AL SHAMS GLOBAL BVI LTD v SAMBADZA

HIGH COURT, HARARE

[Opposed Application HH 373-16]

May 18 and June 22, 2016

TAGU J

Company law  –  Companies Act [Chapter 24:03]  –  Section 318  –  Responsibility of directors and other persons for fraudulent conduct of business  –  Distinction between executive and non-executive directors  –  Relevance of  – Test for recklessness and gross negligence.

The application was in terms of s 318 (1) of the Companies Act [Chapter 24:03] seeking an order holding the past and present directors of a company personally responsible for all the debts or other liabilities of the company. It was alleged that the respondent, as one such director, had conducted the business of the company in a fraudulent, negligent or reckless manner.

Held, that under s 318 of the Companies Act, liability is not dependent on whether one is an “executive” or “non-executive” director. No such distinction exists for purposes of s 318 and every director becomes a fiduciary in relation to the company.

Held, further, that recklessness or gross negligence is conduct that is tantamount to wilful non-performance of one’s obligations. In the circumstances of this case, the respondent had clearly conducted the business of the company in a reckless manner and was therefore liable under s 318.

Cases cited:

Chibwe t/a Ross Motors (Pvt) Ltd v Fawcett Security Operations (Pvt) Ltd HH 79-06 (unreported), referred to

Ebrahim and Another v Airport Cold Storage (Pty) Ltd 2008 (6) SA 585 (SCA); [2009] 1 All SA 330 (SCA), referred to

Ex parte Lebowa Development Corporation Ltd 1989 (3) SA 71 (T), referred to

Govere v Ordeco (Pvt) Ltd & Anor 2013 (2) ZLR 257 (S), applied

Howard v Herrigel and Another 1991 (2) SA 660 (A), applied

Ozinsky NO v Lloyd and Others 1992 (3) SA 396 (C), referred to

Philotex (Pty) and Others v Snyman and Others; Braitex (Pty) Ltd and Others v Snyman and Others 1998 (2) SA 138 (SCA), referred to

Rosenthal v Marks 1944 TPD 172, referred to

Legislation considered:

Companies Act [Chapter 24:03], s 318, 318 (1)

L Uriri, for the applicant

E Jera with E Moyo, for the respondent

TAGU J:

At the beginning of the hearing of this matter, counsels for the respondent took a preliminary point that the last sentence on para 1 of p 42 on the applicant’s heads of argument which reads:

“…respondent at the material time was also a director of Interfin Bank Ltd (‘Interfin Bank’ or ‘the Bank’). The Bank which loaned and advanced money to Rodstreet and accepted the Bankers Acceptance issued by Rodstreet.”

be struck out on the basis that the whole sentence was new evidence that was being introduced in the heads of argument because it was not anywhere in the papers, it was not in the founding affidavit, it was not in the answering affidavit, and it was not in anything. It popped up for the first time on those heads of argument. Counsel for the applicant opposed the application on the basis that heads of argument are not capable of being struck out. The respondent persisted with the application. It is however, trite that heads of argument need not introduce new evidence not previously pleaded.

However, having read through Mr Jayesh Shah’s founding affidavit, and his answering affidavit, as well as all other correspondences filed of record nowhere is it stated that the respondent was also the director of Interfin Bank. This piece of evidence was introduced through the heads of argument. I find merit in the application by the respondent’s counsels. That sentence which reads “respondent at the material time was also a director of Interfin Bank Ltd (‘Interfin Bank’ or ‘the Bank’)” is struck out of the applicant’s heads of argument. The rest of the sentence is left intact since it was pleaded that Interfin Bank loaned and advanced money to Rodstreet and accepted the Bankers Acceptance issued by Rodstreet.

I now turn to deal with the merits.

Background

This is an application based on the provisions of s 318 (1) of the Companies Act [Chapter 24:03] (“the Companies Act”) which has the effect of, on the direction of this Honourable Court, holding the past and present directors of a company personally responsible, without limitation of liability, for all or any of the debts or other liabilities of a company as the court may direct where they have conducted the business of the company in a fraudulent, negligent or reckless manner. The section says:

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