Christopher James Thorne v Christopher Mulenga and Ors (2008/HPC/0841) [2010] ZMHC 116 (16 February 2010)

IN THE HIGH COURT OF ZAMBIA AT THE COMMERCIAL REGISTRY HOLDEN AT LUSAKA (Commercial Jurisdiction} 2008/HPC/0841 IN THE MATTER OF: SECTION 113 OF THE COMPANIES ACT CHAPTER 388 OF THE LAWS OF ZAMBIA AND IN THE MATTER OF: AN APPLICATION BY A DIRECTOR OF KAYANJE FARMING LIMITED (IN RECEIVERSHIP) BETWEEN: CHRSITOPHER JAMES THORNE APPLICANT AND CHRISTOPHER MULENGA EDGAR HAMUWELE 1ST RESPONDENT 2ND RESPONDENT ZAMBIA NATIONAL COMMERCIAL BANK PLC 3RD RESPONDENT Before the Hon. Mr. Justice C. Kajimanga in Chambers this 16th day of February 2010 For the Applicant: Mr. P. Chungut Messrs Ranchold, Chungu Associates and Mrs. D. Findley, Messrs. Mulikita & Co. For the 1st and 2 nd Respondents: Mr. M. Musonda, Messrs. Michael Musonda & Co. For the 31'd Respondent: Mr. S. Akalutu, Legal Counsel RULING Cases referred to: R2 2. 3. 4. 5. 6. 7. 8. 9. 1 O. 11. Avalon Motors Limited (In Receivership} v. Bernard Leigh Gadsen Motor City Limited (1998} Z. R 41 Hina Furnishing Lusaka Limited v. Mwaiseni Properties Limited (1983) Z. R. 41 ZESCO Limited v. New Lande Motel SCZ Appeal No. 86/2001 Development Bank of Zambia v. Chani Enterprises Limited SCZ Appeal No. 99/2001 Turnkey Properties v. Lusaka West Development Company Limited & Others (1984) Z. R. 85 Macaura v. Northern Assurance Company Ltd/1925] AC 619 Mohammed Azim Tickley v. First Alliance Bank Zambia Limited & Another SCZ Appeal No. 112/1999 Jayanti G. Patel And 3 Others v. Eastern And Southern African Trade And Development Bank (PTA Bank) and John Stanley Ward & Richard Peter (Sued as Joint Receivers of SAPCO Limited) 2000/HPC/0252 Grant Thornton Associates and Zambia National Commercial Bank PLC Roan Antelope Corporation Plc (In Receivership} v. Zambia National Commercial Bank Plc & Christopher Mulenga (Sued as Receiver and Manager of RAMCOZ 2001/HPC/188 12. American Cyanamid v. Ethicon Limited [1975] AC 396 13. Salomon v. Salomon & Co. Limited {189 7} A. C. 22 14. Re B. Johnson & Co. (Builders) Limited 15. Chikuta v. Chipata Rural Council [1974] Z. R. 241 16. Zambia Venture Capital Fund Limited v. Pie Delight Limited SCZ Appeal No. 165/2000 R3 Works referred to: 1. 2. 3. Hubert Picardo - The Law Relating to Receivers and Managers 1984 Butterworths London} Megarry's Manual of The Law of Real Property (6th Edition). Order 5, rule 2 of the RSC 1999 Edition This is an application by the Applicant for an order of interim injunction restraining the 1st and 2nd Respondents, namely, Christopher Mulenga and Edgar Hamuwele, their servants or agents from acting as Receivers and Managers of Kayanje Farming Limited (in Receivership) ("Kayanje"). The application is supported by an affidavit sworn by Christopher James Thorne, a Director and Shareholder in Kayanje. His affidavit discloses that on 24th December, 2007 the 3 rd Respondent advanced US$2,940,000.00 to Kayanje for farming operations. The loan was to be repaid from the proceeds of the harvest for 2006 / 2007 season and the proceeds of the sale of 915 hectares of the subdivision of Kayanje's property known as Farm No. 2059, Ngwerere, Lusaka. Due to the slump in commodity prices for the 2006/2007 season, the harvest did not yield the anticipated proceeds and Kayanje was not able to make repayments as agreed. The affidavit in support also discloses that towards the end of 2008, Amavel Limited ("Amavel") approached the deponent with an offer to purchase the proposed subdivision at US$700,000.00 but the transaction fell through. The deponent was subsequently approached by Sipho Phiri of Apamwamba Limited rApamwamba") who expressed interest in purchasing the sub-division at US$1,100,000.00. Before the sale could be completed the deponent learnt that Amavel had entered a caveat on the entire property comprised in Farm No. 2059 Ngwerere, Lusaka although the discussions only related to 915 hectares R4 of the farm. Kayanje instituted an action against Amavel under cause number 2008/HP/342 and applied for the removal of the caveat. On 5th May 2008 judgment in default of appearance and defence was entered (see exhibit "CJT8") and Kayanje executed a Contract of Sale with Apamwamba (see exhibits 'tCJT9- 11 "). Amavel subsequently obtained an order that the Caveat be reinstated (see exhibit "CJT12-18"). As a result of the subsistence of cause number 2008/HPC/342, it was not possible to conclude the transaction with Apamwamba and consequently, the loan remained unserviced and continued to accumulate interest and other related charges. The affidavit also discloses that as Managing Director of Kayanje, the deponent discussed with the 3rd Respondent on the best way to resolve the escalation in the loan amount and the removal of the caveat. At a meeting called by the 3rd Respondent, it was agreed that Kayanje be placed in receivership and that the receivers to be appointed would facilitate the removal of the caveat and disposal of the subdivided portion of the farm. It was also agreed that a review of the farming operations would be undertaken leading to the long term survival of the business and an electronic mail from Credo Makwembo, the 3 rd Respondent's Senior Manager - Special Assets Management dated 29th June, 2009 confirms this (see exhibit •tcJT19"). It was further agreed that the deponent and one Marc Thorne would be Farm Managers under the direction of the Receivers, drawing monthly salaries of Kl0,000,000.00 and that the 3 rd Respondent would provide finances required to sustain farming operations for the 2009/2010 season and the monies realized from any crops yet to be harvested would also be applied in the farming operations. The deponent's further evidence is that the 1st and 2 nd Respondents were appointed Joint Receivers and Managers by a deed dated 10th ,July, 2009 (see exhibits "CJT20-24"). When they were appointed Kayanje had