J&J Transport Zambia Limited v Zambezi Manufacturing and Trading (2018/HP/2090) [2024] ZMHC 194 (3 October 2024)

.. IN THE HIGH COURT FOR ZAMBIA AT THE PRINCIPAL REGISTRY HOLDEN AT LUSAKA (Civil Jurisdiction) BETWEEN: 2018/HP/2090 J&J TRANSPORT ZAMBIA LIMITED PLAINTIFF AND ZAMBEZI MANUFACTURING AND TRADING DEFENDANT Before Honourable Mr. Justice M. D. Bowa in Chambers on 3 rd October, 2024 For the Plaintiff: Mr. M. Thole with C. Chisala in house Counsel For the Defendant : No appearance RULING Authorities re,ferred to: 1. Madison Investment Property and Advisory Company Limited -vs- Peter Kanyinji (Appeal 10 of 2016) [2018} 2. Southern Cross Company Limited vs. None Systems Technology Limited (20 12) 1 ZR 524 3. Salamon v Salamon (1897) AC 22 4. As Lord Danckwerts LJ stated in Arnold Transport (Rochester) Ltd v British Transport Commission (1962) 2 QB 173 5. Adams v Cape Industries Plc (1991) I ALL ERp 92 9 6. In Re-Hand others 1996 2 ALLER 7 . Ethiopian Airlines Limited v Sunbird Safaris Limited Sharma 's investment Holding Limited & Vijay Babulal Sharma 2007 ZR Legislation Re,ferred to: • The High Court Act, Cap 27 of the Laws of Zambia • The Companies Act No. 10 of2017 • The Corporate Insolvency Act, No. 9 of 2017 -Rl- Other Materials Referred to: • Commercial Applications of Company Law (9th Edition) 2008 24-340) 1. Introduction 1.1 This is a ruling on the Plaintiff's application for an order to pierce the Defendant's corporate veil brought pursuant to section 175 of the Corporate Insolvency Act, No. 9 of 2017. 2. Affidavit evidence 2.1 The Plaintiff filed into Court an affidavit in support of the application on the 20t h of April, 2023 deposed to by Oscar Miguel Gutierrez Mendieta the General Manager of the Plaintiff company. He averred that the Plaintiff obtained a judgment in Default of appearance and Defence on 19th April, 20 19. That the Plaintiff tried to execute against the Defendant through Writ of Fieri Facias which it failed on account of the fact that the Defendant could not be located as the company had moved from its registered address. A copy of the search print out from PACRA was exhibited as "OMGMl". -R2- .. 2.2 Further that the Plaintiff conducted a search at the Ministry of Lands in the bid to enforce the judgment obtained but that it discovered the Defendant had no properties. That the record will reflect that the Plaintiff made an application to Garnish the Defendant's account held with AB Bank Plc. That the order was granted and served on the Garnishee. Copies of the Ruling and Statements on the payment by the Garnishee were exhibited as "OMGM 2 ". 2.3 It was further deposed that it was discovered that the Defendant's accounts disclosed did not have sufficient amounts to satisfy the judgment debt. That the Garnishee remains in possession of the contact details and addresses of the signatories and directors of the Defendant Company and has refused to disclose the details to the Plaintiff. He averred that he believed based on the advice of Counsel that there is an obligation placed on the Directors of the Defendant company not to conduct fraudulent activities by entering into contracts with the intention not to liquidate the contractual -R3- amounts knowing that the company does not have sufficient assets to liquidate the judgment sum. 2.4 That the conduct of the Defendant's directors and shareholders demonstrates that the directors and shareholders HUSSEIN VERSI, AMMAAR VERSI AND ABIGAIL CHIBESA intentionally entered into a contract with the Plaintiff with no intention to liquidate the contractual sum. Further he averred that the fact that the company has seized its operations from their registered address and are nowhere to be found demonstrates that the Defendant has no intention of liquidating the judgment sum 2 .5 That it is clear that the Defendant contracted the substantial debt with the Plaintiff with the intention to defraud its creditors and this fact was fully known by the company shareholders and Directors that the said debt would not be settled by the business within the duration of the contract; 2 .6 That he believed based on the advice of his advocates that the only way the Plaintiff will enjoy the fruits of its judgment debt is if this Honourable Court makes an Order that the -R4- sh areh older s and Directors of the Defendant be m ade person ally liable to settle the judgmen t debt. 3. Skeleton arguments: 3. 1 The Plaintiff filed into Cou rt on the 20th of April, 2023 skeleton argum en ts in support. It was su bmitted th at as a gen er al rule a company is a separate legal en tity fr om its sh areholders. Reference was made to section 16 of the Companies Act No. 10 of 2017 in that regard. The section provides that: "A company registered in accordance with this Act, acquires a separate legal status, with the name by which it is registered, and shall continue to exist as a corporate until it is removed from the Register of Companies." 3 .2 It was submitted that th ere are however instances when a court m ay pierce the corporate veil in ascertaining the identity of th e person s misu sing th e corpor ate per sona. Reference was made to th e case of Madison Investment Property and Advisory Company Limited -vs- Peter Kanyinji1, where it was held that : -RS- "in this jurisdiction, as in England and Wales, the circumstances in which the corporate veil may be lifted can be classified into two categories; first under the common law through Judicial Intervention and secondly under statute" 3.3 It was submitted that the Plaintiff has relied on the provisions of section 175 ( 1) of the Corporate Insolvency Act No. 9 of 201 7 there by inviting the courts to exercise its power to piece th e corporate veil under the Statue. It was submitted that the provision shows that once a Court is satisfied that a person was knowingly a party to the carrying on of any business of the company for fraudulent purpose, it may make an order that such person be personally responsible without any limitation or liability for the debts of the company. 