Credit Africa Bank Limited (In Liquidation) v Kundiona (SCZ 9 of 2003) [2003] ZMSC 62 (22 July 2003)

CREDIT AFRICA BANK LIMITED (In Liquidation) v ELIAS NAMO KUNDIONA Supreme Court Lewanika, DCJ, Mambilima and Chitengi, JJS 5th November, 2002 and 23rd July, 2003 (SCZ Judgment No. 9 of 2003) Flynote Company Law – Liquidation – Purpose of leave to proceed against a company in liquidation. Headnote The facts giving rise to this appeal can be briefly stated. The respondent was employed by the appellant as Deputy General Manager. On 24th November, 1997 the appellant terminated the respondent’s contract of employment. On 24th June, 1998, the appellant now in liquidation commenced an action against the respondent to recover some K72,575,987.41 in respect of some staff loans advanced to the respondent by the appellant while the respondent was still in the appellants employment. As the appellant was in liquidation the respondent sought leave of the court to proceed with the counter claim against the appellant. At the hearing of the application, an objection was raised against the application on the ground that since Order 102 (2) of the White Book 1995 is based on the 1985 English Companies Act which is or applicable to Zambia, the application was misconceived. The learned trial Judge upheld the objection and dismissed the application. After the dismissal, the matter was transferred to another High Court Judge. The respondent made a fresh application for leave to proceed against a company in liquidation before the second High Court Judge. The second High Court Judge held that he could entertain the application and granted the respondent leave to proceed with the counter- claim against the appellant to stay this order by the appellant. Attempts by the appellants to stay his order were unsuccessful. The appellant appealed to the Supreme Court against the decision that the Second High Court Judge could entertain the application and grant the respondent the leave he sought. Held: 1. The purpose of Section 317 of the Companies Act is to ensure that when a company goes into liquidation, the assets of the company are administered in an orderly fashion for the benefit of all the creditors should not be able to obtain an advantage by bringing proceedings against the company. What is contemplated is that the High Court shall be seized with all these matters and shall see that the affairs are wound up in a dignified and orderly way. 2. An application for leave under Section 317 of the companies Act is not intended to determine any issue between parties nor is it intended to determine whether the person suing a company in liquidation has a good case against the company. It is procedure designed to inform the High Court that the company sued is in liquidation, so that when need be the High Court can supervise the liquidation. Case referred to:- 1. Langey Constructions (Brixham) Limited v Wells, Wells Estate (Dartford) Limited v Wells 1969 2 ALL ER 46 Legislation referred to: 1. Companies Act Cap 388 of the Laws of Zambia Section 317 2. Companies Act 1948 Section 2312. Work referred to Rules of the Supreme Court (White Book) 1995 Edition Order 102(2) of the Rules of the Supreme Court 1995. S. Mambwe of Frazer Associates for the appellant. N. B. Mutti of Lukona Chambers for the respondent. Judgment CHITENGI, JS, delivered the judgment of the court. In this appeal we shall refer to the appellant as the plaintiff and the Respondent as the defendant which is what they were in the Court below. The facts giving rise to this appeal can be briefly stated. The defendant was employed by the plaintiff as Deputy General Manager. On 24th November, 1997, the plaintiff terminated the defendant’s contract of employment. On 24th June, 1998, the plaintiff, now in liquidation, commenced an action against the defendant to recover some K72, 575,987.41, in respect of some staff loans advanced to the defendant by the plaintiff while the defendant was still in the plaintiff’s employment. By amendment to the statement of claim on 24th May, 2000, the defendant’s indebtedness was reduced to K27, 004,445.34. The defendant’s reaction to the plaintiff’s claim was to counter claim for damages in respect of alleged wrongful dismissal and alleged libel. As the plaintiff was in liquidation, the defendant required leave of the court to proceed with the Counter Claim against the plaintiff. Without the enthusiasm for quoting foreign authorities even when there is no default in our own laws, the application for Leave to proceed with the Counter Claim would have been brought under Section 317 of our Companies Act(1). Instead the application was brought under Order 102(2) of the Rules of Supreme Court 1995 Edition(2). At the hearing of the application an objection was raised against the application on the ground that since Order 102(2) of the White Book 1995(2) is based on the 1985 English Companies Act which is not applicable to Zambia, the application was misconceived. The learned trial Judge (Lengalenga J.) upheld the objection and dismissed the application. It appears after the dismissal by Lengalenga J. The matter was transferred to Phiri J. The defendant made a fresh application for leave to proceed against a company in liquidation. The application this time was brought pursuant to Section 317 of the Companies