Martin Simmons v Munyaradzi Nzarayapenga & 2 Ors

### Preamble
1
HB 225/22
HC 1553/20
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MARTIN SIMMONS

Versus

MUNYARADZI NZARAYAPENGA

And

BARBRA MUTAMBANENGWE

And

KENAKO INVESTMENTS (PVT) LTD

And

CHIEF REGISTRAR OF COMPANIES &

OTHER BUSINESS ENTITIES

IN THE HIGH COURT OF ZIMBABWE

KABASA J

BULAWAYO 30 JUNE & 1 SEPTEMBER 2022

Opposed Application

L. Matapura for the applicant

Advocate K. Kachambwa for 1st, 2nd & 3rd respondents

No appearance for the 4th respondent

KABASA J:	This is an opposed application in which the applicant seeks the following relief:

“1.	The 1st and 2nd respondents as directors of Kenako Investments (Pvt) Ltd be and are hereby ordered to convene an extra ordinary meeting on a date that is to be not more than 14 days from the granting of this order.

2.	The agenda of the meeting shall be as follows;

To consider and vote upon the appointment with immediate effect of 3 (three) additional Directors.

To enquire of the Directors who held office prior to this meeting as to the apparent absence of annual general meetings having been convened for prior years.

To consider and vote upon the adoption of the statement of financial position and the statements of comprehensive income (otherwise known as the Annual Financial Statements or Annual Accounts) for prior years to date and in their absence to enquire of the Directors who held office prior to this meeting as to why they are absent.

To request the  Directors who held office prior to this meeting, to present a record detailing all amounts paid to them by the company whilst they have held office, by way of Directors’ fees, salaries or any and all other forms of remuneration or payment.

To request the Directors, who held office prior to this meeting to present interim financial statements of the company for the current year to date, detailing, inter alia, all revenue realized and amounts expended for this period.

To request from the company secretaries  who held office prior to this meeting  sight of the Minute Books for all meetings of shareholders and the Board of Directors, which minutes are required to have been kept in terms of section 181 and 205 of the Act, and the equivalent provisions in the repealed Companies Act (Chapter 24:03).

To consider the appointment of Auditors.

3.	The 1st and 2nd respondents shall avail to the present shareholders at the EGM the following:

(a) 	All contracts entered into by the 3rd respondent and third parties from the year 2015 to date.

(b)	List of all movable and immovable assets belonging to the 3rd respondent.

(c)	List of all licences held by 3rd respondent.

4.	Should the 1st and 2nd respondents fail to convene the meeting as ordered, the applicant be and is hereby granted leave to publish a notice convening the Extra-Ordinary Meeting of Kenako Investments (Pvt) Ltd once in the Chronicle Newspaper clearly stating the venue, date, time  and the objects of the meeting.  The costs borne in causing such notice to be published in the newspaper shall be borne by the 1st and 2nd respondents.

5.	Should the 1st and 2nd respondents fail to attend the Extra-Ordinary Meeting or if they are late to the meeting by (15) fifteen minutes, the applicant, as the majority shareholder and pursuant to the provisions of section 170 (5) of the Companies and other Business Entities Act must be present at such appointed venue on the date and time appointed and he shall be deemed to constitute such meeting and may adopt lawful resolutions in line with the proposed object of the meeting.  Any resolutions adopted at the meeting shall be binding on the 1st to 3rd respondents.

6.	The President of the Law Society of Zimbabwe be and is hereby mandated to appoint a legal practitioner of not less than (10) ten years of experience to chair the Extra-Ordinary General Meeting of Kenako Investments (Pvt) Ltd on a date, time and venue in terms of the notice of the Extra-Ordinary General Meeting.

7.	The costs of the legal practitioner for performing the duties of being the Chairman are to be borne by the 1st, 2nd and 3rd respondent.

8.	1st and 2nd respondents be and are hereby ordered to jointly and severally with one paying the other to be absolved ordered to pay applicant costs on attorney-client scale.”

