Cowlyn Travel Limited and Ors v ERZ Holdings Limited and Anor (APPEAL NO. 74 OF 2008) [2010] ZMSC 19 (6 August 2010)

IN THE SUPREME COURT OF ZAMBIA HOLDEN AT NDOLA (Civil Jurisdiction) BETWEEN: COWLYN TRAVEL LIMITED AMOSNKHOMA TERENCE FINDLAY AND ERZ HOLDINGS LIMITED ERZ (NDOLA} LIMITED J1 APPEAL NO. 74 OF 2008 T APPELLANT 2ND APPELLANT 3RD APPELLANT T RESPONDENT 2No RESPONDENT CORAM: Mambilima, DCJ, Silomba and Mwanamwambwa, JJS On the 3rd March, 2009 and 6th August, 2010 ✓ For the Appellants: For the Respondents: Mr. Musaluke of Z. Muya and Company Not Present JUDGMENT SI LOMBA, JS, delivered the judgment of the Court. Case referred to:- 1. Royal British Bank -Vs- Turquand (1856} 5 and 8, 327. 2. Selangor United Rubber Estates Limited -Vs- Cradock (1968) 2 AER, 1073 3. Sablehand Zambia Limited -Vs- Zambia Revenue Authority (2005) ZR, 109. The Appellants in this appeal are appealing against the judgment of the High Court dated the 19th of March, 2007 in which the learned trial Judge, sitting at Kitwe, granted a declaratory order to the 1st Respondent to the effect that it was the owner of Stand No. 2992, Ndola and that it was entitled to possession of the same. J2 The Respondents commenced an action in the Court below seeking, among other reliefs, a declaration that the 1st Respondent was the rightful owner of Stand No. 2992, Ndola and an order of possession of the same. The evidence at trial is laid out by the learned trial Judge in his judgment, as well as in the record of the proceedings. The evidence of the Respondents, as Plaintiffs in the Court below, was that the 1st Respondent was the holding company of several companies, including the 2nd Respondent. Stand No. 2992, Ndola, housing the 2nd Respondent, was reportedly sold by the 2nd Appellant, who was at the time an alternate board member to Mr. N. B. Nyoni, the substantive Director. At the time of the reported sale of Stand No. 2992 and the 2nd Respondent, there was a pending suit in Court in which Yakashika Limited had sued the 1st Respondent claiming US $35,000.00 for the hire of machinery. Yakashika Limited obtained judgment. While the 1st Respondent was working out modalities on how to liquidate the judgment debt, it received a letter from the lawyers of Yakashika Limited that the debt had been paid off. On inquiry, it was found out that the stand had been sold and the Manager of the 2nd Respondent at the Ndola Office had been told to release the office on Stand No. 2992, Ndola. The inquiry further revealed that the sell of the stand was not backed by a resolution of the board of directors and neither was the head office of the 1st Respondent and the Group Chairman, Mr. Francis Nkhoma, aware of the transaction. According to the evidence of the Respondents; the decision to sell the stand by the 2nd Appellant was unilateral and without authority of the board; that as an alternate director of the board he was not allowed to sit on the board except when Mr. Nyoni was not around; that at the time of the sell, i.e. 2002 Mr. J3 Nyoni had been present all the time. The investigations also revealed that the 1st Appellant had bought Stand No. 2992, Ndola. The evidence was that even though the 2nd Appellant was the son of Mr. Francis X. Nkhoma he was not authorized to sell the stand on the basis of that relationship. The evidence in rebuttal of the 1st Appellant, as 1st Defendant in the lower Court, was that the 2nd Appellant approached its Managing Director offering to sell the property of the 1st Respondent where he was a Director. In consideration of the offer, the 1st Appellant ·agreed to buy the property for US $35 1500.00. Apparently, the 1st Appellant's Managing Director dealt with the 2nd Appellant over some other matters as a Director and he, therefore, knew that the 2nd Appellant had authority to sell the building housing the 2nd Respondent on Stand No. 2992, Ndola. According to the 1st Appellant's Managing Director, the premises of the 2nd Respondent was officially handed over to the 1st Appellant in the presence of the 2nd Appellant after payment of US $35,500.00. The 1st Appellant's further evidence was that they were evicted from the premises on three occasions and that on each of those occasions they got back into the premises; that in the process it lost a lot of fish for which it was asking for compensation as well as compensation for inconvenience. It further prayed the lower Court for an order to confirm the sale to it and that the sale was done in good faith. The 1st Appellant was not aware that the 2nd Appellant was given a house in Ndola as a result of the transaction. When cross-examined, the 1st Appellant's Managing Director testified that his company did not bid for the properties following an advertisement; that they did not receive an offer of sale from the 1st Respondent neither dld they enter J4 into a contract of sell with the 1st Respondent. He admitted that he did not see the resolution of the board even though he knew that the 2nd Appellant was a