onions, paprika and sugar beans yet to be harvested. The deponent and Marc Thorne have overseen the harvesting of the bulk of this crop and have had most of it stored RS in the barns or sold but there still remains a substantial amount of paprika yet to be harvested. The sale of most of the harvested commodities has been hampered by the fact that the Receivers and Managers have failed or neglected to procure the packaging required for them before sale notwithstanding numerous reminders (see exhibits "CJT25-27") and the crop remains stored at the risk of going to waste. The Receivers have also failed to run the operations at the farm efficiently and have caused the disconnection of electricity supply and telephone services. They have also delayed and/ or defaulted on making statutory contributions to Zambia Revenue Authority ("ZRA") and the National Pension Scheme Authority ("NAPSA") and these issues were brought to their attention in correspondence marked "CJT28-33". The affidavit also discloses that the Receivers and Managers have not done anything to sustain the operations at the farm as earlier agreed and despite the efforts of the deponent and Marc Thorne. The 3rd Respondent having not provided working capital despite having promised to do so, the deponent arranged with Zambezi Ranching and Cropping Zambia Limited to provide the input for a crop of maize which would have yielded 5 metric tones over an area of 40 hectares at a projected cost of US$900 metric tones but the Receivers and Managers declined the offer, stating that they were only going to harvest the crop and thereafter sell the assets of the company (see exhibits "CJT35-37"). The deponent also arranged to borrow US$200,000.00 as input capital to assist the farming operations for the 2009/2010 season which was paid to the 3rd Respondent and discussions were initiated to suspend the receivership and permit the business operations to continue as before with the view of repaying the debt. The cash flow projections requested by the 3 rd Respondent clearly indicated the viability of the business (see exhibits "CJT338-45") but they then made onerous demands before suspending the receivership (see exhibits "CJT46-48") . . - R6 The affidavit in support further discloses that the Respondents are not interested in resuscitating Kayanje and are only bent on selling its assets to the detriment of the company contrary to the agreement that was reached on conceding to the appointment of the Receivers and Managers. The 1st and 2nd Respondents have not acted competently and in the interest of the company as they have been derelict in their responsibilities and have diminished the commercial viability of the company as evidenced by the numerous instances of delay, inefficiency and incompetence in the correspondence marked "CJT49- 53". The deponent is apprehensive that unless restrained, the Respondents will dissipate the assets of Kayanje and jeopardize its commercial viability to the extent that it will not be capable of generating sufficient funds to repay its debt thereby resulting in the loss of the entire assets. The deponent is also apprehensive that unless restrained the Respondent will proceed on their intention to sell the farm without making any attempts at operating the business to generate the funds that would repay the 3 rd Respondent and that there are crops which are in danger of going to waste with the current mismanagement exhibited by the 1st and 2nd Respondents and further, that these events would cause him irreparable injury. The affidavit in opposition of the 1st and 2nd Respondents discloses that on 10th July, 2009 they were appointed Joint Receivers and Managers of Kayanje by ZANACO pursuant to the terms of the debenture including a floating charge (see exhibit "CM4" in the 3 rd Respondent's affidavit in opposition). The purpose of their appointment was to realize the assets charged under the debenture in order to enable Kayanje pay off the moneys which it owed or were due to ZANACO and to satisfy the company's preferential debts as prescribed under the Companies Act Cap. 388 of the Laws of Zambia. It is clearly misleading that their appointment was restricted in the manner suggested in paragraph 20 of the affidavit in support. They depose that on the contrary, the debenture reveals that they have extensive powers as Joint Receivers and Managers of Kayanje. --.. ------,---.--~ R7 The affidavit in opposition also discloses that the Applicant and Marc Thorne were engaged by the deponents as casual employees upon such terms and conditions as they would determine from time to time. The provisions of any finances to Kayanje was a matter which was entirely in the discretion of the Respondents and at the time the deponents were appointed, Kayanje had huge debit balances in its various bank accounts (see exhibits "MHl" to "MH2"). The deponents did not only arrange to borrow the sum of K337 ,036,000.00 from ZANACO for the purpose of buying chemicals and fertilizer to bring the crops to the point of harvest, but they also ensured that the crops were harvested and at the time the ex-parte order of injunction was granted, the second round of harvest was progressing. The affidavit also discloses that the allegations in paragraph 26 of the affidavit in support are malicious as it was the 1st and 2nd Respondents who procured the required packaging materials which, in any event, depended on the availability of funds which the company did not have. There was never a time when ZESCO disconnected electricity supply at Kayanje during the receivership. The telephone lines were disconnected when Zamtel leant that Kayanje had been placed in receivership but the deponents arranged to enter into a fresh contract with Zamtel (see exhibit "MH4"). The statutory payments to ZRA and NAPSA are up to date as these are preferential in a receivership and payable ahead of any other