Ma Chuhua and Anor v Sun Yadong (Appeal No. 176 of 2023) [2024] ZMCA 244 (26 August 2024)

IN THE COURT OF APPEAL OF ZAMBIA HOLDEN AT LUSAKA ( Civil Jurisdiction) Appeal No. 176 of 2023 BETWEEN: MA CH UHUA WYNN RESOURCES LI _..;,. AND SUN YADON G ' --- --:---....._ • t ru , "'-.._, I:.. • )' \ r] ~ 1st Appellant 2nd Appellant . LU;"; ,. ·- Respondent CORAM: Chashi, Makun gu and Sharpe-Phiri, JJA on 30 April 2024 and 26 A ugust 2024 For the 1st Appellant: Mr. P. K Chibundi on behalf of Apton Partners For the 2nd Appellant: Ms. N. Mbuyi, Mr. C. Nkhata and Mr. T. Mubita of For the Respondent: Mr. C. Siamutwa ,and Mr. K. Kal ingwe of Charles Paul Norah Advocates Siamutwa Legal Praa ition(trs J U DGME N T SHA RPE-PHIRI, JA, delivered the judgment of the Court. Legislation referred to: 1. The Constitution (Amendment) Act No. 1 of2016 2. The High Court Act. Chapter 27 of the Laws of Zambia 3. The Rules of the Supre me Court of England (White Book) 1999 edition Cases referred to: 1. Dietz v. Lennig Chemicals Ltd. [1969} I A. C. 170, H. L 2. Senior Motors Limited and 3 Other Companies {1996) ZR 163 (SC) 3. Fred M '111e111be and Post Newspaper Limited (In liquidation) v Abel Moo:i and five Others - CAZ Appeal No. 175 of 2019 . ./. Magnum (Zambia) Limited v Basil Quadri (Receiver Manage,~ and Another (1981) ZR 1 ./ 1 5. Konkola Copper Mines Pie and Another v Lungu (Sued in his capacity as Provisional Liquidator of Konkol a Copper Mines Pie) and Others [2022] ZMCA 53 JI 1.0 INTRODUCTION 1.0 This appeal relates to a Ruling issued by Katenekwa, J of the Lusaka High Court on 4 April 2023 , under cause number 20 l 9/HK/117 and 202 l/HP/0432. 2.0 BACKGROUND 2.1 The background leading to this appeal is as follows: Sun Yadong initiated a lawsuit as the Plaintiff against Ma Chuhua, Wenkai Xu, and Wynn Resources Limited as l 5 \ 2nd and 3rd Defendants, respectively, in the Kitwe High Court under cause number 2019/HK/117 on 13 March 2019. 2.2 For clarity, in the initial part of this judgment, we will refer to the parties as they are designated in the lower Court, and as they are designated in this appeal in the subsequent part. 2.3 Through the High Court action, the Plaintiff sought the following reliefs against the three Defendants: i) ii) iii) iv) v) vi) An order to stay execution of the consent judgment dated 24 August 2016 entered by the Registrar under cause number 2016/HK/348. An order of injunction restraining the }51 Defendant and his appointed receiver from selling the Plaintiff's property Plot No. 2494, Kuomboka Drive, Kitwe. An order declaring the said order null and void/or want of authority and consent of the Plaintiff as shareholder and director. Any order the Court may deem fit. Interest. Costs. J2 2.4 In the statement of claim, the Plaintiff asserted that he is a Chinese businessman and a shareholder in the 3rd Defendant company. The 1 si Defendant is also a Chinese national resident in Zambia, while the 2nd Defendant serves as a co-Director in the 3rd Defendant company alongside the Plaintiff. The Plaintiff further alleged that he and the 2nd Defendant established the 3rd Defendant, which is a private limited company incorporated under the Companies Act No. IO of 2017 of the Laws of Zambia. Subsequently, after the formation of the 3rd Defendant company, the Plaintiff depa1ted from Zambia but retained his status as a shareholder and Director of the company, and the 2nd Defendant assumed sole operation of the company, albeit being expected to consult the Plaintiff concerning company decisions. 2.5 The Plaintiff further argues that it has been alleged that at some point in 2016, while at a casino operated and owned by the yd Defendant, the I s t Defendant won a total sum of US$ 1,633 ,000 through betting games and cards. Subsequently, the I si Defendant sued the 3rd Defendant in the High Court claiming the aforementioned sum of money. The Plaintiff asserts that he was not informed of this matter, nor of the entry of a default j udgment. 2.6 Additionally, the Plaintiff contends that he discovered that a consent judgment was reached on 26 August 20 I 6, wherein it was agreed that the sum be settled through eight equal monthly installments of US$204, 125 each to avoid execution. The Plaintiff fu1ther alleges that there was no board resolution authorizing such an installment plan, nor was he made aware of these proceedings or of the l s t Defendant's winnings at the betting games at the 3rd Defendant's casino. J3 2. 7 The Plaintiff further asserted that subsequent to the consent judgment, the 1st Defendant registered the order against the property owned by the 3rd Defendant and appointed a receiver with the intention of selling the 3rd Defendant's prope1ty. However, attempts to obtain information regarding the situation have been unsuccessful, as the 1st Defendant has been evasive. The Plaintiff maintained that unless an injunction was granted pending determination of the matter, he would continue to suffer harm that could not be adequately compensated for by damages. 