Finsbury Investments Limited and 4 Ors v Bank of Zambia and Anor (2010/HP/353) [2010] ZMHC 117 (29 December 2010)

IN THE HIGH COURT FOR ZAMBIA AT THE PRINCIPAL REGISTRY HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: FINSBURY INVESTMENTS LIMITED CLARKWELL LIMITED JOB ALBERT T. SAMUEL ESTATE OF THE LATE PAT BWALYA PUTA PATRICK CHAMUNDA AND BANK OF ZAMBIA ATTORNEY GENERAL 2010/HP/353 1 ST PLAINTIFF 2ND PLAINTIFF 3RD PLAINTIFF 4TH PLAINTIFF 5m PLAINTIFF DEFENDANT ·1 "IN'J=. ENDED INTERVENER For the Defendant: Mr. S. Lungu of Shamwana & Co-. with him Mr. L. Zulu of Malambo & Co, Mrs. B. L. Mupeso - In-house Counsel, Bank of Zambia For the Intervener: Mr. A. J. Shonga Jnr SC, with him Mr. M. Kondolo SC -Solicitor General, and Mrs. M. Kombe - Chief State Advocate Cases Referred To: 1. Bellamano Vs Ligure (1976) ZR at page 129. 2. Turnkey Properties Vs Lusaka West Development Limited (1984) ZR at page 85. 3. Shell & BP Vs Cornidaris and Otlters (1975) ZR at page 174. 4. Bellamano Vs Ligure Lombardo Limited (1976) ZR 267. 5. Al Ravi and others Vs Security Service and Others (2010) EWCA CW 482. 6. American Cyanamid Company Vs Ethcon Limited (1975) A. C. 1396 at page 407. -Rl- RULING These were two applications for an injunction which I ordered to be consolidated. The first was filed on 9th December 2010 seeking an injunction·restraining the defendant or its agents from taking possession of Finance Bank Zambia Limited or otherwise from depriving the plaintiffs of their interests in Finance Bank Limited until after the trial of the main action. Another application was filed on 13th December seeking to restrain the defendant from terminating, undermining or otherwise interfering with the plaintiffs' interest in Finartce Bank Zambia Limited, selling Finance Bank as a going concern, closing Finance Bank or undermining its viability. I ordered consolidation of the two applications. I ordered that the matter be heard on the 14th December 2010 and after the hearing, ordered parties to file submissions by 17th December 2010, defendants complied, but the plaintiffs filed their submissions on 22nd December 2010. The Court took them in, due to the nature of the litigation touching on fundamental rights (shares), which is property within the context of Article 16 of the Constitution. The Court was to deliver the ruling by 27th December 2010, but the ruling was delayed for two days due to the late filing of plaintiffs' submissions. The summary of affidavits sworn by Dr. Rajan Lekhraf Mahtani stated that the Bank was incorporated on 23,t1 September 1986 and licensed as a bank pursuant to the provisions or the Banking Act, (now repealed) in August 1987. In 2009 while he served as Chairman of Finance Bank Zambia Limited, the defendant in purported exercise of its supervisor authority conducted an inspection of Finance Bank of Zambia and came up with a report containing a lot of allegations. Given the sensitive nature of institution, hP. resigned as Chairman. Later the Director of Bank supervision Dr. Austin Mwape informed the Bank that Deloitte LLP London, would carry out (Ill inspection of the Bank as at 31st May 2010 at a cost to be borne by the defendant and this was about -R2- .. -·· .. --·. --, ---- ,·. . £1,500,000. This audit was intended to build a case to take possession of the Bank and subsequently expropriate it without compensation and in violation of the law and the tax payer was going to spend one trillion, two hundred biJlion kwacha and that, that would cause irreparable damage. The second affidavit stated that the justification for the decision to take possession of the Bank has not been communicated to the plaintiff, but he played reliance on the Post Newspaper article. The defendant did not take possession of the Bank holding true to the law, but to deprive the plaintiffs of their interest in Finance Bank and defendants intend to sell to the Government of the Republic of Zambia at a token value and the Government will acquire 100 percent shares. The shareholding was tabulated. The applicant stated that the defendants had power under Section 81 of the Bank and Financial Services Act and under Section 84 A, they can terminate the interest of the plaintiffs and the Court may determine the value of the shares. The second affidavit went on that the justification for taking over was not communicated to the plaintiff. The plaintiff alludes to this Court's refusal for an ex-parte injunction. The tenor of the two affidavits was that there was a reckless desire by the defendant to destroy the plaintiff bank For the defendant Mr. Lameck Zimba an acting Director Bank Supervision deposed that the application has been overtaken by events as the Bank has been taken J over under Section 84 of the Banking and Financial Services Act, which lodges into the respondent power to regulate