payments of the company. The affidavit in opposition further discloses that the allegations in paragraphs 35 to 39 of the affidavit in support constitute a naked misapprehension of the nature of the 1st and 2nd Respondents' role as Joint Receivers and Managers of Kayanje. The 1 st and 2 nd Respondents have acted diligently and professionally vis-a-vis the execution of their mandate despite ihe resistance and interference they faced from both the applicant and his son (Marc Thorne). Although the Applicant and his son were retained by the 1st and 2nd Respondents to "assist" 1n the execution of their mandate> they have been guilty of a number of breaches of their fiduciary obligations to them as follows: R8 (a) they have been disregarding the deponents' standing instructions on the need to bank all proceeds from cash sales intact as confirmed by the duo's own exhibits "CJT25" and "CJT26"; (b) they have been utilizing fuel issued to them in connection with Kayanje activities on other activities and without the authority of the deponents; (c) they have failed to account for proceeds relating to bailed beans straws; (d) they have been conducting their own private businesses while employed as aforesaid and using Kayanje's premises and facilities without authority; (e) they have never disclosed that they had an interest in the company which is the sole purchaser of Kayanje's paprika; (f) they have generally been disregarding their fiduciary obligations to the deponents to the extent of proceeding on leave without their permission; (g) they purported to employ a senior farm supervisor against their instructions; and (h) inspite of them being advised against using the company's stationery in a misleading manner, they continued doing so as their various correspondence reveals (see exhibit 24["CJT31"] in the Applicant's affidavit in support). The affidavit in opposition of the 1st and 2nd Respondent further discloses that it is clear from the foregoing that the Applicant's search for injunctive relief is not only misconceived and frivolous but it is also a deliberate attempt to stop the 3rd Respondent from exercising its own legal rights as debenture holder in relation to Kayanje and that the ex-pate order of injunction should be discharged with costs. ;The 3rd Resp_ondent's affi<;favit in opposition sworn by Credo Kambeli Makwembo discloses that the processi giving rise to this application is irregular .~ ·,i ~ .. • • ~ ' • • as it was commenced by originating summons, yet it is founded on negligence. ' The Applicant failed to comply with the repayment schedule as agreed by the partie's in a letter datet'l 2'!-th 6ecember, 2007 (see exhibif""""CM 1 "). The projected cash flow stateme(i't of Kayanje shows that it is not in a position to repay its debt from the far~ing operations which are neither sustainable nor .• t ' viable (see exhibit "CM2"). The affidavit in opposition also discloses that the 3 rd Respondent never agreed to provide finances required sustaining the farming operations for 2009/2010 season but only to ensure that the existing crop does not go to waste as it forms part of the security. The Applicant's cash flow projections are unrealistic as they assume a continuation of cropping programmes without the farm in issue providing necessary funding to support implementation of the proposed crop production. The assumption that continuation of cropping programmes would be funded from crop proceeds is false and misleading as the purported crop sale proceeds put by the Applicant at K6,200,000,000.00 may only be received way into the year 2010 when the planting season began in November/December 2009. The Applicant's contention that the farm would also have an inflow of K9,600,000,000.00 by January 2010 from the sale of the subdivision is also untrue because of the caveat on the farm in respect of which there is ongoing litigation in court. The affidavit in opposition further discloses that by placing the Applicant in receivership, the 3 rd Respondent has merely exercised its options as provided for in the floating debenture as a secured creditor (see exhibit "CM4") following the Applicant's default in its loan repayments. The Applicant cannot stop the 3rd Respondent from exercising its legal right under the security or contest of its being put in receivership until the debt is paid. R10 The Applicant's affidavit in reply discloses that the failure by Kayanje to fulfill its repayments was not an act of default on its part and an agreement was reached with the 3 rd Respondent that the loans advanced be restructured to permit for an adjusted repayment plan resulting in Kayanje further accessing the sum of US$250,000.00 as a bridging loan from the 3 rd Respondent. It was well understood by the 3 rd Respondent that the initial borrowing was premised on the sale of the subdivided portion of the farm and the 3rd Respondent's respective Directors for Corporate Banking and Risk Management acknowledged this position as far back as 17th December, 2007 when they generated a memorandum to the effect that the 3rd Respondent would re-assign the caveat on the property once it was subdivided to facilitate its sale (see exhibit "CJTl"). The 3 rd Respondent's Credo Kambeli Makwembo was aware at all times that the purpose of the receivership was to resolve the issue of the caveat on the property placed by Amavel and that the 3 rd Respondent has -to date not issued any notice of default to Kayanje as required. The affidavit in reply also discloses that the Applicant and Marc Thorne have operated the farm since the ex-parte order of injunction was granted on 29th December, 2009 and substantial amounts have been expended on farming inputs for the crop that has been planted for the 2009/2010 season (see exhibits "CJT2-59") and the Applicant anticipates spending further amounts in excess of US$100,000.00 to see the crop through to harvest and project