Whether or not the said real debtor admitted owing the Bank the debt the subject matter of this action.
This court will not address these issues seriatim. It proposes to deal with the issues
globally. It is trusted that all the issues will be addressed when it is doing so.
Facts of the case
The facts of this case, which are relevant to the determination of the application
before me, are uncomplicated and they are as follows:
The Bank commenced an action against Continental Traders Limited. The action was
commenced on 14th August 2000 in Civil Cause No. 2484 of 2000. It was an action for a debt. The Bank was claiming the sum of MK910,740.00 being an
unpaid overdraft facility drawn by the Company from the Bankfs Henderson Street Branch.
As a matter of fact, Mrs Nyandovi-Kerr (the Real debtor) undertook to furnish security
for the over draft facility. She was to execute a charge over her real property on title No. Chikamveka West 129, in Zomba district.
This security was never executed by the real debtor. In point of fact, she instead sold the property on title No. Chikamveka West
129, Zomba to a third party.
The company defaulted in its repayment of the loan given to it. The Bank could not
realise the security because of the sale of the property. It tried to register a caution but no avail. Hence, the legal action commenced
herein against the company on 14th August 2000. It is to be observed that before this action was commenced the real debtor admitted owing the Bank some money and proposed
to liquidate the debt by monthly instalments. It is, therefore, not surprising that the action commenced herein was not defended.
The company, although represented by Counsel, never defended the action. As a result
of this, a default judgment was entered against the company. The said judgment in default was issued on 17th October 2001.
The Bank did not seek to enforce the judgment it obtained against the company. It,
however, made an application to court to have the veil of incorporation of the company lifted. The application was made under Section
337(1) of the Companies Act. The application was by way of an ordinary summons. Neither the company nor Mrs Nyandovi-Kerr made any appearance on the appointed
day for the hearing of the summons. The Bank invited this court to lift the said veil of incorporation on the ground that the real
debtor (Mrs Nyandovi-Kerr) had defrauded the bank by selling property on the security of which the over draft was granted to the
company. Further, the bank wanted the veil of incorporation lifted on the premise that the over draft was meant for Mrs Nyandovi-Kerr
and the company was just used as a front.
This court, on 21st February 2003, lifted the veil of incorporation in respect of the company. The court further ordered that Mrs Nyandovi-Kerr should
pay the Bank the said sum of MK910,796.00, costs and interest to be assessed.
The Bank then set in motion processes to enforce the order of this court of the said
21st February 2003. Consequently, the Bank issued a writ of fifa and commenced garnishee proceedings against Mrs Nyandovi-Kerr.
Following the order of 21st February, 2003, and the enforcement of the said order, the real debtor made several applications with a view to putting a stop to
the enforcement measures put in place by the Bank. In this regard the real debtor applied for, and was granted, a stay of execution.
She also took out a Summons to set aside judgment.
As regards the application to set aside judgment it would appear that the application,
which was returnable on 16th June 2003, has since been abandoned. I guess the abandonment was due to the fact that the real debtor changed Legal Practitioners.
The real debtor instructed the firm of Nyirenda and Msisha to act for her in place of Veritas Chambers who previously acted on her
On 11th August 2003 the new Legal Representatives of the real debtor took out the application now before this court. The real debtor now
wants to strike out the proceedings in Miscellaneous Application No. 11 of 2003 on grounds of irregularity.
Let me now deal with the issues for consideration in this application.
Consideration of the issues
Was there an irregularity in the proceedings?
There are basically two arguments advanced, by Mr Msisha SC., on the question of
irregularity. He submits that the irregularity in the proceedings being impugned relate to lack of attention of Section 337 of the
Companies Act. Secondly, it is contended that this irregularity has arisen due to complete failure, on the part of the Bank, to commence
The real debtor, through Mr Msisha SC., has contended that the application by the
Bank did not arise in (within) existing winding up or other proceedings against the company as required by Section 337(1) of the
Companies Act. The real debtor further submits that, in view of the failure to comply with the requirements of Section 337(1) of
the Companies Act, the proceedings to lift the veil of incorporation were a nullity. Further, it is contended by the real debtor
that there was an irregularity in the proceedings in that, if Section 337(1) of the Companies Act allowed for commencement of new
proceedings then, there was complete failure to commence any proceedings. It is argued on behalf of the real debtor that there was
such complete failure because there was no originating process commenced in respect of the application to lift the veil of incorporation.