3.4 It was submitted that it was evident from the contents of the Affidavit that the Defendant company and its Directors entered into a contract with no intention of liquidating the sum claimed. Further it was submitted that despite the Plaintiffs willingness to find the location of the Defendant company and conducting relevant searches, the Defendant -R6- • company's location remains unknown and h ave sin ce relocated to an address n ot disclosed. 3.5 Further reliance was p laced on the case of Southern Cross Company Limited vs None Systems Technology Limited2 in which the Court held that: "the foregoing provisions demonstrate that the Court has sufficiently wide discretion, if the circumstances of the case warrant it, to pierce the corporation veil, and to look behind the corporate company involved so as to ascertain the identity of the persons who control the company and in a proper case the court may make such persons personally liable to third parties fo r the companies Debts" 3.6 It was submitted that th e aforementioned demonstrates an application to lift th e veil of in corporation following th e failure to execu te a judgment debt by means of a Writ of Fieri Facias can be entertained. That in the Southern Cross Company case (supra) the Court granted an application after being satisfied that a managing Director pu rchased a motor vehicle to achieve a fraudulent en d . It was su bmitted that the same can be said of the m atter at hand as th e directors of th e -R7- .. .. Defendant company entered into a contract with the Plaintiff knowing full well the financial status of the Defendant. 4. Hearing 4.1 It is common cause that the Defendant did not file an affidavit in opposition and neither did they appear at the date set for hearing of the application. The Plaintiff filed an affidavit of service confirming service of the date of hearing of the application. Having been satisfied that the Defendants were duly served with the date of hearing, I proceeded to hear the application in accordance with Order 35 Rule 3 of the High Rules, Cap 27 of the laws of Zambia. 4.2 At the date set for hearing Mr. Thole learned Counsel for the Applicant relied on the documents filed in support of the application which he supplemented with oral submissions. He argued that this Court should grant the order to lift the corporate veil and order the Bank to disclose the personal information of the Defendant directors in line with section 111 (2) of the Banking and Financial Services Act. 5. Court's consideration -R8- "The court will lift the corporate veil where a Defendant by the device of a corporate structure attempts to evade limitations imposed on his conduct by Law." 5.3 In Re-H and others6 the court h eld that the corporate veil can be lifted where the corporate structure is used as a devise or facade to conceal criminal activities. Closer to home, section 175 of the Corporate Insolvency Act No. 9 of 201 7 makes provision for instances when the Corporate veil can be pierced in circumstances where a corporation is undergoing business rescue or insolvency proceedings. Section 175 contains a reformulated version of section 383 which was the provision that was used in applications to lift the corporate vail before the coming into effect of the Corporate Insolvency Act No. 9 of 2017. Madison Investment, Property and Advisory Company Limited v Kanyinii (supra) followed. 5.4 It is therefore clear that the Law permits a court to pierce the corporate veil if it can be established to the court's satisfaction that a person was knowingly a part of the -R10- carrying on of a business of a company for a fraudulent purpose. Once so satisfied, the court can then order that a director be personally responsible for the debts or liabilities of that company. 5.5 This position was affirmed by the Supreme Court in the Ethiopian Airlines Limited v Sunbird Safaris Limited Sharma's investment Holding Limited & Vijay Babulal Sharma 7 and the case of Madison Investment, Property and Advisory Company Limited v Kanyinii (supra). 5.6 Based on the facts before me I am satisfied that the Plaintiff in this matter was granted a judgment in default of appearance and defence in which it is entitled to the following reliefs: I. Payment of the sum of USD 61, 338. 75 being the outstanding balance due from the Defendant to the Plaintiff for the transport services rendered by the Plaintiff to the said Defendant between February and June 2018, II. Interest, and III. costs, -Rll- activities undertaken by the directors before the court to enable it to make a determination on whether or not the Corporate veil must be lifted. This was the holding of the Supreme Court in the case of Madison Investment, Properly and Advisory Company Limited v Kanyinii (supra). The Court held that: "we are unable on the facts to satisfy ourselves that the Corporate veil was used to conceal the true state of affairs or to evade an existing obligation or for any improper or fraudulent purpose nor are we convinced that other methods of recovering from perfect Milling were unavailable." 5 . 10 A perusal of the Plaintiffs statement of claim further reveals that the Plaintiff did not plead any fraud in the Defendant's dealings. The PACRA printout exhibited cannot be used to infer that they were fraudulent dealings by the Company. The Plaintiff has not proved that there were fraudulent dealings by the directors/ shareholders 3=s earlier alluded to and the same has to be specifically pleaded in the statement of claim. -R13- • • Order 18/ 12/ 18 of RSC requires fraudulent conduct to be specifically pleaded. 5.11 Further the only thing that the Plaintiff has demonstrated is the fact that it has had difficulty in executing the judgment in default. No proof has been brought before this court to show that the directors or shareholders were using th.e company as a fayade to carry out fraudulent activities. 5. 12 It is from the forgoing that I find that this is not an appropriate case for me to grant an order to pierce the Defendant's Corporate veil. Granted the position I have taken, I find that there is no basis upon which I can order the Bank to disclose information pertaining to the directors and shareholders of the Defendant Company. I make no order as to cost~ ~ . Dated at Lusaka the .............. ........... day of ...................... 2024 () C /oJ-u- ave to appeal is granted. HON. JUDGE -R14-