that the total value of the crop once sold shall be in the region of US$700,000.00 which is intended to be applied towards liquidating Kayanje's debt to the 3rd Respondent. The affidavit in reply also discloses that the latest status of the Receivers Expenses Account with the 3 rd Respondent indicates that the bulk of the costs of the 1st and 2nd Respondents during the six months they were in control of the farm relates to their fees and expenses in the sum of Kl,439,119,909.62 (see exhibits "CJT60-61"). A request was made to the 1st and 2nd Respondents on 29th July, 2009 to procure packaging materials for the crop but did nothing until the Applicant procured them on 8 th January, 2010. R11 Contrary to the 1st and 2 nd Respondents' allegations that they have been up to date with statutory contributions and payment for utilities, exhibits i'CJT61- 63" show the penalties on late PAYE submission and a disconnection notice from ZESCO. The pt and 2nd Respondents have only visited the farm on two occasions but have instead acted through representatives, particularly Levy Mwanza and his infrequent visits are irrelevant to the efficient operation of the farm. The affidavit in reply further discloses that the Applicant and Marc Thorne have acted in the best interest of the company in that:- (a) they have remitted all payments to the 3rd Respondent even after 29th December, 2009 when they took over operational control of Kayanje following the grant of an injunction against the 1st and 2nd Respondents; (b) the Applicant gave out two bags of baled beans to a prospective buyer and this was disclosed to all concerned but the 1st and 2nd Respondents proceeded to assign the cost to him and deducted it from his salary as per exhibit "CJT64"; (c) there was no money paid for the bales of bean straw as it was given in consideration of the recipient disking 80 hectares of land, an arrangement which was witnessed by the 2nd Respondent; (d) the 50 litres of diesel was not drawn for personal use but donated to Chongwe District Council who were spraying for malaria control free of charge and the Applicant could not have waited for the 1st and 2 nd Respondents or their representatives who were hardly available and that in any event, the money was deducted from his salary (see exhibit "CJT64"). (e) the Applicant and Marc Thorne acted diligently and with commitment to the business and the 1st and 2nd Respondents do not particularize or specify the incidents they allege to constitute "private business" conducted by them; R12 (f) the Applicant is a Director in Zambia Extracts Oils and Colourants Limited ("ZEOC"), the sole purchasers of paprika in Zambia. His relationship with ZEOC has been beneficial rather than detrimental to Kayanje as ZEOC advanced US$40,254.35 to facilitate the planting of paprika for that season (see exhibit "CJT65"); (g) the Applicant and Marc Thorne have had worked tirelessly without a break during the period the 1st and 2nd Respondents took charge of the farm and when the Applicant took time off, they deducted that time from his payment (see exhibit "CJT64") notwithstanding that they had gone for over four months without pay; (h) the Applicant employed a supervisor because the one they had had resigned. The 1st and 2nd Respondents were either not responsive or simply unavailable when the Applicant sought approval and he proceeded with the decision in the interest of the company and that in any event, they deducted the salary of the supervisor from his (see exhibit "CJT64"); (i) they have not used the company's stationery in a misleading manner as the correspondence referred to at paragraph 4.1 l(h) in the affidavit of the 1st and 2nd Respondents was to them and that it is an e-mail inscription attached with the address assigned to the company which would require changing the Internet Service provider. For the Applicant, Mr. Chungu submitted that this is a proper case for the grant of an injunction as the Applicant has a clear right to relief in that the acts of the 1st and 2nd Respondents in taking over the assets of Kayanje, intending to sell them and running down the business of otherwise a viable concern through their mismanagement and delinquent conduct is detrimental to Kayanje. Relying on the case of Shell & BP Zambia Limited v. Conidaris & Others(l), Counsel submitted that the court ought to interfere in order to preserve property from being disposed of by the Respondents until the Applicant's rights are determined by the Court. R13 It was also Mr. Chungu's submission that the injury to be suffered by Kayanje is irreparable and cannot be atoned for by damages as Kayanje's continued ovynership of land is threatened for sale by the 1st and 2nd Respondent at the instance of the 3 rd Respondent. According to Counsel, the rightful claim to land by Kayanje cannot be atoned for in damages. He also submitted that the farm is the Applicant's single enterprise and source of livelihood and losing it would amount to substantial damage which is irreparable. Regarding the balance of convenience, Mr. Chungu submitted that the injury to be suffered by the Applicant as a result of the Respondents disposing of properties for Kayanje is greater than that to be suffered by the Respondents should the injunction be granted. He submitted that no prejudice would be occasioned to the 3 rd Respondent if the status quo was maintained. Counsel also referred the Court to the case of Avalon Motors Limited (In Receivership) v. Bernard Leigh Gadsen and Motor City Limited(2) where the Supreme Court stated that that receivers as well as liquidators occupy a fiduciary relationship and are liable for their wrong doing in relation to the mortgaged property; and whenever a current receiver is the wrong doer(as where he acts in breach of his fiduciary duty or with gross negligence) ... or in any other case where the vital interests of the company are