2.8 The 1st Defendant filed a memorandum of appearance and defence. In his pleadings, the 1st Defendant acknowledges engaging in multiple betting transactions at the casino owned by the yd Defendant company and successfully betting on earnings totaling US$ l ,633,000. These earnings were acknowledged and not contested as being owed to him by the 3rd Defendant company. The 1st Defendant also admits to initiating court proceedings in the Kitwe High Court under cause number 2016/HKJ348 to recover the sums owed to him by the 3rd Defendant company. His decision to sue the 3rd Defendant company for the recovery of this money was necessitated by the company's failure to settle the debt to him. 2.9 The 1st Defendant further asserts that he obtained a default judgment against the 3rd Defendant under cause number 2016/HKJ348. Additionally, the 1st Defendant confirmed that prior to the execution of the judgment, the parties agreed to enter into a consent order through their respective legal representatives and advocates. He fmther stated that the consent order was finali zed, and a receiver was appointed in accordance with a registered specific floating charge and pursuant to a ruling of the High Court dated J4 18 October 2018. The role of the receiver was to manage the affairs of the yd Defendant and safeguard their interests. 2.10 He further argued that he had instructed his lawyers to register a specific floating charge, signed by both him and the yd Defendant, securing the sum of US$ l ,633,000. In this charge, the 3rd Defendant pledged its property known as plot number 2494, Kitwe. The 1st Defendant further asserted that no misrepresentations or fraud were committed by him when procuring the settlement with the Jrd Defendant company. Finally, he stated that the 3rd Defendant was still under receivership, and his debt fro m the company had not been fully settled. 3.0 NOTICE OF MOTION TO RAISE PRELIMINARY ISSUE 3.1 On 20 January 2023, the 1st and 3rd Defendants moved the Court by Notice of Motion to raise Preliminary Issues against the action on grounds of irregularity and abuse of court process. The app lication was made pursuant to Section 331 of the Companies Act number 10 of 2017, as well as Order 3, Rule 2 and Order 14, Rule 5 (2) of the High Court Rules, Chapter 27 of the Laws of Zambia and Orders 2, Rule 1 and Order 15 Rule 6 of the Rules of the Supreme Court of England (White Book) 1999 edition and Section 4 of the High Court Act, Chapter 27 of the laws of Zambia, was cited. JS 3.2 Through this application, the Defendants requested the court to adjudicate the fo llowing preliminary objections: i) That this matter should be dismissed for irregularity for being an abuse of court process as the Plaintiff did not comply with Section 331 of the Companies Act No. 10 of 2017 of the Laws of Zambia in instituting this action and that it is therefore improperly before this Honourable Court. ii) That this matter with the same parties and the same facts was already adjudicated upon before the High Court under cause number 2020/HPC/065 I and 2020/HP/0495 and therefore the present matter amounts to forum shopping and is an abuse of the process of the court. iii) That a perusal of the claims in the present case reveals that the Plaintiff inter alia seeks this Honourable Court to set aside a consent judgment under cause number 2016/HK/348, however the latter has not demonstrated that he first joined the proceedings in the latter case before he commenced the present action in accordance with the guidance of the Court of Appeal in the matter of Fred M'membe and Post Newspaper Limited (In liquidation) v Abel Moozi and jive others-Appeal No. 175 of 2019. iv) That the 1s1 Defendant is not a proper party to these proceedings and/ or action and must be misjudged as he assigned his debt to another person and/or entity, who has not been made a party to this matter. J6 v) That the stay of sale granted by the court to the plaintiff is irregular as it stays a decision of another High Court Judge and thus should be discharged. 3.3 The deponent filed an affidavit in support of the notice of motion to raise preliminary objection on 20 January 2023, sworn by Siakamwi Chikuba, the receiver manager of the 3rd Defendant company. The deponent asserts that on 17 January 2023 , the Plaintiff served his advocates on record with court process pertaining to the aforementioned matter. Upon reviewing the documents, he was advised that the action was commenced irregularly, as the Plaintiff had not obtained leave to commence the action as a shareholder and director of the company. 3 .4 Furthermore, he states that this action stems from the business transaction that occurred between the l51 Defendant and the 2nd and 3rd Defendants prior to the latter being placed into receivership. Due to the 3rd Defendant's unpaid debt to the 151 Defendant, legal proceedings were initiated, leading to the 3rd Defendant being placed under receivership. 