National Technologies Limited and Ors v Star Drilling and Exploration Limited (APPEAL No.75/2022) [2024] ZMCA 212 (28 February 2024)

IN THE COURT OF APPEAL OF ZAMBIA APPEAL No.75/2022 HOLDEN AT NDOLA (Civil Jurisdiction) NATIONAL TECHONOLGIES LIMITED NATIONAL INSTITUTE FOR SCIENTIFIC AND INDUSTRIAL RESEARCH JOHN SIAME JOSHUA SIAME REGINA MULENGA SURIAH MWANZA ALISALA MULAMBYA ASHOKKUMAR FRANCIS TEMBO JOSEPHINE CHANDA BISMACK CHANDA WEBSTER LUNGU AND 1 at APPELLANT 2nd APPELLANT 3rd APPELLANT PELLANT PELLANT 10th APPELLANT 11th APPELLANT 12th APPELLANT STAR DRILLING AND EXPLORATION LIMITED RESPONDENT CORAM: Siavwapa, JP, Chishimba and Banda-Bobo, JJA On: 20th February, 2024 and 28 th February, 2024 For the Appellants: Mr. C. Sianondo of Messrs Malambo and Company For the Respondent: Mr. B. Sitali of Messrs Butler Legal Practitioners JUDGMENT BANDA-BOBO JA, delivered the Judgment of the Court Cases referred to: 1. Chikuta v Chipata Rural Council (1974) ZR 241 2 . JCN Holdings v Development Bank of Zambia (Appeal No. 87 of 2012) 3. Savenda Management Services Limited v Stanbic Bank Limited (Selected Judgment No. 39 of 2017) Legislation and Other Works referred to: 1. The Rules of the Supreme Court, (White Book) 1999 Edition 2. The Arbitration Act of Zambia Chapter 40 of the Laws of Zambia 3. The High Court Rules, Chapter 27 of the Laws of Zambia 1. 0. INTRODUCTION 1. 1. This is an appeal against the Ruling of Honourable Justice L. Mwale delivered in the High Court of Zambia, Commercial Division on 17th February, 2023. The Appellants were Defendants in the Court below, while the Respondent was the Plaintiff. They shall be referred to in the order they appear in this matter. 2.0. BRIEF BACKGROUND 2.1 The brief background to this matter is that the Appellants and the Respondent executed a Memorandum of Understanding, (MoU) on 26th February, 2007, where they promoted a joint venture project to produce clay and ceramic products and coal briquettes on a commercial scale. The 1st Appellant was J2 designated as the special purpose vehicle through which the project would be actualized. The Respondent was to hold 54% of the allocated shares , while the Appellants were to hold 18% of the allotted shares in the special purpose vehicle , being the 1st Appellant. 2.2 When misunderstandings arose between the parties , the MoU was terminated and the Respondent declared a dispute. The parties underwent Arbitration to resolve their disputes. The Arbitral Tribunal awarded the Respondent the sums of US$1 ,324 ,453.33 and Sterling Pounds 9 ,600 .00 . The Arbitral Award was duly registered in the Commercial Registry on 27 th January, 2022. The Respondent's attempt to execute on the 1st Appellant through the Office of the Sheriff of Zambia, failed. 2 .3 A search at the Patents and Companies Registration Agency (PACRA) by the Respondent revealed that the 1st Appellant had not filed annual returns consistently, and was none operational. It was also discovered that in fact, the 1st Appellant had not even been operational at the time it entered into the MoU; and did not have any assets. The Respondent further found that the 1st J3 Appellant's registered place of business was the same as that of the 2 nd Appellant. 2.4 The Respondent therefore decided to file summons for an Order to pierce the corporate veil of the 1st Appellant, pursuant to Section 175 of the Corporate Insolvency Act No. 9 of 2017, and Order 3 Rule 2 of the High Court Rules Chapter 27 of the Laws of Zambia,. to make the 2 nd to 12 th Appellants liable for the sums awarded in the Arbitral Award dated 8 th July, 2021. 3.0. DECISION OF THE LOWER COURT 3.1. The learned Judge in his Ruling delivered on 17th February, 2023 determined that the issue to be resolved was whether the 1st Appellant's veil of incorporation ought to be lifted and whether the veil of incorporation was being misused. The learned Judge rejected the Appellants' opposition that the matter raised by the Respondent was res judicata and an abuse of Court process. He found that the application was properly before Court and the argument that the other Appellants had not been joined properly to the proceedings, was without force. He was of the view that if J4 that argument was sustained, the application to pierce the corporate veil would be nugatory. 