rugambo pius another vs ivan mrkobrad another 2004 tzhccomd 19 28 may 2004

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION)

AT DAR ES SALAAM COMMERCIAL CASE NO. 312 OF 2002

BETWEEN RUGAMBO PIUS 1ST PLAINTIFF FABIAN PASCAL AMOSI. 2ND PLAINTIFF

VERSUS IVAN MRKOBRAD 1ST DEFENDANT TANNINGRA CONTRACTORS LTD 2ND DEFENDANT 2 and admitted in court as exhibit P2. The plaintiffs aver further that following the incorporation of the second defendant all the subscribers fulfilled the requirements of being members and became the first directors of the second defendant. The plaintiffs allege that their termination followed a misunderstanding and hatred which came up after they required the first defendant to convened a Directors Meeting and Members Meeting with a view of reviewing the company's matters and progress particularly the income and expenditure but the 1st defendant declined. According to the plaintiffs, their termination was unlawful because there was no properly constituted management meeting, nor Board of Directors Meetings nor Members Meeting. It was the 1st Defendant's decision calculated to deny the plaintiffs of their lawful rights and privileges without regard to the governing laws of the company's constitution. The plaintiffs also aver that their termination was followed by letters from the Company Secretaries Messrs Michael Ngalo and Peter Swai Advocates that they were neither members nor directors and they discovered that the 1st Defendant had been conducting meetings with the Secretaries purporting to be management and directors meetings. They contend that the first defendant, with the 3 assistance of the

Company Secretaries took various unlawful steps to alter the status of the 2nd defendant with the Registrar of Companies with a view of completely removing their names from the company record, including a collective keeping of the original share certificate with the company secretaries. II (a) A declaration that plaintiffs are lawful shareholders and directors of the second defendant and that all decisions made without the participation of the plaintiffs as regards the affairs of the second defendant are null and void and/or voidable at the instance of the plaintiffs. (b) an order that the first defendant give a proper account of the second defendant's activities including income and expenditure during the entire period of their purported removal from the second defendant. (C) Costs of the suit. (d) Any other or further reliefs the court may deem fit to grant. II 4 The defendants denied that the plaintiffs are shareholders or Directors. They assert that the 1st Directors of the company are the 1st Defendant and Mrs. Anka Mrkobrad, his spouse. As regard shareholding, the defendants admit retaining certificates for shares. The explanation given is that the Certificates were required for purposes of complying with the Contractors Registration Board. They also assert that the plaintiffs promised to pay for the shares but they failed to do so until their termination. The defendants

contend further that the failure by the plaintiffs to apply and pay for the shares they subscribed in the Memorandum and Articles of Association led to a Board of Directors' Meeting of the 2nd Defendant Company on 10th May 2000. That Meeting passed a Special Resolution increasing the share Capital of the 2nd Defendant to T.shs 100,000,000/=. The Company issued additional 1000 preferential shares of T.shs 100,000/= each to run "pari passu" with the existing ordinary shares already paid by the 1st Defendant, Anka Mrkobrad and Stephen Ngalo. All these were geared towards ejecting more capital to the 2nd Defendant in order to enable it secure more profitable contracts. The defendants say that the failure by the plaintiffs to pay for the shares gave a go ahead for the registration of the 2nd defendant 5 as a foreign Company because the intended local members failed to pay for their shares. They deny that the termination of the plaintiffs was unlawful. They contend that it was done in accordance with the existing laws. The defendants prayed for the dismissal of the suit with costs. iJ Whether the plaintiffs are share holders of the 2nd Defendant. iiJ Whether the plaintiffs were directors of the second defendant. iiiJ Whether the plaintiffs are bound by the decisions made by the defendants without their participation. ivJ To which reliefs are the parties entitled to. The Learned