3.5 The deponent futther stated that the issues raised in this new action have already been adj udicated upon by the High Court on two separate occasions. Despite this, the Plaintiff persists in initiating actions when the facts pertaining to this case have already been addressed. Additionally, he mentioned the existence of a consent judgment dated 10 November 2020 under cause number 2020/HP/0495, and a ruling dated 22 March 202 1 under cause number 2020/HPC/065 l. J7 3.6 The deponent further asserts that in the consent judgment, he was acknowledged as receiver of the 3rd Defendant, and consequently, he is the sole individual authorized to handle all matters pe11aining to the affairs of the 3rd Defendant. Moreover, he has not granted the Plaintiff authorization to initiate this action, which primarily concerns the company. 3.7 Additionally, the effect of the ruling of 22 March 2021 stipulated that the Plaintiff must obtain leave of court before initiating any action in any court. This requirement should apply in this instance as well, given that the Plaintiff seeks to enforce the rights of the company under receivership. 3 .8 The deponent further asserts that the court should take note that it has previously addressed a matter involving similar issues and the same parties under cause number 2015/HK/315, which serves as additional evidence of the Plaintiffs forum shopping. Additionally, all the reliefs sought by the Plaintiff pertain to the affairs and conduct of the 3rd Defendant' s company under receivership. Fu1thermore, evidence from the printout will demonstrate that Plot number 2494, Kuomboka Drive, Kitwe, belonged to the y d Defe ndant and not the Plaintiff in his personal capacity. 4.0 AFFIDAVIT IN OPPOSITION TO PRELIMINARY APPLICATION 4.1 The Plaintiff opposed the application through an affidavit dated 27 February 2023, wherein he argued that his legal representatives had advised him that the preliminary application was not properly presented before the Court, as the 3rd Defendant and its legal representatives lacked the competence to bring the said application. In addition, he contended that his action was properly before the Court, as there was no requirement to J8 bring the action in the name of the company or to seek leave to institute the same. He further asserted that no Cou11 of competent jurisdiction had adjudicated upon and resolved the reliefs he seeks. He urged the Cou11 to afford him the sole opportunity to voice the injustices he has endured as a shareholder in the 3rd Defendant company. 5.0 DECISION OF LOWER COURT 5.1 The Motion was heard by Justice Katenekwa who, after reviewing the arguments of the pai1ies, did not grant the application. The learned trial Judge concluded that the issues before him differed from those in previous actions and that the Plaintiff was not a party to the consent order. 5.2 The Judge also cited Sectio n 13 of the High Court Act, which stipulates that the Courts should endeavour to address all matters in dispute between parties to prevent a proliferation of legal actions. Regarding whether the Plaintiff can intervene as a shareholder in the action, the trial Judge opined that the provisions of Section 331 of th e Compa nies Act safeguard the distinct and separate legal personality of a company. However, the law permits courts to grant leave where corporate governance or standards seem to be compromised or may be compromised. 6.0 THE A PPEAL 6.1 Being dissatisfied with the Ruling of Katenekwa, J of 4 April 2023, the Appellants filed a notice of appeal and memorandum of appeal on 13 April 2023 with the following three grounds of appeal: .19 (i) The learned trial Judge erred in/act and law when he ruled that the Respondent was in order to commence this action in his own right without obtaining leave of Court even on the face of evidence that the company ·was under receivership and the property that the Respondent is trying to recover was the company's property and not the Respondents. (ii) The learned trial Judge erred in/act and law when he ruled that the Respondent properly commenced this action to set aside the consent order under cause number 2020/ HP/ 495 even on the face of the arguments that the Respondent did not even first join those proceedings where the consent was entered prior to commencing this fresh action to set aside the consent judgment. Further, the parties that were cited under cause number 2020/HP/ 0495 have not all been sued under this action,· hence this action is forum shopping, an abuse of court process and an irregularity. (iii) The learned trial Judge erred in fact and law when he failed to appreciate and answer all questions in the Notice of Motion to raise Preliminary Issues dated 201h January 2023 when he rendered his ruling by only answering one question. The preliminary questions are as set out in paragraph 2.6 above. 7.0 HEARING OF THE APPEAL 7.1 The appeal was heard before us on 30 April 2024. All the parties were represented by their respective counsel, as previously mentioned. Counsel for the 1st and 2nd Appellants both relied on the Record of Appeal, Heads of Argument dated 12 June 2023, and Supplementary Record of Appeal of JI 0 16 June 2023. Counsel for the Respondents relied on their arguments dated 13 July 2023, but also requested additional time to file supplementary Heads of Argument, which was denied due to being out of time. The arguments presented by the parties will not be recast here but will be referenced in the subsequent analysis section as necessary. 