and preserve financial sector stability and to determine compliance with the act. Mr. Zimba went on that there is no obligation on part of the regulator to inform the shareholders and that the justification for taking possession was communicated in the Press Statement of 12th - 13th December 2010 appearing in the Times of Zambia and the Zambia Daily mail. In response to the allegation that the defendant wanted to nationalize U1e Bank he said, "that there is no power reposed in Baak of Zambia tu nationalize the Bank". The statute indicates the steps to be taken within 90 days. It was uniquely compelling to take possession of the Bank to avoid the collapsing of the Bank and the resultant loss of confidence in the banking sector and -R3~ that the defendant has no power to hand over 100 percent shares to government. The defendant has power to terminate certain position in the bank. Mr. Lungu challenged the way the proceedings were instituted, firstly, the 4th plaintiW s estates appears as the estate of the late Pat Bwalya Puta as deceased can only sue through the administrator or executor of the estate. In respect of l ~t and 2nd plaintiffs there was no resolution to commence these proceedings the case of Bellamauo Vs Ligure(1) held that: "A limited company needed a Board resolutio1t to commence proceedings" J The cause of action as pleaded is anticipatory and it offends the rules and defendant sought the striking out of summons and statements of claims from the proceedings. Mr. Sangwa replied that the 3rd and 5th plaintiffs are not affected by any irregularity and therefore the proceedings cannot be defeated on that score. It was not disputed that the possession was pursuant to statutory power lodged in the defendants. Mr. Sangwa responded that the quia timet injunction maybe available where the injury to the plaintiffs right has not yet occurred, but feared or threatened, the injunction may be perpetual or interlocutory, prohibitory or mandatory. Therefore he submitted that this Court may grant an injunction. The Court has the power through an injunction not only to prevent wrongs from being occasionedr but also t.o -restore situations which have been altered. Ile ciled Turnke11 Properties Vs Lusaka West Development Limited B. S. K. Cftiti sued as receiver i_q,m'P_in State I11s11ra11ce Cot71nra.tio11<:i>. For the defendant it was submitted that the action of the plaintiff was based on the article of 9th December 2010 which appeared in the Post Newspaper that defendant was taking over the Bank in order to transfer it to government, which amounted to nationalization. The statement of claim did not disclose the cause of action and that paragraphs 2, 4, 5, 6, 8, 9 and 10 must be struck off. Based on the submissions it was -R4- canvassed that the right to relief is not clear. The case of Shell & BP Vs Cornidaris and Others<3>, was cited in support of that proposition the Court held that: "'A Court may not generally grant an interlocutory injunction unless the injunction is necessary to protect the plaintiff from irreparable injury. Mere inconvenience is not enough" Irreparable injury means (injury which is substantial and can never be adequately be remedied or atoned for by damages, not injury which can be possibly be repaired). It was movingly argued that, a Court cannot resb'ain a statutory body from carrying out a function provided for by statute?. Section 4 (2)(a) of the Bank of Zambia Act Chapter 360 of the Laws of Zambia lodges in Bank of Zambia the duty to license, supervise and regulate the activities of banks and financial institutions, so as to promote the safe, sound and efficient operations of development of the financial system. The instrument used for such activity is the Banking and Financial Services Act Chapter 387 of the Laws of Zambia whose preamble states that 1,·An act to provide for regulation of the conduct of Banlcing and Financial Services to provide safeguards for investors in and custmners of tl1e Bank a11d financial iustitutions" Section 84 (a) empowers the Bank of Zambia, upon taking possession of the Bank to have exclusive powers of management and control. Under Section 84 (b) the Bank of Zambia should provide a statement of affairs of assets and liabilities upon taking possession, restructure or recognize to sell the Bank as a going concern or to close the bank or to take any action which is necessary to enable the Bank of Zambia to carry out its functions under this act and under 84 (c). The bank or financial institution can within 21 days require the Bank of Zambia to show cause why the possession should not be terminated. Any transfer of property must be at market value and no garnishee, attachment or execution order shall lie against the bank in possession. It was submitted for the defendants citing paragraph 971 of Volume 24 of the 