Director of the 1st Respondent and that he did not consult the 1st Respondent to ascertain the position of the 2nd Appellant in the 1st Appellant. In his defence, the evidence of the 2nd Appellant (Amos Amussa Nkhoma), as 2nd Defendant in the Court below, was that he was an alternate director to Mr. Nyoni. He testified that the 1st Respondent owed Yakashika Limited a sum of US $35,000.00 for which judgment had been obtained in their (Yakashika Limited) favour; that consequently, there was walking possession on House No. 37, Chisokone Road, Ndola and the workshop on Stand No. 2992, Ndola. He accordingly, informed his father who was Chairman of the board of the 1st Respondent. According to the 2nd Appellant, his father advised him to get in touch with the company's lawyers who told him that there was not much they could do. His evidence was that the bailiffs went ahead to sale the house through an auction and he placed his bid for the house and won. He bought the house, which he later sold and the money realized from the sale was paid directly into the High Court. He later sold another house in Chintu Road and blocks of flats in Kitwe and the money from the sales of the properties was paid to the lawyers of Yakashika Limited, Mwale and Musonda Associates. Later, the workshop on Stand No. 2992, Ndola, was advertised and was sold to the 1st Appellant for US $35,500.00, which was also paid to Mwale and Musonda Associates. As far as the 2nd Appellant was concerned, he sold the properties for the benefit of the 1st Respondent and not for his own benefit. His evidence was that he sold the properties following Court orders and that if there was anyone who JS thought the properties should not have been sold he should have appealed to the Supreme Court against the High Court orders. His testimony was that the money the 1st Appellant paid for the property on stand No. 2992, Ndola, never passed though his hands and that he did not need a board resolution to sale the properties. The evidence in defence of the 3rd Appellant (Terence Findlay), as 3rd Defendant in the Court below, was that the 2nd Appellant discussed the sale of the machinery and other properties with him; that he agreed that he would pay what the 1st Respondent owed Yakashika Limited through the latter1s lawyers, Mwale and Musonda Associates. Upon the payment of the purchase price, it was, the 3rd Appellant asserted, the 2nd Appellant himself who handed the keys to the premises to him personally. According to the 3rd Appellant, some of the machines included in the sale agreement, such as, lather machines, milling machines, welding machines, pillar drilling machines and shaping machines, were wrongly included on the list as he never got them as part of the sale. He denied that he sold any of the foregoing machinery to the 2nd Appellant. In his evaluation or assessment of the evidence and the submissions before him, the learned trial Judge found, among others, that there was no dispute that the 1st Respondent was the owner of Stand No. 2992, Ndola, including the machinery located on the stand, that was the subject of a sale agreement of the 5th of April, 2002 between 1st and 2nd Appellants; that 2nd Appellant was alternate director to Mr. Nyoni and that he sold Stand No. 2992, Ndola and the machinery without the sanction of the board of the 1st Respondent. J6 After satisfying himself that Yakashika Limited had obtained a money judgment against the 1st Respondent and that the advertisement of Stand No. 2992, Ndola, for sale was in execution of the money judgment, the learned trial Judge found that the 2nd Appellant had no authority to sell the property to the 15 t Appellant in such circumstances; that the 2nd Appellant high-jacked the authority to sell the property from Yakashika's advocates to serve his personal interest. After referring to the authorities on the powers of a director, the learned trial Judge found that as an alternate director the 2nd Appellant had authority to do what the substantive director was limited to do under a resolution of the board and only when the substantive director was not around. From the evidence, the learned trial Judge found that during the sale the substantive director was around and that by implication the 2nd Appellant could not have had authority to act and dispose of the 1st Respondent's property. As to whether the 1st and 3rd Appellants were bona fide purchasers for value without notice of the defect in title, the learned trial Judge said that since fraud was in issue they could not benefit from the rule that a third party should not be faulted for the internal defect of a company in that the two Appellants helped the 2nd Appellant to defraud the 1st Respondent. On the basis of his reasoning, the learned trial Judge found that the Respondents had proved their case and granted all the claims prayed for. Dissatisfied with the outcome of the case, the Appellants have challenged the judgment of the lower Court based on two grounds- of appea I. These are:- 