporated on 1st November, 1994 under the provisions of the repealed Ordinance. It has two shareholders, which are also corporate entities. These are Mechmar Corporation (Malaysia) Berhard or Mechmar hereafter, holding 70% of the shares and VIP Engineering and Marketing Limited, or VIP

hereinafter, holding 30% of the shares. The object of the Company is to build and operate "a 100 MW independent, oil fired, power plant, with designation for the provision of additional capacity and supply to the national grid." The preparatory stages, which included the. entering into •a - Power Purchasing Agreement with TANESCO and the installation of the operating plant at Tegeta, Dar es Salaam, were successfully concluded by the year 2001. However, as it happens by one of those unusual coincidences which sometimes occur in real life, the brilliant idea began to backfire 2 -- ' ' I ,, thereafter. The initial trust and confidence that animated the business relationship between the two shareholders became sour and turned to bitterness. There emerged mutual mistrust. This led VIP, on 25th February, 2002, to petition for the winding up of the Company and simultaneously applying for the appointment of a Provisional Liquidator of the Company _ vide, Miscellaneous Civil Cause No. 49 of 2002 of the High Court of Tanzania at Dar es Salaam, henceforth the winding up petition. In the said petition, based on the provisions of the Ordinance, VIP was accusing Mechmar of oppression, corporate waste, fraud and alleging a total breakdown of trust and communication.. While the winding up petition was still pending, Mechmar won an ex parte award against VIP in the London Court of International

Arbitration, directing VIP to discontinue the winding up petition. This award was lodged in the High Court, vide, Miscellaneous Civil Cause No. 254 of 2003. In the course of time these two separate proceedings were consolidated. On 16th December, 2008, the High Court (Oriyo, J.) appointed the "Administrator General/Assistant Official Receiver" as the Company's Provisional Liquidator under Section 183 (1) of the Ordinance. Following that appointment, Mechmar formally applied to this Court for a stay order. Before this application was heard and disposed of, Standard Chartered Bank (Hong Kong) Limited, henceforth the Bank,· a limited liability company incorporated in Hong Kong, entered the saga, by way of the administration process, under 3 . . l\l Part VII of the Act. Claiming to be a creditor of the Company owed "approximately US $46,265, 468,42," which the Company had failed to pay, the Bank petitioned the High Court, under s.247 of the Act, to make an administration order and "appoint Charles Rutayug·a Burchard Rwechungura as administrator of the Company". This was Miscellaneous Civil Cause No. 5 of .2U09 in the High court at Dar es Salaam, hereinafter the petition. The petition was lodged on 22nd January, 2009. It was expressly stated in para 2 of the petition thus:- "Jt is not intended to serve this Petition upon any paft½ save as directed by this Honourable Court."

[Emphasi~ is ours]. On 23 rd January, 2009, only Mr. Charles Morrison, learned advocate; appeared before Mihayo, J. and made a brief submission in support of the petition. The ruling was reserved. It was eventually delivered on 27th January, 2009. The petition was granted. IPTL was placed into administration. Mr. Charles R.B. Rwechungura was appointed Administrator of the Company. When the Provisional Liquidator became aware of· the said i- administration order, he was aggrieved. As he was not a party in the petition, he chose to lodge a complaint, by way of a letter, to the Chief Justice. He was complaining, among other reasons, about the manner the petition proceedings were hastily conducted behind his back thereby occasioning gross injustice to him. He urged the Chief 4 - Justrce to cause the Court to act suo motu under section 4(3) of the _ Appellate Jurisdiction Act, Cap.141 R.E. 2002 and revise the proceedings before Mihayo, J. "to redress the injustices" that had been committed. This is the brief background to these suo motu revision proceedings. _ The Provisional Liquidator had three main grievances. One, the High Court erroneously entertained the proceedings in respect of the Company under the provisions of the Act, when the same are specifically misapplied by section 486 of the Act. Two, section 176 of the Ordinance as well as section 288 of the Act, which are in