Advocates appearing for the parties namely Mr. Rutabingwa for the plaintiffs and Mr. Magafu for the Defendants were required to make summing up submissions in writing. It is only Mr. Rutabingwa who complied. Mr. Magafu has not complied. The 1st Defendant wrote a letter to this court requesting that the schedule for filing of the submissions be altered so as to allow the defendants 6 engage another Advocate because Mr. Magafu decided not to respond to all correspondences made by the defendants in whatever way. A similar application was also made by MIS Law & Equity Chambers. This court did not grant the applications because filing of final submissions is not a necessary requirement. The court did not see any logic in delaying the case further. The case was filed in December 2002 and it has been in court for almost 1112years. The case also suffered a long period of adjournment prompted by the defendants' request that there was a witness who was important. unfortunately, until when the court said that enough was enough, that witness never turned up. This court had to proceed to judgment without the evidence of that witness. The plaintiffs called three witnesses and the defendants two witnesses. As for the first issue, both plaintiffs who testified as PW1 and PW2 respectively gave evidence that they are shareholders. Their respective share certificates were tendered in court and

admitted as eXhibits P3 and P6 respectively. Exhibit P3 is a share Certificate for the 1st Plaintiff (Rugambo Pius). It shows that the authorized Capital of the 2nd Defendant was T.shs 10,000,0001 = and the 1st Plaintiff had 1000 shares of T.shs 10001 = each, numbered from 7001 to 8000. It also shows that the shares were paid up. The Share Certificate was 7 issued on 10th November, 1997. The same particulars are shown in exhibit P6. The only difference is that the owner of the certificate is Fabian Pascal Amosi (2nd defendantL His shares run from 9001 to 10000. The Memorundum and Articles of Association tendered in court as exhibit P1 shows at page 17 that the subscribers were Ivan Mrkobrand, Mrs. Anka Mrkobrand, Rugambo Pius, stephen Isaria Ngalo and Fabian Pascal Amos. The evidence of PW1, PW2 and exhibits P3 and P6 contradict the evidence of Ivan Mrkobrand (DW2) that the 2nd Defendant was incorporated in 1998. Even PW3 - one Emmanuel Kaluwezi, an Assistant Registrar of Companies confirmed that the 2nd Defendant was incorporated in 1997, on 22nd August. This is what the certificate of incorporation (Exh.P1)shows.DW2 testified that both plaintiffs were not issued with share certificates because they did not pay for the shares. However, both plaintiffs testified that their shares were fully paid up. There were varying explanations on why the original certificates were not in

possession of the plaintiffs. However, there is no dispute that the original certificates exist and they are in possession of the Defendants. Both Certificates (Exhibits P3 and P6) show that the value of the 1000 shares was T.shs 1,000,000/ = and the amount was paid up. The certificates were dully signed by the 1st Defendant as the Director and Mr. Swai as the Company secretary. They are also sealed. 8 In terms of section 69 of the Companies Ordinance Cap.212, 1/ A certificate under the common seal of the company specifying any shares held by any member shall be prima facie evidence of the title of the member to the shares. 1/ The importance of share certificates has been underlined by various writers on company law. C.B.GOWER is among them. In his book titled GOWERSPRINCIPLESOF MODERNCOMPANY LAW, 4th Edition at p.434 he says: 1/ The practice is for the company to issue a certificate to the member certifying that he is the holder of a specified number of shares (giving their distinguishing numbers if they have them and stating the extent to which they are paid uP) or of a certain quantity of the stock. The purpose of this is to give the shareholder some document which he can use as evidence of his title. 1/ There are also a series of authorities in case law to support this position. In the case of SOCIETE CENERA LE DE PARIS V WALKER (1886) " AC 20 which is an English authority,

where we have borrowed our company law, the importance of a share certificate was also stressed. The House of Lords, Lord Earl of Selborne said: " That transfer was not accompanied by the certificates which in companies of this kind are the proper (and indeed, the only) documentary evidence of title in the possession of a shareholder, and which according to the usual course of dealing with such shares, ought to come into the hands of a bonifade transferee for value. " Although the above case was dealing with transfer of shares, the court pointed out that a share certificate is evidence of title in the hands of a shareholder. The share certificates for both plaintiffs show that the whole amount was paid up. The 2nd Defendant cannot dispute this. In the case of Frederick Bloomenthal VS James Ford (1897) AC 156 Lord Halsbury L.Csaid - " The language of the certificate of this that Mr. Fredrick Bloomenthal "is the registered propria tor" and so on, of such and such shares, and that on such and such shares the full amount has been paid"... that is the certificate issued by the company itself." 10 From the evidence which is on record, I would entirely agree with Mr. Rutabingwa's submission that: 1/ By the existence of the certificate of shares in the names of plaintiffs, the second defendant TANNINGRACONTRACTORS LTOis prevented from disputing the title by what is properly known as