8.0 OUR DECISION ON THE APPEAL 8.1 We have meticulously examined the evidence on record, the ruling in question, the grounds of appeal, and the arguments presented by the parties. 8.2 We begin by reviewing the first ground of appeal, which asserts that the trial Judge erred both in fact and law by ruling that the Respondent had the right to initiate this action in his personal capacity without obtaining leave of Court, despite evidence showing that the company was under receivership and the prope1ty being sought for recovery belonged to the company, not the Respondent. 8.3 In augmenting this ground, the Appellants drew our attention to the case of Robert M bonani Simeza (Sued as Receiver/Manager of Ital Terrazo Limited, Fin ance Bank (Z) L imited a nd Ital Terrazo L imited, wherein the Supreme Cou11 reaffirmed its previous rulings on circumstances when it is permissible fo r directors and shareholders of a company under receivership, as well as any individual with a genuine interest and beneficial stake to safeguard, to sue a wrongdoer receiver or fo1mer receiver in their own names and capac ities. JI I 8.4 Our attention was fm1her drawn to the statutory provisions under Section 331 of the Companies Act whereunder, it is provided as a requirement that a director or entitled person intending to bring or continue an action on behalf or in the name of the company must first obtain leave of the Court. 8.5 In addressing this ground of appeal, the Respondent contended that the preamble to the action in the Court below, as evidenced by the pleadings and the designation of the 2nd Appellant as the 3rd Defendant, indicates that the Respondent did not initiate the action on behalf of the 2nd Appellant. The Respondent argued, had the action been brought on behalf of the 2nd Appellant, the 2nd Appellant would have been listed as a Plaintiff alongside the Respondent in the pleadings. 8.6 However justice does not operate in a vacuum; it necessitates the examination of the legal provisions to ensure predictability, certainty, and advancement of the objectivity in the administration of the law and equity concurrently. We have, therefore, addressed the substantive issues in contention under this ground. Our initial consideration is whether the action pursued by the Respondent in the lower Court constituted a derivative action within the ambit of Section 331 of the Companies Act. To determine this, we must first scrutinize the nature of the action in the lower Court. 8.7 The statement of claim shown in pa11 at page 14 of the Record of Appeal reveals that among the main reliefs sought, was an order of injunction against the sale of Property No. 2494, Kuomboka Drive, Kitwe. JI 2 8.8 The main claims were couched as shown below: AND NOW the Plaintiff claims: (i) An Order to stay execution of the Consent Judgment dated " August 2016 entered by the Registrar Under Cause No. 2016/HK/348. (ii) An Order of Injunction restraining the JS1 Defendant and his appointed receiver from selling the Plaintiff's property No. 2494 Kuomboka Drive, Kitwe (iii) An Order declaring the said Order null and void for want of authority and Consent of the Plaintiff as co shareholder and Director. 8.9 The statement of claim further reveals in paragraph 12 on the same page that the Respondent' s averment in relation to ownership of the subject property was that 'following the Consent Judgment the }st Defendant registered the Order against the property owned by the 3rd Defendant and has appointed a receiver for the purpose of selling the 3rd defendant's property '. By that statement, the Respondent was confirming that the subject property under contention was in fact owned by the 3rd Defendant thereunder, which is the 2nd Appellant company hereunder. Furthermore, before the commencement of various legal proceedings associated to the assertions being advanced by the Respondent, ownership of the subject property by the 2nd Appellant is confirmed at pages 68 and 69 of the Record of Appeal, which is a Land Register dated 19 January 2023, particularly under entries 15 and 16 thereon. Jl3 8.10 Having established that the subject property sought to be protected by the Respondent's action in the Court below infact, was owned by the 2nd Appellant, a company in which the Respondent is Director and Shareholder, we must now examine if the provisions of Section 331 of the Companies Act sufficiently address the issue being raised under the first ground of appeal, particularly that whether leave of Court was required before the Respondent could take out an action intended to purportedly safeguard the prope1ty of a company. 