4th Edition of -RS- Halburys' Laws of England that, the Court may grant an injunction against a body of public functionary if that body does not confine itself within the exercise of those duties which are conferred by law. It was canvassed that there may be no irreparable injury as the Court under Section 84 (A) (g) has power to compensate interests of the shareholder at a value determined by the Court. In a nutshell these were the submissions from both parties. It is undisputable that the defendants are lodged with extensive powers to take possession of Banks and Financial Institutions, which power must be exercised in the interests of investors meaning shareholders and depositors and the banking and the financial providers' community, in order not to undermine public confidence in the banking sector. I take judicial notice that tltis power is lodged in all central banks in liberal democracies. However, before I proceed to deal with the main application for an injunction, let me deal with the preliminary issues. It is trite that the 1st and 2nd plaintiffs can only sue if there is a board resolution to that effect. It is also trite that deceased cannot sue he is no more and can only sue through his administrator or executive of the estate who is personally reliable to pay liabilities and receive assets. The question is, if the writ is set aside, you have two innocent plaintiffs, who through no fault of theirs may be refused access to justice, which is a fundamental human right. For that reason I order that board resolutions of 1st and 2nd plaintiffs to commence this action be passed before trial of the action and that the 4th plaintiff be represented by the administrator or executor of his estate. If the defects are not cured at the time of trial, the three plaintiffs will be struck off and trial will proceed as if there were only two plaintiffs. Bellamano Vs Ligu1'e Lombardo Li111ited<4> is instructive. Having disposed these two preliminary issues, I now move on as to whether the statement of claim is so scandalous and embarrassing that it ought to be struck out. The injunction that has been applied for is the qui a timet injunction, w1iic11 is a legal doctrine that allows a person to seek equitable relief from future probable hann to specific right or interest, Therefore a quia timet is against anticipatory injury and in these circumstances you cannot expect the plaintiff or a quia timet injunction to be as -R6- accurate or predse in tenns of pleading as in an ordinary injunction. I th.ere/ore decline to peremptorily strike out the statement of claim. I now revert to the main application of an interim injunction. It was canvassed that the Bank of Zambia has already possessed Finance Bank and therefore an injunction cannot lie. I disagree with the defendants, this Court has got power to restore the plaintiffs to their original position where an injunction is applied for timely, see Ttmtke11 Properties Vs Lusaka West Development Limi ted supra. The injunction sought against the defendants in both matters are to stop the defendants from exercising power conferred upon them by statute. It is common sense that the injunction cannot be granted against, the exercise of statutory power, the unwisdom of suclt action, will be that the Court will be repealing the statute or overriding the legislative supremacy of parliament under Article 62 of tlte Constitution which would be an assault on the doctrine of Separation of Powers which anchors our constitutional democraci;. To injunct statutory authority is to override such authority and no Judge has power to do so unless there is abuse of that statutory authority. This fact was alluded to by the Court of Appeal recently in A l Ravi and others Vs Security Service and Otlters(5> The issue therefore is, did the Bank of Zambia act outside the legal provision?, not that did Bank of Zambia have power to act? This could not be answered at this stage as Lord Diplock observed in American C11mtamid Compamt Vs Etlzcon Limited (6l: ult is not part of the Court's function at tTtis stage of the litigation to try to resolve conflicts of the evidettce of affidavits as to the facts on which the claims of either party may ultimately depend nor to decide difficult points of law to call for detailed and mature evidence;, The issues as I see them at this stage are: (i) 'Who are the affected parties, the plaintiffs as shareholders, the depositors, the banking community on the other hand?. Tire other -R7- three groups will also be affected if, what Bank of Zambia is saying about Finance Bank is true and are in the majoritiJ and this is a country with a track record of ,,Bank Failure' whel'e depositors in Meridian Bank and Commerce Bank were financially ruined by the failure of those banks, whereas the take over by Bank of Zambia entitles the