3 .2. The learned Judge found that the 2 nd Appellant concealed the fact that the 1st Appellant was a non-operational company at the time it entered into an MoU with the Respondent on 26t h February, 2007. He confirmed this by the evidence exhibited and marked as "NS18" to "NS24", being the company's annual returns. 3 .3. He found that the company had used its legal personality to avoid obligations arising from the MoU because the records at PACRA indicated a false registered office. The learned Judge found that the 1st Appellant had misused its veil of incorporation and that there was sufficient proof before Court to show that the Respondent had exhausted the conventional remedies available to realise the Arbitral Award . 3.4. In the premises , the learned Judge found that the application was a fit and proper case to lift the corporate veil as the 2 nd to 12 th Appellants had concealed the true state of affairs of the 1st Appellant to evade legal obligations by dishonest conduct. 3.5. The learned Judge thus ordered that the 1st Appellant's veil of incorporation be pierced in order to hold its shareholders and directors personally liable for its debts. JS 4. 0. THE APPEAL 4 . 1. The Appellants, dissatisfied with the Ruling, have now appealed to this Court on the following nine grounds: (1). That the Court below erred in both law and in fact in making orders against the Intended Respondents who were not joined to the action and for holding that the application to pierce the corporate veil would be rendered nugatory; (2). The Court below erred in law in failing to apply the principles of res judicata thereby making a wrong conclusion; (3). The Court erred in both law and fact in that after finding that the Respondent conceded the facts still found the Intended Respondent liable; (4). The Court below erred in law for finding the Intended Respondent fraudulent when no such acts exist; (5). The trial Court erred in law and fact in making findings of fraud contrary to the Court of equal jurisdiction and the Supreme Court thereby making wrong findings; (6). The Court below erred in law by disregarding the corporate veil companies principles of law'; J6 (7). The Court below erred in law in finding the Intended Respondents liable as Directors and Shareholders; (8). The Court below erred in law and fact by making the Intended Respondents liable to an arbitral award to which they were not parties; and (9). The Court erred in law in applying the Corporate Insolvency Act No.9 of 2017 retrospectively. 5.0. ARGUMENTS BY BOTH PARTIES 5.1. We have duly considered the respective heads of arguments filed by Counsel for the Appellant on 30th May, 2023 and those of Counsel for the Respondent filed on 29th June, 2023. We will not reproduce the said arguments here , for reasons that will become evident in our Judgment. Suffice to state that we have cast our minds to them. 6 .0. HEARING 6.1. At the hearing Counsel for the 8 th Appellant Mr. Chanda made an application for misjoinder of the 8 th Appellant. We refused to hear that application because it came late in the day, and that it ought to have been made before a single Judge and not the full Court. J7 6.2. Counsel for both the Appellants and Respondent relied on the documents filed into Court. Both Counsel made brief oral augmentations in support of their respective positions in the appeal. 7.0. DECISION OF THIS COURT 7.1. We have considered the appeal, the Ruling being impugned, the evidence in the lower Court, the authorities cited and the heads of arguments filed by the learned Counsel for both parties as well as the oral augmentations. 7.2. In our considered view, the main issue to be resolved hinges on whether the learned Judge in the Court below had jurisdiction to deal with the matter before him. We take the view that the issue of jurisdiction will resolve all grounds in the appeal. 7 .3. It is trite that when an issue of jurisdiction arises, the same must be determined before the matter proceeds any further. This is because where a Court proceeds without the requisite jurisdiction, the proceedings are a nullity and of no effect. This principle was laid down in the case of Chikuta v Chipata Rural Councill and later affirmed in the recent case of JCN Holdings limited vs Development Bank of Zambia2 , where the Supreme Court held that: J8 'It is clear from the Chikuta and New Plast Industries cases that if a Court has no jurisdiction to hear and determine a matter, it cannot make any lawful orders or grant any remedies sought by a party to that matter' 7. 