The background to this matter explains the very long and elaborate draft order. These background facts are based on the applicant’s version, which is this: the applicant and 1st respondent were known to each other as client and legal practitioner since 2005.  The 1st respondent is a legal practitioner and senior partner practicing under Dube-Banda, Nzarayapenga and Partners. The 1st and 2nd respondents are shareholders in the 3rd respondent.  The 1st respondent pitched a proposal to the applicant to invest in the 3rd respondent and the applicant duly invested US$400 000 but in the form of a loan.  This investment would see the applicant getting 70% shareholding in the 3rd respondent.  An agreement to that effect was concluded on 4th August 2015.  The US$400 000 was deposited into the 1st respondent’s law firm’s trust account for onward transmission to the 3rd respondent.  The 1st respondent was to represent the applicant’s interests.  The loan was to be paid within 3 years.  The 1st respondent later approached the applicant with a further request for the injection of more money and the applicant duly invested a further US$268 218 bringing the total to US$668 218.

The applicant subsequently became concerned regarding the operations of the 3rd respondent and sought to find out whether the US$668 218 had been invested into the 3rd respondent as per the parties’ agreement.  No financial statements were forthcoming despite request, culminating in a meeting where the applicant demanded the share certificate containing the 70% shareholding.  The share certificate was eventually issued on 18th June 2020 backdated to 2015.  A deed of settlement was also entered into which sought to address all areas of contention.

The applicant thereafter requested for an Extra-Ordinary General Meeting in terms of section 168 (1) of the Companies and Business Entities Act but such request was not acceded to.

Due to frustration the applicant had, in September 2019, decided to offer his shares to the 1st and 2nd respondents and have his loan paid out and the respondents had agreed but wanted to pay in local currency which the applicant declined.

The present application was then filed in order to have an Extra-Ordinary General Meeting and ensure the proper regulation of the affairs of the 3rd respondent.

The application is opposed and all 3 respondents took points in limine.  These are:

The relief sought is barred due to a compromise.

An Arbitration clause calls for referral of disputes for arbitration.

Lack of locus standi.

Material disputes of fact.

These points in limine arise from the 1st and 2nd respondents’ own version of the background facts.  In brief these facts are that the 2nd respondent, together with some Botswana nationals, founded the 3rd respondent in 2009 and in 2015 approached the 1st respondent to help find an investor. The company’s business concept was diamond cleaning.  The 1st respondent approached the applicant who asked that he pay for the licensing of the company so the applicant would have some confidence in investing in it. The 1st respondent duly complied.  After the 1st respondent paid US$20 000 for the licence, he acquired a 25% shareholding in the company whilst 2nd respondent had 75%.  The applicant then invested into the 3rd respondent but business was slow to pick up due to competition.  The 3rd respondent was beaten to the market by another company which was already marketing Zimbabwean diamonds.  Following the first general meeting an issue was raised as to what equity the applicant would retain in the event that his loan was paid back as he was also the major shareholder by virtue of that loan.  The 2nd respondent and her Botswana based partners suggested that the applicant could not keep the majority shareholding once the loan was repaid, a suggestion the 1st respondent supported and this riled the applicant, marking the beginning of the souring of the 1st respondent’s relationship with the applicant.

The applicant thereafter formed a competing company, started handling the finances of the 3rd respondent through his appointed agent Barry Knight. Barry Knight was effectively running the affairs of the company on behalf of the applicant. On 6th September 2019, the applicant offered to sell his entire loan account and shares in the 3rd respondent, which offer was accepted. The payment modalities were to be agreed on but this was frustrated by the applicant who made it impossible for the loan to be paid as he would refuse the payment and also change lawyers in a bid to frustrate such payment. Reports were made against him to the Law Society and the Police but the applicant failed to disclose that he had sold his shares and loan account. The applicant was bent on harassing him.