at risk from the receiver himself or from elsewhere but the receiver neglects or declines to act, the directors should be entitled to use the name of the company to litigate. Mr. Chungu contended that the 1st and 2nd Respondents have been joined to this action because of their delinquent conduct and mismanagement of Kayanje. For the 1st and 2 nd Respondents, Mr. Musonda submitted that the granting of injunctive relief is not only discretionary but is also based upon equitable considerations. He argued that the facts before the Court reveal that the 1st and 2 nd Respondents were appointed Joint Receivers and Managers of Kayanje by ZANACO pursuant to the terms of a debenture including a floating charge R14 created by Kayanje in favour of ZANACO over the entire undertaking and assets of the company. Counsel submitted that the purpose of their appointment was to realize the assets charged under or comprised in the debenture. According to Counsel, the debenture has not been discharged due to the fact that Kayanje is still indebted to ZANACO and that under these circumstances, neither Kayanje nor, indeed, any one else can seek the equitable relief of an injunction which would have the obvious consequence of interfering with the rights of ZANACO as a debentureholder. Mr. Musonda referred the Court to the case of Hina Furnishing Lusaka Limited v. Mwaiseni Properties Limited(3) where the High Court stated as follows: "Injunction is an equitable remedy and the Court may not exercise its discretion to grant it where the plaintiff is in breach of the contract." Counsel also cited the case of Zesco Limited v. New Lande Motel(4) where the Supreme Court observed at page 12 that: "The granting of the injunction by the Court below... created an inequitable situation when an injunction is meant to be an equitable remedy." Also cited by Counsel is the case of Development Bank of Zambia v. Chani Enterprises Limited(S) where the Supreme Court at page J8 stated as follows: "The Respondent was in default of repayments. This was admitted. The affidavit evidence ... established that ... in the event of a default in repayments, the Appellant was at liberty to appoint a Receiver." It was also Mr. Musonda's contention that what the Applicant is seeking to achieve by this application is to attain a new situation only favourable to himself. He submitted that such a situation would be inconsistent with settled legal principles enunciated in cases such as Turnkey Properties Limited v. Lusaka West Development Company Limited & Others{6) where the R15 Supreme Court stated that: "Interlocutory injunctions cannot be legitimately used as a stratagem to create or maintain new conditions favourable only to the applicant.,, Mr. Musonda submitted that the Applicant has not shown any legal right which would warrant the equitable intervention of the Court by way of granting injunctive relief. He contended that the Applicant's originating summons does not reveal what injury or damage that has been or will be suffered by him as a result of the alleged acts or omissions attributed to the 1st and 2nd Respondents. Counsel argued that the mere fact that the Applicant is the majority shareholder in Kayanje does not change the legal position that all properties, assets, rights, interests, etc, belong to the company and no claim can be asserted in relation thereto by any one including the company's shareholders. He relied on the case of Macaura v. Northern Assurance Company Ltd(7) where the court observed at pages 626 to 637 as follows: "No shareholder has any right to any item of property owned by the company for he has no legal or equitable interest therein. He is entitled to a share in the profits which the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound-up." According to Counsel, the Applicant having neither legal nor equitable right in the undertaking, assets, properties, etc, of Kayanje in respect of which the 1st and 2nd Respondents are the Joint Receivers and Managers cannot legally secure their restraint by way of an injunction order from acting in that capacity. ' ' R16 It was Mr. Musonda's further submission that the originating summons and the affidavit evidence do not disclose any justifiable loss, damage or injury, the Applicant's interest in Kayanje being limited to a dividend when the same is declared by the company. He contended that the Applicant has not demonstrated that he has ever received any dividends on account of his shareholding in Kayanje and that there is abundant evidence on record pointing to Kayanje having been in huge debts over a long period of time. Counsel referred the Court to the case of Mohammed Azim Tickley v. First Alliance Bank Zambia Limited & Another(B) where the court had been called to resolve an application for injunctive relief at the behest of a majority shareholder whose company had been placed in receivership by the company's secured creditor, in which the Supreme Court stated at pages 4 to 5 as follows: "In the circumstances and on the facts, there would be no irreparable loss which money would not compensate the company if transpired that there is merit in the shareholders' complaints. The sufficiency of an alternative remedy in damages has long been ground for disallowing interlocutory injunctions ... " Mr. Musonda also submitted that in his originating summons, the Applicant is seeking a 'declaration', 'damages' and 'an order to secure the removal of the 1st and 2nd Respondents as Joint Receivers and Managers. He argued that an injunction cannot be granted where the plaintiff seeks to recover damages. Mr. Musonda further submitted that the effect of the restraining order sought by the Applicant, that is to say, seeking to have the 1st and 2nd Respondents restrained from selling the assets of Kayanje 1 in so far r.18 it relates to ZANACO, is to stop ZANACO from exercising its own legal rights. He conlern.led