8.1 1 In order to put context to the nature of the Respondent's claims in the action below, reference is again made to the third relief under the statement of claim vvhich speaks to the fact the Respondent was challenging transactions made by and in the name of the 2nd Appellant company fo r want of his authority and consent as co-shareholder and Director in the company. In short, by the action in the Court below, the Respondent was in fact actively advancing the agenda of the 2nd Appellant company. The provision of Section 331 of the Companies Act stipulates that: "(1) Except as provided in this section, a director or an entitled p erson s/w/11101 bring or intervene in any proceedings in the name of, or 011 behalf of, a compa11y or its subsidiwy . (2) Subject to subsection (4), the Court may, on the application <~f a director or a11 e11titled perso11, grant leave to- (a) bri11g proceedi11gs in the name and 011 behalf of the co111pa11y or any s ubsidia,y; or (b) i11terve11e in proceedi11gs to which the company or a11y related compa11y is a pa,1y for the purpose of conti11uing, defe11di11g, or disco11tin11i11g the proceedi11gs 011 behalf of the company or s ubsidiary, as the case may be. J 14 (3) Despite the generality of subsection (2), the Court shall, in determining whether to grant leave in accordance with that subsection, have regard to the- likeli/10od of the proceedings succeeding; costs of the proceedings in relation to the relief likely to be (a) (b) obtained; (c) action already taken, if any, by the company or its subsidiary to obtain relief; or (d) interests of the company or its subsidiary in the proceedings being commenced, continued, defended, or discontinued, as the case may be. (4) The Court may grant leave, in accordance with subsection (2), (f satisfied that- (a) the company or its subsidiary does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or (b) it is in the interests of the company or subsidia,y that the conduct of the proceedings should not be left to the directors or to the determination of the members as a whole. (5) A notice of the application, made in accordance with subsection (2), shall be served 011 the company or subsidiary. (6) (a) (b) A company or its subsidiwy- may appear and be heard; and shall inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be." 8.12 By Subsection (1) of the said provision, the Respondent is proscribed from bringing an action of this nature in the name of the 2nd Appellant company. However, Subsection (2) provides an exception that a Director or entitled person intending to bring or continue an action in the name of a company, can only do so upon application to Court and being granted leave to proceed as such by the Court. J]5 8.13 In casu, there is no dispute that the Respondent did not obtain leave of Court before commencing the action in the Court below. In the case of Konkola Copper Mines Pie and Another v Lungu (Sued in his capacity as Provisional Liquidator of Konkola Copper Mines Pie) and Others, we held in relation to the provisions of Section 331 of the Companies Act as follows : "/11 our view, on a proper construct of Section 331 of the Companies Act supra, it is evident, that a director or an entitled person shall not bring or intervene in any proceedings in the name of, or 011 behalf of, a company or its subsidiary, without leave of the Court. We accept the 2"11 to 4th respondents' submission to the effect that the appellants ought to have sought leave to bring the action on behalf of the company." 8.14 We also concur with the Appellants ' subm ission that, as estab lished by the Supreme Court in the case of Magnum (Zambia) Limited v Basit Quadri (Receiver Manager) and Another, a director or shareholder intending to sue a Receiver for an act committed against the company must initiate such action in the name of the company. Proceeding in this manner necessitates first obtaining leave of the Court, as previously illustrated. 8.15 Though we acknowledge that the Respondent may have a valid claim in his own name against the other Director and Receiver for breach of duties owed to him personally, he lacks basis to pursue the interests of the company except through the established legal procedure as previously outlined. J 16 8.16 Given this position of the law, our firm belief is that the trial Judge should have upheld the preliminary application on this basis and not pe1mitted the Respondent to proceed with the action in the manner attempted. Therefore, the first ground of appeal is accordingly successful. 8.17 Consideration of the remaining two grounds of appeal is therefore rendered academic. 9.0 CONCLUSION 9. l Based on our evaluation of the first ground of appeal, we conclude that the appeal is meritorious and therefore succeeds. 9.2 We consequently dismiss the proceedings initiated in the lower Cou1t by the Respondent due to irregularity as they were a nullity. 9.3 Costs incun-ed in both the lower Court and in this appeal shall be borne by the Respondent, with taxation to occur in e ult of agreement. J. Chashi COURT OF APPE L JU DGE C. K. Makungu COURT OF APPEAL JUDGE ~ . .dS~ha==r==pe=-P=h::::::iir~i - COURT OF APPEAL JUDGE J 17