Eventually a deed of settlement was entered into on 20th June 2020 which sought to address and settle the parties’ contentious issues.  The applicant’s application is therefore nothing but a continuation of the harassment which started after the first general meeting.  Through Barry Knight the applicant is aware of all the 3rd respondent’s operations, the financials since 2015, the tax payment status and the fate of his investment.  The meeting that applicant seeks to have sanctioned by the court is not warranted as meetings have been held, with the last one having been held in August 2019.  The applicant is also no longer a member of the 3rd respondent as he sold his shares and loan account.

The foregoing shows the parties’ divergent articulation of the facts.  What is clear though is that the relationship between the applicant on one hand and the 1st and 2nd respondents on the other has irretrievably soured.

The 2nd and 3rd respondents’ submissions are subsumed under the 1st respondent’s and all 3 parties are represented by the same legal practitioner.  I found no useful purpose in regurgitating the contents of the 2nd and 3rd respondents’ opposition. The voluminous pleadings raise 2 issues, which issues the parties properly identified as:

Whether or not the applicant is a member of the 3rd respondent.

Whether or not the applicant has made a case for the relief he seeks.

At the hearing of the matter counsel for the applicant abandoned the point in limine which sought to challenge the representation of the respondents by a law firm of which the 1st respondent is a senior partner and which also provides secretarial services for the 3rd respondent.  I will therefore not detain myself on the issue.

I requested the parties to address me on both the points in limine and merits so as to avoid re-calling them in the event that the points in limine found no favour with the court.

I propose therefore to deal with the points in limine first.  In doing so I came to the conclusion that the points in limine relating to locus standi, dispute of facts and compromise, invariably touch on the issue of whether or not the applicant is still a member of the 3rd respondent.  For this reason I decided to consider the preliminary point which deals with the arbitration clause.

The respondents’ contention is that the Investment Loan Agreement through which the applicant claims shareholding and membership in 3rd respondent has an arbitration clause which stipulates that in the event of a dispute such dispute shall be referred for arbitration.  Clause 10.2 of the Investment Loan Agreement states that:

“10.2	Save in respect of those provisions of this agreement which provide their own remedy, a dispute which arises in regard to:-

10.2.1		the interpretation of; or

10.2.2		the carrying into effect of; or

10.2.3	any of the parties’ rights or obligations arising from; or

10.2.4	the termination or proposed termination of or arising from the termination of; or

10.2.5	the rectification or proposed rectification of, the agreement or act of or provision to this agreement, other than where an urgent interdict is sought or urgent relief may be obtained from a court of competent jurisdiction, shall be submitted to and decided by arbitration.”

Advocate Kachambwa, for the respondents, contended that the Investment Loan Agreement specifically provided that the applicant’s shareholding in the 3rd respondent was in consideration of the investment and such investment was in the form of a loan and would be so for the duration of the loan period.  A share buy-back clause meant that upon payment of the loan the applicant had an option to sell all or some of his shares to the 1st and 2nd respondents at a price to be determined by the parties and guided by the prevailing share market price.  The applicant elected to exit 3rd respondent and this was accepted.  He is therefore bound by such election and the failure by the parties to agree on the share value does not change the fact that applicant’s offer to exit was accepted and so he is no longer a member of the 3rd respondent.  As such he cannot bring the application in terms of section 170 (8) of the Act.

Since the applicant argues that he is still a member and has not relinquished his shareholding in the 3rd respondent, a dispute has arisen and such dispute ought to be referred for arbitration in terms of the arbitration clause.

Mr Matapura for the applicant held a different view.  Counsel’s argument is that the applicant offered to sell his shares in 3rd respondent and the respondents made a counter offer which the applicant refused and so there was no consensus ad idem and so no agreement was reached. The applicant is therefore still a member of the 3rd respondent.