estoppel against the company. The company is bound by its statement in the certificates. 1/ I therefore find that the evidence, the law and case law authorities show that the plaintiffs are shareholders of the second defendant. The answer to the first issue is affirmative. As regards the second issue the evidence is conflicting. Whereas the plaintiffs mostly relied on a letter which was written by Mr. D.S. Mtetewaunga (who was by then the Acting Registrar of Companies) to Mr. D. Kesaria, on 13th July 1998 stating that the plaintiffs were among the Directors, PW3 - (Mr. Emanuel Kakwezi) testified that the Directors of the 2nd Defendant since incorporation were the 1st Defendant and his wife. He said this information is what is shown in Form 14 and the Form was filed on 22/08/1997 the day when the company was incorporated. The letter was admitted in court as exhibit P9. Mr. Rutabingwa also sought to rely on a report which was written by EURAFRICANBANK to the Contractors Registration Board. The report shows that the plaintiffs were Directors. However, no witness came to court to testify on the report. Nor was Mr. Mtetewaunga summoned to speak on the letter which he wrote to Mr. Kesaria (Exh.P9LMr. Rutabingwa thought that it would have been the obligation of the defendants to summon the witness from the Bank because they refused to testify on behalf of the plaintiff. Mr.

Rutabingwa's view was that the contradiction in the records of the Registrar of Companies suggests that the records were tampered with by removal of the names of the plaintiffs. According to Mr. Rutabingwa, the failure by the 1st defendant to explain the procedure for appointment of Directors and his failure to bring the company secretaries whom he said were the ones who were knowledgeable on the matter, should make this court draw the only inference that: 1/ the plaintiffs became directors of the second defendant and were under that capacity by the time they were barred by the first defendant or at his instructions. 1/ While the possibility of records being tampered with at the Registrar of Companies office cannot be ruled out, I do not, with respect to 12 Mr. Rutabingwa, concede to the inference which he said should be drawn. The plaintiffs are the ones who have filed this case. The burden of proof is on the plaintiffs to prove that the records at Registrar of Companies were tampered with and the names of the plaintiffs removed. Section 110 (1) of the Law of Evidence Act 1967 reads as follows: " Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exists. (2) When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on

that person." While I sympathise with Mr. Rutabingwa that the plaintiffs could not bring a witness from the defendants' bankers, this court was not told why Mr. Mtetewaunga was not summoned to explain why he wrote exhibit P9 if the facts were otherwise. I thus find that the plaintiffs have not discharged the burden of proving that they were Directors of the 2nd Defendant. The second issue is answered negatively. 13 AS regards the 3rd issue, Mr. Rutabingwa submitted that a demarcation line should be dravJn between decisions made by the defendants with outsiders and those which were made affecting the internal arrangement of the second defendant which were taken deliberately to exclude the plaintiffs from the running of the company or enhanced the position of the first defendant and other shareholders. Such decisions included changing the status of the shares of the company by creating ordinary and preferential shares which were allotted to the 1st Defendant and His wife. The other was changing the Board of Directors who are normally appointed by members and changing the company records at the COMPANIES REGISTRY.Mr. Rutabingwa's views are that such decisions were made in bad faith so as to exclude the plaintiffs from the company. He is of the opinion that it will be in the interest of justice to have those decisions declared null and void. Having made a finding that the

plaintiffs are only shareholders and not Directors the prayers sought here cannot be granted. As stated, there is no proof that the defendants tampered with records at the Registrar of Companies office. As such they were only entitled to participate in decisions which had to be made by the members of the company and not those decisions which fell under the mandate of the Directors. The activities which Mr. Rutabingwa complained N.P.KIMARO,

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