pari materia, bar commencement and/or continuation of proceedings, actions, etc, against a company once a Provisional Liquidator had been appointed. Three,, he was condemned unheard. In the ·interests of justice, before a decision on these grounds of complaint was made, the Court deemed it helpful to hear representations from the following persons:- (a) the Provisional Liquidator, (b) the Attorney General, (c) VIP I (d) Mechmar, and -·· -- .g,· (e) the Bank. On the day the matter first came up for hearing, representation of the interested parties was as follows: Dr. Fredrick S. Ringo and Mr. C. Morrison, learned advocates, for the Bank; Mr. Michael Ngalo, Mr. Cuthbert Tenga and Mr. Respecius Didace, learned advocates, for 5 .... VIP; Mr. Dilip Kesaria, learned advocate, for Mechmar; Mr. Theophil Rugonzibwa and Miss Anuciata Ngairo, learned State Attorneys for the Provisional Liquidator; and Mr. Gabriel Malata, learned Senior State Attorney, for the Attorney General. Furthermore, Ms. Fatma Karume, learned advocate, sought to be given audience on the basis that she had instructions from one Ms. Martha K. Renju, who is said to be the Receiver of all IPTL shares, to represent her. As there was no opposition from either Mechmar or VIP and/or the Provisional Liquidator, she was given audience in the matter. In these revision p~oceedings counsel had to grapple with a number of issues

drawn from both the complaint letter and the record of proceedings before the High Court. These were:- (a) Whether it was proper for the learned High Court judge to proceed ex-parte without issuing notices to any interested party; (b) Whether the Bank needed teave of the High Court before petitioning for an administration order; ( c) What was the applicable law in the peculiar circumstances of the case and whether the High Court had been properly moved; ;-· ( d) Whether· there was any legal requirement to support the petition with an affidavit and if the answer is in the affirmative if there was such an affidavit in this case; 6 ' ..,. 11111111..ti• (e) Whether the petition by the Bank had to be accompanied by a copy of a resolution by its Board authorizing institution of the proceedings; (f) Whether the petition was signed by an authorized officer of the Bank, and (g) Whether the petition for an administration order ought to have been filed in the consolidated winding up petition in terms of Rule 11(2) of the U.K. Companies Winding Up Rules, 1929. Admittedly, some of these issues were intricate. That notwithstanding, each counsel presented his or her case to us at length, and in an absorbing manner to which we pay sincere tribute. However, we might not attempt to provide an answer to each issue raised and submitted on in these proceedings and therefore, we cannot hope to do

full justice to counsel. But we are much indebted to them. We are saying so advisedly because we believe that the answer to the first issue might prove to be crucial and conclusive, and there is no gainsaying that some of the issues raised by counsel need to be established by calling of evidence. Furthermore, we are mindful of the fact that the Court acted suo motu under section 4(3) of the Appellate Jurisdiction Act, Cap.141 to call for the record of proceedings before Mihayo, J. It did so only for the purpose of satisfying "itself as to the 7 .. correctness, legality or propriety" of the said proceedings and the ruling and/ or orders made therein. This does not cover legal and factual issues not canvassed by the learned judge. If issue (a) is · answered in the negative, then the parties will have ample time to raise these other issues at the opportune moment· and in the appropriate forum. What did counsel have to say on this issue? It was the contention of the Provisional Liquidator in these proceedings that the entire proceedings before Mihayo, J. and the appointment of the administrator were a nullity. They were a nullity because they were conducted in violation of one of the cardinal . principles of natural justice, in that he and other interested parties were condemned unheard. On this, he was supported by VIP and the Attorney General. This contention was vehemently