Mr Salimu, Counsel for the Bank, is of the view that there was no irregularity in
the way he proceeded to apply for the lifting of the veil of incorporation of the company. For starters, he has submitted that in
terms of the said Section 337(1) there was no need to commence a separate cause of action by any of the originating processes. He
further contended that, in point of fact, the Bankfs application was filed and presented within existing proceedings against
the company in Civil Cause No. 2484 of 2000. Mr Salimu continued to buttress this argument by pointing out that the body of summons clearly shows that the application by the Bank was made within existing proceedings.
It is the further submission of the Bank that if at all there was any irregularity
in the way its application was taken out, and presented, then same is curable. It is curable, so the contention goes, since the omission
to take out a separate action did not result into any demonstrable prejudice to the real debtor. Mr Salimu has also submitted that
there was a waiver of any irregularity in the application by the Bank. He opines that the fact the real debtor paid the principal
sum of the money owing is an effective waiver of any irregularity in the steps the Bank might have taken in the proceedings.
My understanding of the law is that not every failure to comply with statutory requirements
would render proceedings a nullity. Some none-compliance with the statutory requirements may only amount to an irregularity and proceedings
that are irregular would not be wholly set aside. Indeed, the learned authors of the Rules of the Supreme Court have stated that other failures to comply with statutory requirements might render proceedings in which they occur a nullity. However, the learned authors have not given examples of situations where none-compliance with statutory requirements would render
proceedings a nullity. It is my view though that a failure to comply with statutory requirements must be of so fundamental a nature
so as to necessitate a court to order that the proceedings are a nullity.
I turn now to deal with the instant matter. Can it be said that the Bank failed to
comply with the statutory requirements in Section 337 of the Companies Act so as to render the application of 21st February 2003 a nullity? For reasons that will be discussed below, this court finds that if there was any non-compliance with any
statutory requirement such failure can not, and should not, nullify the application that was taken out by the Bank. There was nothing
wrong with the application to lift the veil of incorporation in respect of the company. Further, and it naturally follows, the resultant
order making Mrs Nyandovi-Kerr liable for the debt was properly made.
As pointed out earlier the Real-debtor contends that the application to lift the
veil of incorporation of the company was improperly made. It is said that the application was not made in compliance with the provisions
of Section 337(1) of the Companies Act. Having regard to the reliance that has been placed on this statutory provision it is as well to set out the relevant parts of this Section. The said Section 337(1) provides that:
gIf-- in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other
person or for any fraudulent purpose, the court on the application of--- any creditor--- may if it thinks proper so to declare that any person who was knowingly a party
to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court directsch
(emphasis supplied by me)
This provision does not require an applicant to commence a fresh or separate cause
of action. Indeed, in my view, the applicant need not plead fraud in the proceedings against the company. The applicant must only show that there was an intention to defraud the creditors of the company. It is pertinent to observe that
to defraud means nothing more than to cause loss to a person by deceit. Further, this court agrees with the argument, advanced on behalf of the Bank, to the effect that in order for one to proceed under
Section 337(1) of the Companies Act you need not commence a separate cause of action by way of any originating processes under Order
5 of the Rules of the Supreme Court. This court is of the opinion that all the applicant needs to do is to take out an application
within an existing proceeding commenced against the company concerned.
There is no doubt in the mind of this court that there were proceedings commenced
against the company. These are the proceedings in Civil Cause No. 2484 of 2000. The said proceedings were for the recovery of a debt
that was incurred by the company at the instance of the real debtor (Mrs Nyandovi-Kerr). The Bank, as a creditor, was entitled to
make an application, under the said Section 337(1), once it became apparent to it that it had been duped.
In my judgment the Bank, if it erred at all, caused an application with a different
cause number to be issued. Should substantial justice really suffer because of a procedural error on the part of the Bank? I do not think that non-compliance
with rules of procedure should have the effect of nullifying the whole application of 21st February 2003. Furthermore, for all intents and purposes, the Bank made its application within the existing proceedings in Civil
Cause Number 2484 of 2000. As rightly pointed by Counsel for the Bank, the summons under which the application was made clearly showed
that the application had its foundation in Civil Cause Number 2484 of 2000. The fact that the Bank took out a Miscellaneous Application
should not make us lose sight of the fact that the Bank clearly indicated in its summons that it wanted to lift the veil of incorporation
the company which it had sued, and obtained judgment against, in the said Civil Cause number 2484 of 2000.