The application the applicant has brought before the court is not one that can be granted by an arbitrator. Statutorily, the Companies Act specifically allows for such to be made to a court of competent jurisdiction and an arbitrator is not such a court.

There is therefore no dispute as envisaged by the arbitration clause.  The application ought therefore to be decided by the court.

I must say I am not persuaded by this argument.  This is why.  For the applicant to invoke the provisions of section 170 of the Act he has to be a member.  The applicant’s membership was put into issue when the 1st respondent deposed to his opposing affidavit. I am therefore not persuaded by the argument that counsel for the respondents is creating an argument for the respondents in raising the dispute relating to applicant’s membership in 3rd respondent and that such dispute be referred for arbitration. This court cannot gloss over the issue of membership as it is important to resolve it first before looking at the relief the applicant seeks. The respondents, in raising the point in limine on locus standi, argue that the applicant is no longer a shareholder and member of the 3rd respondent after he offered the shares and loan account to them, which offer was accepted. This election by the applicant was in terms of the Investment Loan Agreement, whose terms include an arbitration clause in case of a dispute. The applicant can only make a case for such relief if he is a member of the 3rd respondent.

Whilst the current application can only be made to this court, the first rung of the inquiry relates to whether the applicant is a shareholder and member of 3rd respondent. Only if he is can the court exercise its jurisdiction in respect of the application brought in terms of s170 (8) of the Companies Act.

The issue is not whether the applicant can easily prove his membership by reliance on the fact that there was a settlement agreement after he rejected the respondents’ counter offer and a share certificate was subsequently issued confirming his shareholding, but that there is a dispute as regards the membership.  It therefore has to be resolved and its resolution would then lead to the second issue, as identified by the parties, whether as a member he has made a case for the relief he seeks.

Mr Matapura also argued that the deed of settlement would not have alluded to the fact that the parties’ issues were now settled if the applicant was no longer a shareholder and so no longer a member.  This in my view, is an argument meant to show that the applicant is a member of the 3rd respondent and therefore counter the respondents’ assertion that by electing to offer his shares and loan account and the acceptance of such by the respondents, the applicant ceased to be a member of the 3rd respondent.  This therefore still speaks to a dispute, one which has to be resolved in favour of whichever party successfully argues in respect of their contention.

That said, the dispute is one envisaged by the arbitration clause.

Article 8 (1) of the First Schedule of the Arbitration Act, Chapter 7:15 provides that:

“(1)	A court before which proceedings are brought in a matter that is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, in operative or incapable of being performed.”

The 1st respondent raised this issue on submission of what can be termed his first statement that is in his opposing affidavit and requested that the matter be referred to arbitration.

In Northern Tobacco v Maniwa HH-227-15 CHITAKUNYE J (as he then was) cited MAKARAU J’s (as she then was) decision in Cargill Zimbabwe v Culvenham Trading (Pvt) Ltd 2006 (1) ZLR 381 (H) where the learned judge had this to say:

“For a court to stay its proceedings and refer the matter to arbitration there must be a dispute between the parties apparent ex facie the proceedings.  This appears to me to be a settled position of our law (See PTA Bank v Chrome (Pvt) Ltd & Others 2000 (1) ZLR 156 (H) and Zimbabwe Broadcasting Corporation v Flame Lily Broadcasting (Pvt) Ltd t/a Joy TV 1999 (2) ZLR 448 (H) “.

A reading of the 1st respondent as well as 2nd and 3rd respondents’ opposing affidavits makes reference to the dispute between the parties which dispute ought to be referred to arbitration.  The respondents’ opposing papers which stand as the pleadings in casu reveal the dispute as regards the applicant’s membership.

I am therefore of the considered view that the dispute appears ex facie the papers and was not raised for the first time in heads of argument.