shareholders to get adequate compensation determ.inr.d by t11e Court under Section 84 (A) (g) 111ea.11i11g damage. to tlie s1iareltolde1'S is compensatable. (ii) To ca11italize the b,uzk or to inject cash by the govemment is a global phenomenon to avoid the loss of deposits by the common man. The United States injected tax payer's money in AIG a financial institution, United Kingdom, Germany, to me11tio11 a few capitalized banks with tax payer's money to avoid 'Bank Failure'. Therefore the issue of the balance of convenience lies in favour of protecting the broader interests i.e. those of depositors and the financial community. The world is just emerging from the global financial crisis, caused by 'Bank Failure' and government intervention even in world economic powers like the USA was sought and 'crude capitalism' or the 'perfectness' of the market was repudiated, that even adherents of market 'fundamentalism' like George Soros realized that governmental intervention was of critical necessity in order to arrest Bank and Corporate failure. The point that I make, is bank and corporate regulators are intended to secure the interests of investors, depositors and the banking community, while it is also eminently correct that the government or its agencies cannot willy nilly grab the property of any subject. Minority rights are as important as majority rights, that they cannot be trampled on. All I am saying at this stage is that the regulatory role of Bank of Zambia of financial institutions is a ,,,probity mec11anism" if effective and professionally conducted, offers the chance to strengthen public confidence in thP. financial system by -R8- .--- public affirmation, especially by depositors that there is a commitment to honest and just banking sector. I, have discussed the legality by referring to the nuts and bolts of the Bank and Finandal Services Acl. The Bailk of Zarnbia should maximize Ule positive conbi.butions of the Bank and Financial Services Act and minimize its negative potential. This is what I mean by this 'instrument of probity' being professionally operationalised, but it must be faced up, that the power to regulate exists and cannot be wished away. Therefore what is in disagreement and has to be determined after hearing the merits, is whether that power was exercised within the parameters of the Baking and Financial Services Act. It must be realized that in a democracy, 'rights end where you start harming others'. The Court must be deeply conscious of the harm that an interlocutory injunction against the exercise of statutory power may cause. This does not mean that in an appropriate case, the Courts should shy away from confronting the serious threats to fundamental human rights like the right to property, of which shares are property protected by Article 16 of the Constitution. It is critical to point out here that when the first writ was filed in this action and alleged nationalization and expropriation. This Courl asked Mr. Sangwa to get in touch with the Attomey General as Legal Chief Advisor to Government. This Court could not believe that, he could advise Govermnent to nationalize or expropriate any .._) person's property as these concepts have dropped from the social, economic, political and legal jargon of liberal democracies afte-,· the demise of one-party political systems and command economies and quite rightly the defendants agreed tltat they have no power to expropriate or nationalize. In any event even when these were done dutinp; illiberal democratic period, there were sovereign acts, meaning they can only be undertaken by the State. Therefore the application for an injunction against the exercise of statutory authority, cannot be granted because at the moment I have no material to 1wl,l that the Bank of Zambia is acting outside the Banking a1td Financial Act, wTtich is a matter that can only be detennined after hearing both sides. For that reason, the balance of convenience lies i1t favour of the regulator. Tlte questions to be -R9- determined at the substantive hearing will be whether the rights of the plaintiff (shareholders) were professionally and legally balanced against the interest of depositors and the financial community. And whether the statutury duly of tlte defendant to ensure that the plaintiff is engaged in sound ban.king practices was professionally and legally balanced against the s1tareholders property rigltts. If I grant an interim injunction and there is bank failure, that will have more lasting consequences. However the hearing of the main matter must be expedited by abridging times of the orders of directions. Each party will bear its own costs as the plaintiff and the defendant have partially succeeded. Delivered in Chambers on ... !. .. ~ ..... ~ ......................... 2010 Phillip Musonda HIGH CO URT JUDG E -RIO-