lhat the appointment of the pt and 2nd Respondents by ZANACO arose in the nature of the exercise by the latter of its own legal rights under Lhe floating debenture R17 created by Kayanje in favour of ZANACO (see exhibit "CM4"), the validity of which has not been challenged. Counsel referred the Court to Hubert Picardo 1s text - The Law Relating to Receivers and Managers where he has written at page 72 as follows: "One of the commonest standard form express powers conferred on a receiver and manager by a debenture is a power of sale." Mr. Musonda also referred the Court to the learned authors of Megarry's Manual of the Law of Real Property where it stated that: "Unless the parties have otherwise agreed, a mortgagee or chargee has five remedies available for enforcing payment. Three of the remedies are primarily directed to recovering the capital due and putting an end to the security: these are, an action for money, foreclosure and sale. The other two remedies are taking possession and appointing a receiver." It was Counsel's submission that ZANACO cannot be properly restrained from exercising its own legal rights and summoning the remedies available to it as a debentureholder. Mr. Musonda also cited other Zambian cases where the Courts refused to grant injunctive relief in similar circumstances as this application, namely, JAYANTI G. PATEL AND 3 OTHERS V EASTERN AND SOUTHERN AFRICAN TRADE AND DEVELOPMENT BANK (PTA BANK) AND JOHN STANELY WARD & RICHARD PETER (Sued as Joint Receivers of SAPCO Limited) (9), RAMC TRADING (IRELAND LIMTED V CHRISTOPHER MULENGA (Sued as Receiver and Manager of RAMCOZ (In Receivership) and GRANT THORNTON ASSOCIATES AND ZAMBIA NATIONAL COMMERCIAL BANK PLC (10) and ROAN ANTELOPE CORPORATION PLC (In Receivership) V ZAMBIA NATIONAL COMMERCIAL BANK PLC & CHRISTOPHER MULENGA (Sued as Receiver and Manager of RAMCOZ) (11). R18 For the 3rd Respondent, Mr. Akalutu referred the Court to the cases of American Cyanamid v. Ethicon Limited(l2} and Shell & BP Zambia Limited v. Coridaris & Others on the principles governing the grant of an injunction. Counsel submitted that the Applicant is seeking to remove the appointment of the 1st and 2°d Respondents purporting that they have been negligent and are not acting in the interest of the company. According to him, the Applicant's right to relief is not clear and has no chances of succeeding. Mr. Akalutu submitted that by placing Kayanje in receivership, the 3rd Respondent has merely exercised its options as provided for in the floating debenture as a secured creditor. He contended that the Applicant cannot stop the 3 rd Respondent from exercising its legal right under the security or contest the putting of Kayanje in receivership unless and until the debt is paid. It was also Mr. Akalutu's submission that an injunction is inappropriate where damages would be an adequate remedy. He argued that the injury, if any, that the Applicant would suffer in the event that the injunction was not granted is not substantial and can be atoned for by damages. Counsel submitted that it is the 3 rd Respondent which would stand to lose by failing to recover its debt which continues to accumulate interest as the company may be insolvent. Regarding the balance of convenience, Mr. Akalutu submitted that greater inconvenience will be caused to the 3 rd Respondent. He argued that the potential loss to the 3 rd Respondent is higher than the inconvenience to the Applicant and that on the affidavit evidence, the balance of convenience tilts in favour of the 3rd Respondent as Kayanje is already indebted to the 3rd Respondent for a colossal amount of money which it seeks to recover through the receivership. Mr. Akalutu finally submitted that the appointment of the Receivers and Managers having been properly done and there being no element of wrongdoing ' • -;-• --.- on their part, there is no basis upon which this Court should entertain the application for an injunction. R19 I have considered the voluminous affidavit evidence) skeleton arguments, authorities cited and the oral submissions of counsel. I am indebted to counsel for citing numerous authorities which have been very useful to the court. The principles governing the grant or refusal to grant injunctive relief are adequately expounded in a plethora of cases including Shell & BP Zambia Limited v Conidaris & Others and American Cyanamid v Ethicon Limited cited by counsel. In sum, they are these: whether the applicant has a clear right to relief; the adequacy or otherwise of damages as an alternative remedy; and whether the balance of convenience lies in favour of granting an injunction or in its refusal. On the facts of this case, it is plain to me that the Applicant's right to relief is murky. The applicant is a shareholder and director in Kayanje. It is trite that a company has a separate legal personality from its shareholders. See Salomon v Salomon(13}. Concomitant with this legal position, Kayanje's assets, properties, rights, etc., belong to Kayanje and not any of its shareholders such as the Applicant __ I arp fortified by the case of Macaura v Northern Assurance Company Limited where the Court stated as follows: " ... no shareholder has any right to any item OF property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is would-up ... " The Applicant's right to these assets and properties being so remote, injunctive relief being an equitable remedy cannot be available to the Applicant. R20 IL is also an cslablishcd principle of law LhaL an injunction is an equitable remedy which the court may grant or refuse to grant depending on the circumstances of each case. As such, an applicant to succeed must show equity or stated otherwise, he must come to court with clean hands. The evidence on record which is also admitted by the Applicant shows that Kayanje was advanced US$2,940,000.00 by the 3rd Respondent on 24th December, 2007. This loan was secured by a debenture which has not been discharged, It is also incontrovertible that Kayanje's debt to ZANACO remains unpaid and this is what triggered the appointment of the 1st and 2nd Respondents as Joint Receivers and Managers of the assets of Kayanje. Iu short, Kayanje is in default of its loan obligations to ZANACO. Against this backdrop, the Applicant who is a shareholder and director of the company is now seeking court intervention to restrain the 1st and 2 nd Respondents from acting as Joint Receivers and Managers of Kayanje. ·Being in default or breach, it follows that the Court cannot be inclined to exercise its discretion to grant an injunction either in favour of Kayanje or the Applicant. If the Court was to decide otherwise, such a decision would create an inequitabl~_ -~tuatiqn whe~ ~!!