Act(1). Phiri J. holding that he could entertain the application granted the defendant leave to proceed with the Counter Claim against the Plaintiff. Attempts by the Plaintiff to stay this order were unsuccessful. The plaintiff now appeals to this court against the decision of the Court below that it could entertain the application and grant the defendant the leave he sought. The plaintiff’s ground of appeal is that the learned trial Judge had no jurisdiction to decide on a matter which another Judge had already ruled upon. Both counsel filed heads of arguments on which they relied. Counsel also addressed us orally. The sum and substance of Mr. Mambwe’s submissions is simply that the learned trial Judge erred in law and fact by granting the defendant leave to proceed with the Counter Claim when another Judge of co-ordinate jurisdiction had earlier refused the defendant leave to proceed with the Counter Claim. According to Mr. Mambwe the matter was already res judicata. Mrs. Mutti’s reply to these submissions was that the learned trial Judge was on firm ground when he granted the defendant leave to proceed with the Counter Claim against the plaintiff. It was Mrs. Mutti’s submission that the application for leave was not on merit but merely procedural. The application was defeated on wrong procedure and can be renewed before another court. The judgment by Ms Justice Lengalenga was not on the merits, but on procedure. The defendant conceded using wrong procedure and started afresh. We have considered the facts giving rise to this appeal and the submissions of counsel. At the outset we are bound to say that this appeal is totally unmeritorious. It seems to us that this appeal comes about because of misconception about the purpose of getting leave of the High Courts under Section 317 of the Companies Act, before commencing an action against a company in liquidation or where the action was has already commenced before proceeding with it further. The provisions of Section 317 of the Companies Act, have their origin in Section 231 of the English Companies Act of 1948, which Zambia adopted and enacted as its own and used before the enactment of the present Companies Act in 1994. There are many cases interpreting Section 231 of the English Companies Act of 1948, but here we only refer to the case of Langey Constructions (Brixham) Limited v Wells, Wells Estate (Dartford) Limited v Wells (4) where it was stated that: - “…. The purpose of Section 231 is to ensure that when a Company goes into liquidation the assets of the company are administered in an orderly fashion for the benefit of all the creditors and that particular creditors should not be able to obtain an advantage by bringing proceedings against the company. What is contemplated is that the Companies Court shall be seized with all these matters and shall see that the affairs are wound up in a dignified and orderly way.” Per Lord Widgery. Of course related to our situation Section 231, should read Section 317 and Companies Court, should read the High Court. It can be seen that an application for leave under Section 317 of the Companies Act, is not intended to determine any issue between parties; nor is it intended to determine whether the person suing a Company in liquidation has a good case against the company, as the defendant’s Affidavit in Support of the application for Leave suggests. Rather, it is a procedure designed to inform the High Court that the Company sued is in liquidation so that when need be, the High Court can supervise the liquidation. Properly understood, an application under Section 317 of the Companies Act(1) should, therefore, not be contentious. A company in liquidation which is sued should not even think of opposing the application for leave under Section 317 of the Companies Act, because it is a requirement of the law that the High Court should be aware of such an action and it is in the interests of the Company that its affairs are properly wound up. Mr. Mambwe counsel for the appellant argued issues of res judicata before us. We are of the firm view that even if we applied an elastic interpretation of the concept of res judicata, it would not cover an application for leave under Section 317 of the Companies Act,. As we have already said an application under Section 317 of the Companies Act, does not determine any issue between the parties. We must, therefore, uphold Mrs. Mutti’s submissions that the concept of res judicata is inapplicable in this case. As Mrs. Mutti quite rightly submitted and argued the application was defeated on procedural lapse and it was open to the Defendant to bring the application under the correct section or order. In our view, having regard to the purpose of Section 317 of the Companies Act, it was not even necessary for M/S Justice Lengalenga to dismiss the earlier application for leave. The defendant could have been asked to amend his summons to show that the application was made under Section 317 of the Companies Act. There was no abuse of court process as it was argued in the court below. For these reasons we cannot fault the learned trial judge who granted the defendant leave to proceed with his action against the plaintiff. In the result, we dismiss this appeal with costs to the defendant to be taxed in default of agreement. Appeal dismissed