Finally, let me observe that if the title, form and cause number of the impugned
application were to be changed then what we will have is essentially an application that is substantially the same as the one entitled
Miscellaneous Application No. 11 of 2003. Hence, a change in the title, form and cause number will cure the so called defect in the
application. In that event, it will be seen that if there was any irregularity then it was not of a fundamental nature so as to render
the application a nullity.
Proof of intention to defraud the Bank
It has been submitted on behalf of the Real debtor that in this matter it was incompetent
to commence or obtain orders against Mrs Nyandovi-Kerr. In support of this contention the Applicant raised two arguments. Firstly,
it was argued on her behalf that no fraud was proved against the company to warrant the order being made. Secondly, the Applicant
is of the view that the order was incompetent because it was not established that Mrs Nyandovi-Kerr was knowingly a party to the
carrying on of the business of Continental Traders Limited in a manner intended to defraud creditors.
As a starting point in dealing with this issue some discussion of some relevant law
would be in order. It is a trite proposition of law that although a company is a
separate legal person from its share holders the alter ego rulewill be used if it will assist in meeting the ends of justice. Further, the position at law is that if a party to proceedings does
not file an affidavit to rebut matters of fact in the affidavit of the other party, then the facts in the affidavit on record will
be deemed to have been admitted by the party who did not file an affidavit in opposition.
It is evident from this matter that Mrs Nyandovi-Kerr took an active part in the
negotiations for the over draft facility. She is a shareholder as well as one of the Directors of the company. The over draft was
negotiated by Mrs Nyandovi-Kerr on behalf of the company. She was to surrender her real property as a security for the overdraft
facility that was to be given to the company. There is evidence to prove the fact that instead of executing the security for the
facility she obtained on behalf of the company she sold the property. In point of fact, she never informed the Bank that she was
withdrawing the would be security for the overdraft facility. There is no doubt in my mind that she was a party to the transaction
that resulted in the Bank losing both its money and the security that it ought to have had. Indeed, it is in evidence before this
court that Mrs Nyandovi-Kerr, is a Director and shareholder of the company. As such shareholder and director of the company she set
out to implement a scheme that duped the Bank. The Director and shareholder of Continental Traders Limited entered into a transaction
with the Bank without involving other Directors. It is obvious that this transaction, of availing the company with an over draft
facility, resulted in the Bank being defrauded. How else does one describe the conduct of a Director and shareholder of a company
who, upon offering her property as security for an over draft facility, sells it without informing the Bank that the property that
was meant to be security for the facility was being sold. Mrs Nyandovi-Kerr did this with an intention to defraud the Bank. The intention of Mrs Nyandovi-Kerr, who acted on behalf of the company, must be imputed on the company. If the intention of the
Real debtor was not to defraud then what more did she have to do so that it constituted an intention to defraud.
Lastly, it is pertinent to observe that at the hearing of the application by the
Bank the company and the Real debtor did not offer any evidence to dispute the matters of fact stated in the affidavit in support of the application by the Bank. This
court was entitled to conclude that the facts put forward by the Bank were admitted and undisputed. Further, there was no evidence
to controvert the fact that the Bank entered into this arrangement with Mrs Nyandovi-Kerr who was acting on behalf of the company
at the exclusion of the other Directors. Moreover, it is well to note that the Real debtor did not offer any evidence to dispute
the allegation that the overdraft was in fact for her benefit and not the company.
This court finds, and concludes, that Mrs Nyandovi-Kerr was knowingly a party to
the scheme to defraud the Bank of the security for the over draft facility. Hence the lifting of the veil of incorporation in terms
of Section 337(1) of the said Companies Act. For this reason, it was right and proper for this court to order that she be liable to pay the liability adjudged against Continental Traders Limited. Actually, there is a default money judgment that was entered against the company. At the time the order of this court was made this default judgment had not been set aside.
Thus, the declaration; direction; and the money judgment argument is without merit and is accordingly dismissed.
The application to set aside the proceedings is dismissed. It is dismissed with costs.
Made in Chambers this 12th day of December 2003 at the Principal Registry, Blantyre.