4. It is imperative to appreciate the role the Court plays where an arbitration award has been awarded. In order to do so , recourse has to be had to Section 17 of the Arbitration Act Chapter 40 of the Laws of Zambia, which provides as follows : ''17 (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside in accordance with sub-sections (2) and (3). (2) An arbitral award may be set aside by the Court only if: (a) the party making the application furnishes proof that: (i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the laws of Zambia; (ii) the party making the application was not given proper notice of the appointment of an Arbitrator or of the arbitral proceedings or was otherwise unable to present his case; J9 (iii) the award deals with a dispute not contemplated by, or not falling within the terms of, the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, Jailing such agreement, was not in accordance with this Act or the law of the country where the arbitration took place; or (v) the award has not yet become binding on the parties or has been set aside or suspended by a Court of the country in which, or under the law of which, that award was made; or (b) if the Court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of Zambia; or (ii) the award is in conflict with public policy; or JlO (iii) the making of the award was induced or effected by fraud, corruption or misrepresentation. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request has been made under article 33 of the First Schedule, from the date on which that request had been disposed of by the arbitral tribunal. 7.5. It is therefore clear that Court's jurisdiction in matters that deal with an arbitral award is limited to those stipulated in section 1 7 of the Arbitration Act above. This law is well settled, and it is that the grant of an arbitral award is final. The cited case of Savenda Management Services Limited Vs Stanbic Bank Limited3 provides clear guidance on this issue. We thus agree with Counsel for the Appellants when he states that the Respondent's application to make the 2nd to 12th Appellants liable for the debts of the 1st Appellant would in effect lead to the variation of the Arbitrator's decision which found the 1st Appellant liable. Jl 1 7. 6. In the arbitral award dated 8 th July, 2021, appearing from page 20 of the record of appeal, particularly at page 126, the learned Arbitrator ordered thus: "I AWARD AND DIRECT THAT, in full and final settlement of all claims, in this arbitration the respondent [National Technologies Limiteci] shall within ninety days after this Award, pay to the claimant, [Star Drilli~g and Exploration Limited] ... " 7.8 We therefore agree with the Appellants that it was not within the jurisdiction of the Court to tamper with the decision of the Arbitrator. The lower Court in its Ruling was in effect changing the decision of the Arbitral Tribunal in terms of who was liable. 7. 7. We find that the learned Judge misdirected himself in adjudicating on the application for summons for an Order to pierce the corporate veil pursuant to section 1 75 of the Corporate Insolvency Act No.9 of 2017 and Order 3 of the High Court Rules Chapter 27 of the Laws of Zambia. In view of the above, we find that the learned Judge in the Court below exceeded his jurisdiction by entertaining the application for leave to pierce the corporate veil. Proceeding as he did, and in the absence of J12 jurisdiction to alter an arbitral award, his decision is a nullity and of no effect. Thus, the Ruling by the learned Judge was a nullity because he exceeded his scope of jurisdiction. 7.8. Having dealt with the issue of jurisdiction, it follows that all other grounds of appeal are otiose. 8 .0 CONCLUSION 8.1 In conclusion, the appeal succeeds with costs to the Appellant to be taxed in default of agreement . ............................ J ....................... . JUDGE PRESIDENT SIAVWAPA COURT OF APPEAL JUDGE F. M. CHISHIMBA COURT OF APPEAL JUDGE -------~ --------------- A. M. BANDA-BOBO COURT OF APPEAL JUDGE J13