_ injunc!ion is meant to· be · an equitable remedy. See, for example, Hina Furnishing Lusaka Limited v Mwaiseni Properties Limited, Zesco Limited v New Lande Motel and Development Bank of Zambia v Chani Enterprises Limited. Moreover1 I also believe that such a decision would create or maintain new conditions favourable only to the Applicant who is a shareholder and director of a company in default, contrary to the sound principle of law enunciated in Turnkey Properties Limited v Lusaka West Development Company Limited & Others. R21 The Applicant also contends that he will suffer irreparable injury if the 1st and 2nd Respondents are not restrained from selling the assets of Kayanje. It is worth noting that the 1st and 2nd Respondents were appointed Joint Receivers and Managers by ZANACO pursuant to the terms of a debenture created in its favour. As correctly submitted by Mr. Musonda, the purpose of their appointment was to realize the assets charged under the debenture. Clause 6 of the debenture (exhibit "CM4") reads in relevant part as follows: ~'6. At any time after:- (a) The bank has demanded payment of any money or discharge of any liabilities hereby secured or (b) ... (c) ... ... then and in any of the said cases, the bank may, in writing, ... appoint any person to be receiver or receivers of the property comprised in this security ... " And clause 7 of exhibit "CM4" provides in relevant part as follows: "7. A Receiver or receivers appointed under clauses 6 shall have powers to:- (a) .. . (b) .. . (c) Forthwith and without the restriction imposed by section 20 of the conveyancing Act 1881 to sell or concur in selling and to accept surrenders of leases or tenancies of all or any of the property comprised in this security and to carry any such sale letting or accepting surrenders in the name and on behalf of the company or either the estates R22 owner or otherwise and any such may be for cash debentures or other obligations shares stock or other valuable consideration and may be payable in a lump sum or by instalments spread over such period as the receiver or receivers shall think fit and plant machinery and other fixtures mat be severed and sold separately from the premises containing them without the consent of the company being obtained thereto." It is clear from Clauses 6 and 7 of the debenture that in appointing the 1st and 2nd Respondents as Joint Receivers and Managers of the undertaking and assets of Kayanje, ZANACO was merely exercising its legal right pursuant to the terms of the debenture. One of the powers bestowed on a receiver, according to clause 7(c) is the power of sale which is universally recognized and established by various authorities, see, for example, RE B. Johanson & Co (Builders) Limited( 14) where it was stated as follows at pages 661 to 662: "A receiver and manager for debentureholders is a person appointed by the debentureholders to whom the company has given powers of management pursuant to the contract of loan constituted by the debenture, and, as a condition of obtaining the loan, to enable him to preserve and realize the assets comprised in the security for the benefits of the debenture holders. The company gets the loan on terms that the lenders shall be entitled for the purpose of making their security effective, to appoint a receiver with powers of sale and management pending sales, and with full discretion as to the exercise and mode of exercising those powers ... " From the foregoing, l cannot agree more with Messrs Akalutu and •• - i" R23 Musonda that ZANACO as debentureholders cannot be restrained from exercising its legal right to appoint the 1st and 2nd Respondents as Joint Receivers and Managers to realize the assets comprised in the security. Kayanje having defaulted, granting an order of injunction sought by the Applicant would result in justifying its continued default and further increase its indebtedness to ZANACO. The Applicant alleges that the 1st and 2 nd Respondents have been derelict in their duties to the detriment of Kayanje; and that they were appointed for the purpose of removing the caveat and selling the subdivision and that they are, in collusion with ZANACO, only interested in selling the company's assets but not to resuscitate it. Quite obviously, these allegations cannot be determined at this interlocutmy stage but at the trial. If the Applicant would prove at the trial that the Joint Receivers and Managers have mismanaged the assets of the company, they will be personally held liable in damages in accordance with the decision in Avalon Motors Limited (in Receivership} v Bernard Leigh Gadsen and Motor City Limited. Above all, I note from the originating summons that among other claims, the Applicant also seeks the relief of damages. I am, therefore, of the firm opinion that if an interlocutory injunction is not granted in favour of the Applicant and he succeeds at the trial, damages would be an adequate remedy, which is one of the prayers in the originating summons. The Applicant's contention that he or Kayanje will suffer irreparable