1. The trial Court erred and misdirected itself when it held that the Respondents are the rightful owners of Stand No. 2992, Chisokone Avenue, Ndola, when the 1st and 3rd Appellants merely responded to an advertisement for the sale of the building and subsequently purchased the same in good faith. J7 2. The Court below erred in law and fact when it held that the sale of Stand No. 2992, Ndola, to the 1st and 3rd Appellants was a clear case of fraud when the 2nd Appellant was a director in the respondent's company and thus had authority to negotiate the sale of the said property. In support of the two grounds of appeal, the Appellants filed written heads of argument on which they entirely relied. On the other hand, the Respondents also filed their written heads of argument on which they entirely relied. There were no oral arguments of counsel from both sides. In fact counsel for the Respondents had filed a notice of non-appearance to excuse his attendance at the hearing of the appeal. From the written heads of argument, the appellants chose to deal with the two heads of arguments together under the following two heads:- (a} Ostensible authority of a director; and {b) Bonafide purchaser of value. Under the head 'Ostensible Authority of a director', the Appellants contended that the 2nd Appellant, as director, had ostensible authority to act on behalf of the 1st Respondent as evidenced by the letter of appointment at page 29 of the record of appeal in which he was appointed as an alternate director to Mr. Nedson Nyoni. The appellants contended that if the 2nd Appellant had . no ostensible authority Mr. Nyoni should have been called to give evidence to that effect which the Respondents failed to do. The Appellants relied on Section 213 of the Companies Act and submitted that the directorship of the 2nd Appellant was not affected by any of the provisions of the section. After quoting from page 231 of Palmers Company Law, 20th Edition, the Appellants submitted that the ultimate test for authority of the 2nd Appellant to act for the 1st Respondent was the manner in which the 1st Respondent held out J8 the 2nd Appellant as director to third parties. It was submitted that according to the evidence of the Group Managing Director (DWl) of the 1st Appellant, the 2nd Appellant was someone he had some dealings with and that he knew him as someone who had authority to sale the building as director of the 1st Appellant . . On the argument relating to the need for a board resolution, the Appellants submitted that there was no need for such a resolution prior to the sale of stand No. 2992, Ndola because the decisions of the 1st Respondent had always been made by _the executive chairman of the 1st Appellant. Arguing in the alternative, the Appellants submitted that the decision, whether to sale the said property or not, was no longer a matter for a board resolution by the 1st Respondent because the authority to sale the stand was in the hands of Yakashika Limited through their lawyers, Messrs Mwale and Musonda Associates; that in any case the sum of US $35,500.00 realized from the sale of the stand had been used for the settlement of the judgment debt, which the Respondents had acknowledged in their statement of claim; that that being the case, the Respondents could not cry foul now after benefitting from ~he proceeds of sale of the stand. With regard to the assertion that the 1st and 3rd Appellants were not bonafide purchasers for value, the Appellants submitted that they knew that the stand was on sale as a result of a judgment order through the 2nd Appellant who was a director of the 1st Respondent and whom they had dealt with in the past. On the basis of the foregoing, it was argued that they purchased the stand in good faith, believing too well that the 2nd Appellant had authority to carry out the sale as he had done previously. The English Case of Royal British Bank -Vs Turquand (ll enunciating the principle that a 3rd party should not be faulted for J9 the internal defects of a company, was cited in aid; that in the present case the 1st and 3rd Appellants, in dealing with the 1st Respondent, did not need to inquire into the regularity of the indoor management but could assume that its requirements had been complied with. From the heads of argument in response, the Respondents submitted, in respect of ground one, that the learned trial Judge was on firm ground and did not misdirect himself in holding that the Respondents were the rightful owners of stand No. 2992, Ndola. They submitted that in making the foregoing holding the learned Judge relied on the evidence that was adduced before him, especially the evidence of DW1 who admitted not receiving an offer of the stand from the 1st Respondent. The Respondents further argued that the 1st and 3rd Appellants could not claim to have purchased the stand in good faith when it was established at trial that they did not respond to the advertisement in the newspaper and di~ not, in actual fact, bid for the