opposed by the Bank, which received unflinching support from Mechmar and Ms. Martha Renju. In support of his contention, Mr. Rugonzibwa began by asserting that the Provisional Liquidator, on being appointed, took charge of all properties of the Company. He relied on section 188 of the Ordinance, which reads as follows:- "Where a winding order has been made or where a provisional liquidator has been appointed the liquidator✓ or the provisional liquidator as the case may be,, shall take into his custody,, or under his control, all the 8 - property and things in action to which the company is or appears to be entitled. ,, It is worth noting here that this section 188 reappears in the Act as section 299. Placing much reliance on section 188 of the Ordinance, Mr. Rugonzibwa submitted that as section 248 of the Act does not provide for ex-parte proceedings, the Provisional Liquidator, who was the Company by then, had to be heard before an administration order was made. As this was not done, he pressed, his constitutional right was violated. Relying on the decisions of this Court in ECO-TEC (ZANZIBAR) LTD v. GOVERNMENT· OF ZANZIBAR, Civil Application No. 1 of 2007 (unreported) and VIP ENGJNEERING AND MARKETING LIMITED AND 2 OTHERS v. CITIBANK TANZANIA LIMITED, Consolidated Civil References No. 6, 7 and 8 . (unreported), he urged us to nullify the entire proceedings before Mihayo, J.

and order a re-trial in which they will be afforded a hearing. Mr. Ngalo questioned the propriety of the manner the petition was hurriedly entertained by the learned judge without even the · petitioner itself being served with a notice of hearing. Mr. Tenga was emphatic that the right to be heard is very fundamental and was not· ousted by section 248(2)(a) of the Act. He was of the firm view that the Petitioner in the winding-up petition 9 ... ',, was one of the prescribed persons in the Act and was, therefore, entitled to a hearing. For Mr. Morrison, his long address on the virtues of the administration procedures and the incisiveness of Mihayo, J.'s decision apart, it was his strong contention that he could read nothing in the Act which gave a right of hearing to either VIP or the Provisipnal Liquidator. According to him, the powers of the Provisional Liquidator were spelt out in the order of Oriya, J. which appointed him. From that premise, he boldly submitted that his powers being "limited to carrying out investigations" and reporting back to the Court, he had no right to be heard in a petition for an administration order. He buttressed this argument by insisting that as section 248(2) of the Act gives no discretion to the Court in choosing on whom the notice of the petition should be served and in the absence of the Rules detailing those other "prescribed persons," this

was not a fit case to afford a hearing to the Provisional Liquidator. Significantly, he said nothing on the fate of the petitioner in the then pending winding up petition (i.e VIP). On his part, Mr. Kesaria boldly asserted that as this was not a .. -- petition .for.Javouring-one and-discarding-.another, but one whJch was in the interests of all parties, the Provisional Liquidator and VIP had no cause for complaining. It was his undisguised contention that none of them was adversely affected. More specifically, he pressed us to find that the Provisional Liquidator had no role to play in those proceedings, as "he has no interests in the survival of the company." 0 10 Ms. Karume prefaced her brief submission with a castigation of those who were driven by "sheer emotions" to attack the learned High Court judge. To her, the learned judge ought to be highly commended for "working with speed" to administer justice. Otherwise,· she was in full concurrence with the submissions of Mr. Morrison and Mr. Kesaria on the issue as the learned judge had to work within the confines of section 248 (2)(a) of the Act. We shall begin our discussion of this issue by first stating the law governing it as we understand it and which we believe counsel in these proceedings are familiar with. There are two principles of natural justice. These are that, no ·person should be a judge in his or her own cause

and that no one should be condemned unheard. In these proceedings we are concerned with the latter. All the same, it is fair to stress here that these two principles have been given constitutional recognition. They are encapsulated in Article 13(6)(a) of the Constitution of the United Republic of Tanzania 1977, which we shall hereinafter refer to as the Constitution. · - - - - --·-· -·--···-----· ·---·-- - ---- -· ·-·. --- s Article 13(6)(a), of the Constitution provides as follows:- 11 To ensure equality before the la~ the State Authority shall make procedures which are appropriate or which take into account the following principles; namely:- 11