injury cannot be sustained on the facts of this case. Regarding the balance of convenience, the affidavit evidence on record discloses that Kayanje's farming operations are fraught with problems and it is common knowledge that the company has been defaulting on its repayments due to financial haemorrhage. As I have stated supra, granting an injunction in such circumstances would be to postpone the default, without any prospect of R24 Kayanje ever repaying the loan in the shortest possible time. This situation cannot be in the interest of ZANACO as its interest in the secured assets will be in jeopardy. As Mr. Akalutu correctly submitted, the potential loss to ZANACO is higher than the inconvenience to the Applicant. In the premises, I opine that on the facts of this case, the balance of convenience lies in favour of refusing the grant of injunctive relief. In the result, I conclude that this is not a proper case where the Court can exercise its discretion to grant an interlocutory injunction. To decide otherwise would be a perverse of justice. The upshot of this conclusion is that the ex parte order of injunction granted in favour of the Applicant on 29th December, 2009 forthwith stands discharged. I now turn to the issue whether the Applicant's substantive action has been properly commenced. It was submitted by both Mr. Akalutu and Mr. Musonda that the Applicant's action should be dismissed for being irregularly before this Court. According to Mr. Akalutu, the Applicant's originating summons and · affidavit evidence raise issues alleging negligence on the parl uf lhe receivers but Order 5, rule 2 of th~ of th~ RSC which is couched in mandatory terms specifically requires that such matters must be commenced by writ of summons because they need to be proved by evidence through examination-in chief and cross-examination. In augmenting Mr. Akalutu's submissions, Mr. Musonda referred the Court to the case of Chikuta v. Chipata Rural Council(lSJ where the Supreme Court stated as follows at pages 243 to 244: "Order 6 rule 1, states that any matter under any written law or the Rules may be disposed of in chambers shall be commenced by originating summons ... there is no case where there is a choice between commencing an action by writ of summons or by originating summons. The procedure ,· , . • . 1 · . - ' R25 by way of originating summons only applies to those matters referred to in Order 6, rule 2, and to those matters which may be disposed of in chambers. Chamber matters are set out in Order 30 of the High Court Rules ... Paragraph} of rule 11 of Order 30 does refer to ~'such other matters as a Judge may think fit to dispose of in chambers". That clearly is not so wide as to allow a Judge, carte blanche, to hear any sort of action in chambers and clearly does not apply to an action for a declaration Even if the which depends on evidence being called on both sides. -1 ,' English practice could be prayed in aid, it would not help, as there an action for a declaration is brought by writ. It is clear that these proceedings have been misconceived. As the matter was not properly before him, the Judge had no jurisdiction to make the declarations requested even if he had been so disposed." Counsel submitted that the principle enunciated in the Chikutci case was also acknowledged in the case of Zambia Venture Capital Fund Limited v. Pie Delight Limited(l 6) where the supreme court had this to say at page J3: "We must ... point out that the Chikuta case, decided in 1974, ... although decided several years ago is still an authority. According to that authority, there is no case in the High Court where there is a choice between commencing an action by a writ of summons or by an originating summons. In fact, that case held that where a matter is brought to the High Court by means of an originating summons when it should have been commenced by writ, the Court has no jurisdiction to make any declarations." .. ; • R26 Mr. Musonda submitted that on the basis of these authorities, the Applicant's action must be dismissed as the jurisdiction of this Court has not been properly invoked. On behalf of the Applicant, Mr. Chungu contended that he had been ambushed by these submissions as he was not aware that they were going to be raised. Counsel was requested by the Court to file written submissions so that the court could deal with both issues simultaneously. However, no submissions have been filed to date. The Applicant's originating summons is endorsed with the following claims: "1. A declaration that the 1st and 2 nd Respondents have acted in a negligent manner and to the detriment of the company. 2. An order for the removal of the 1st and 2 nd Respondents as Receiver/Managers of Kayanje Farming Limited. 3. An order for an injunction to restrain the 2 nd and 3 rd Respondents from acting as Receiver and Managers. 4. General and pecuniary damages. 5. Interest 6. Legal Costs for and relating to this cause. 7. Further or other relief." It is trite that claims relating to negligence and damages depend on oral testimony being called by both parties and not by affidavit evidence. It, therefore, follows that an action where claims of this nature are sought can only be commenced by writ. The principle established in the case of Chikuta v. Chipata Rural Council is that where a matter is brought to the High Court by means of an originating summons when it should have been commenced by writ, the Court has no jurisdiction to make any declarations. I am bound by this decision. As the Applicant commenced this action by originating I •• I I . oJ R27 summons when it ought to have been brought by a writ, I have no jurisdiction to make the declarations sought. The action was, therefore, doomed to fail ab initio. For the foregoing reasons, this action is dismissed in its entirety with costs. DELIVERED THIS 16TH DAY OF FEBRUARY 2010 C. KAJIMANGA HIGH COURT JUDGE