In Conplant Technology (Pvt) Ltd v Wentspring Investments (Pvt) Ltd HH-965-15 MAFUSIRE J had this to say:

“In my view and in my own words, it is now settled that a clause in a contract to refer a dispute to arbitration is binding on the parties.  A party is not at liberty to resile from that clause any time he may wish to do so.  In terms of Article 8 of the Arbitration Act, where a party makes a timeous request for referral to arbitration, the court has to stay the matter and refer the dispute to arbitration unless the agreement is null and void, or inoperative or is incapable of being performed.”

The above remarks apply with equal force in casu.  This court’s jurisdiction is not ousted by the arbitration clause but the parties’ agreement to refer a dispute to arbitration ought to be enforced.  The issue of membership is an offshoot of the issue of locus standi.  The applicant’s locus standi arises from his shareholding and membership in 3rd respondent.  The dispute is one that an arbitrator can adjudicate on, the agreement is not null and void or inoperative, neither is it incapable of enforcement.

The prayer for an order in terms of s170 of the Act sits on the foundation of membership.  Without such foundation the prayer is foundation-less.  The resolution of the dispute regarding the applicant’s status allows for the resolution of the issue of the relief sought in terms of the Companies and Business Entities Act.

The courts are inundated with hordes of cases requiring resolution.  The workload is oppressively huge.  Where parties have agreed to refer a dispute to arbitration when such arises, the utilization of this method of alternative dispute resolution ought to be encouraged.  (Aloe Enterprises P – L v City of Kadoma HH924-2015). I cannot determine this matter without the resolution of the membership dispute. The question is should I resolve it or ask the parties to have that resolved by arbitration? I am of the considered view that this court should allow the dispute to be resolved through arbitration and not detain itself on an issue which can be referred for alternative dispute resolution.

I therefore find no merit in the applicant’s argument resisting referral to arbitration. The question which exercised my mind was whether the fact that the identification of the issue for referral to arbitration is not what I consider as the appropriate issue for such referral, necessarily means that no referral should therefore be made. Is my referral of the dispute identified from the pleadings and central to the resolution of the matter tantamount to going on a frolic of my own because the respondents sought referral on a different issue? The respondents’ contention is that the matters to be put on the agenda of the meeting the applicant seeks the court to order, are issues covered in the Loan Investment Agreement, which agreement states  that disputes relating to the agreement should be referred for arbitration. Since therefore the issues relating to the holding of meetings, Financial reporting and financial statements are provided for in this agreement, any dispute relating to such should go for arbitration, so goes the argument. I am however of the considered view that once it is determined that the applicant is a member of the 3rd respondent, the issue regarding whether a case has been made for the relief he seeks will invariably consider the issues respondents seek to be referred for arbitration. This court will be better placed to make findings on the merits of the applicant’s complaints and grant or refuse the relief he seeks depending on these findings. It is this court which has the jurisdiction to determine the s170 (8) application and not an arbitrator. I therefore concluded that referral to the arbitrator for resolution of the issue of applicant’s membership is a precursor to the application under s170 of the Act. In referring that dispute for arbitration I am therefore of the considered view that I am not going on a frolic of my own.

As already alluded to earlier on in this judgment, the other points in limine are inter-linked to the one of referral for arbitration. The disputes of facts and compromise are issues which this court will ultimately resolve once the arbitrator has made a determination regarding the applicant’s disputed membership. I will therefore not unnecessarily exercise my mind on the rest of the points in limine.

Given the manner in which I have disposed of this matter, I am of the considered view that the proper approach as regards costs is not to award any.

In the result I make the following order:

The proceedings in this matter, HC 1553/20, be and are hereby stayed.

The dispute between the parties regarding the shareholding and membership of applicant in 3rd respondent is hereby referred for resolution by arbitration in terms of the Investment Loan Agreement of 4th August 2015.

There shall be no order as to costs.

Mafongoya & Matapura, c/o Mutatu, Masamvu & Da Silva-Gustavo Law Chambers applicant’s legal practitioners

Dube-Banda, Nzarayapenga & Partners, 1st – 3rd respondents’ legal practitioners