stand but instead dealt with an unauthorized agent in the form of the 2nd Appellant. With regard to the second ground of appeal, the Respondents asserted that the learned trial Judge was on firm ground and within the law in holding that the sale of Stand No. 2992, Ndola was a clear case of fraud. To back up the finding of fraud by the trial Court, the Respondents submitted that there was no resolution of the 1st Respondent sanctioning the sale of the stand through the 2nd Appellant. The case of Selanqor United Rubber Estates Limited .. vsM Cradock (2l was relied on. We have carefully considered the evidence on record and the judgment of the High Court, the subject of appeal. We have also duly considered the JlO submissions of the parties to the appeal. Arising from the written arguments, our view is that the issues raised can be dealt with under ground one and partly under ground two. We say so because ground two appears to be superfluous in part as it raises the issue of fraud, which was never pleaded at trial by the Respondents. An allegation of fraud is a very serious allegation with a higher standard of proof than in ordinary civil cases and the rules of pleading ensure that it is specifically and distinctly alleged with sufficient detail to enable the defence to counter the allegation with sufficient detail. When it comes to trial, the allegation is supposed to be clearly and distinctly proved (per: Sablehand Zambia limited-Vs- Zambia Revenue Authority 3l). This being the case, we are of the view that the finding of fraud by the learned ( trial Judge was not backed by pleadings and relevant evidence. It was, therefore, a misdirection and is accordingly set aside, leaving that part that refers to the 2nd Appellant as director in the Respondents and, th erefore, clothed with aut~ority to negotiate the sale of the said property. In dealing with whether the 2nd Appellant, as director, had authority to negotiate the sale of the property on behalf of the Respondents, we have decided to combine this aspect with ground one, to be dealt with as one. From the outset, we would like to put the record straight. It is not correct for the Appellants to state (in ground one) that they responded to an advertisement for the sale of Stand No. 2992, Ndola, when the evidence of DW1, the Managing Director of the 1st Appellant, is to the contrary. The evidence is that the 1st Appellant never responded to the advertisement put up by the advocates of Yakashika Limited who had advertised the sale of Stand No. 29921 Ndola, following a Court order to recover the money Jll owed by the 1st Respondent to Yakashika Limited. With this background, we have found it extremely difficult to accept the argument of the Appellants that the 1st rd and 3 Appellants were bonafide purchasers for value, having purchased the stand in good faith with no notice of a defect in title. The evidence in the cross examination of DWl shows that the 1st Appellant was aware of the advertisement and in our view it was not in good faith that the 1st and 3rd Appellants decided to deal with the 2nd Appellant who had no powers to sale the property under the Court order. With regard to the other issue raised that the 2nd Appellant, as alternate director of the 1 st Appellant, had ostensible authority to sale the stand, we repeat what we have said in the foregoing paragraph and state that he was not clothed with such authority as the matter had been taken out of the control of the 1st Respondent following a Court order. If, for argument's sake, there was no Court order and the property was properly and legally vested in the 1st Respond.ent, the argument would still be valid that the 2nd Appellant had no authority, ostensible or apparent, to deal with the property of the 1st Respondent without the backing of a resolution of the board of the 1st Respondent, specifically authorizing him (2nd Appellant) to sale the stand to a buyer for a specified amount. Having said what we have outlined in the foregoing paragraphs, we find no merit in the appeal and it is dismissed with costs. On interest, we vary the order of the learned trial Judge and order that it shall be at the average short-term deposit rate from the date of the writ to the date of judgment and thereafter at the rate as fixed by the Bank of Zambia. On a sad note, the evidence clearly shows that the 2nd Appellant was the son of the late Mr. Francis X. Nkhoma, the Chairman of the ERZ Group of J12 Companies. As a father and Chairman, the late Mr. Nkhoma; in good faith entrusted his son with the task of running the companies in the Copperbelt Province but in return the son mismanaged these entities and caused so much misery on the father. This was the worst abuse of trust bestowed on the 2nd Appellant by his own father and with the evidence on record in this case we do not think that the 2 nd Appellant is remorseful for what he did. 13.----'c-:z:;~L_~ ~ I. C. Mambilima, DEPUTY CHIEF JUSTICE S. S. Silomba, SUPREME COURT JUDGE SUPREME COURT JUDGE