Alpina (Pvt) Ltd v Elphas Hungwe

### Preamble
1
HH 329-12.
HC 258/08
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ALPINA (PVT) LTD

versus

ELFAS HUNGWE

HIGH COURT OF ZIMBABE

GOWORA J

HARARE 12 and 13 May, 4, 5 and 6 July 2011 and 29 August 2012

Civil Cause

D Drury, for the plaintiff

L Mazonde, for the defendant

GOWORA J: The plaintiff has issued summons against the defendant wherein it claims payment of an amount of USD$24 256.65, interest on the stated sum at the prescribed rate and costs of suit. The background to the claim is briefly the following.

The plaintiff is a private company which is duly registered in accordance with the laws of Zimbabwe. It is said to be dormant at present but it carried on business in the manufacture and fabrication of pine building modules. Sometime in either 2004 or 2005 the defendant was employed by the plaintiff. His actual title was variously general manager, executive director or manager as the plaintiff’s executives found fit to address him. He was however, whatever his title in charge of the operations of the plaintiff’s manufacturing entity. On June 2007 addressed a letter to the plaintiff wherein he requested that the plaintiff work out and pay out to him his contribution to share purchase in Alpina or issue the share certificates and also his 5% commission for the jobs he carried out on behalf of the plaintiff from April 2005 to 30 June 2007. It is not clear from the papers before me whether or not the defendant was still attending to his duties at the plaintiff’s premises when the letter was written but it is common cause that thereafter the parties fell out as a consequence of which the plaintiff caused summons to be issued out against the defendant.

The defendant has denied that the amounts claimed are due and owing and has in turn filed a counter-claim, in terms of which he claims shares to the value of US$28 484 550.04 or alternatively payment in the sum of US$2 136 341.25, interest at the prescribed rate on the sum of US$2 136 341.25 and costs of suit.

The issues adopted for trial by the parties were as follows:

Whether the defendant purporting to act for the plaintiff fraudulently transacted with MSF Holland, a NGO in Zimbabwe in respect of two transactions for the supply of Alpina products and whether the defendant supplied Alpina products to MSF Holland.

Whether monies realised from the alleged fraud were paid into an account nominated by the defendant in Botswana by MSF Holland for his benefit and were such payments effected without the knowledge and consent of the plaintiff’s managing director, Rolf Hangartner.

What is the extent of the prejudice?

In respect of defendant’s counter-claim the issues were as follows:

Whether the defendant was offered a partnership or other arrangement with Alpina and if so was a partnership agreement entered into and completed between the defendant and R Hangartner on behalf of the plaintiff.

What terms if any were agreed upon and is the plaintiff liable for claims asserted in the counter-claim

What shares are due to the defendant and what is their value?

Whether the defendant is entitled to commission for sales and if so in what amount?

At the trial the plaintiff adduced evidence from two witnesses whilst the defendant did not call any other witness apart from himself. In brief, the evidence adduced by either of the parties is in the following vein.

Rolf Hangartner stated that he had been introduced to the defendant by a mutual acquaintance. Following upon that meeting he had discussed with the defendant the possibilities of engaging in business transactions to their mutual benefit. The plaintiff company had a sister company in Botswana which was failing to penetrate the market in that country and when the defendant intimated that he had contacts in Botswana it was felt that both might benefit from utilising such contacts. The two then agreed that the defendant would secure markets for plaintiff’s products in Botswana for which he would be paid a commission of 5 percent on sales. He would also after a period be incorporated into the operations in Zimbabwe with a possibility of his obtaining a shareholding in the local company.

It was the evidence of Rolf Hangartner that nothing came of the Botswana venture as no sales emanated from the defendant’s foray therein. In April 2005 the defendant was employed by the plaintiff.  The witness denied that the defendant was over offered partnership in any form and denied further that he was ever a director of the plaintiff. After a period of about two years the directors of the plaintiff realised that he lacked the business acumen that would have resulted in his being a shareholder in the plaintiff.  The parties therefore agreed to part amicably. After the defendant had left he had discovered that the defendant had obtained contracts for supply of the plaintiff’s products to MSF Holland for which the defendant had been paid in an account in Botswana in the name of Bwanya, a friend of the defendant. The witness denied that the plaintiff had commissioned the work or that payment into Bwanya’s account in Botswana was at its instigation.

It was his evidence that the defendant had paid some money in Zimbabwe dollars towards purchase of shares in the plaintiff, but when he did so the parties had not concluded the agreement on his purchase of shares in the plaintiff, nor had a value been established on what the plaintiff’s shareholding amounted nor the percentage thereof that would be available to the defendant for purchase. It was the evidence of this witness that there never was an agreement on the sale of shares to the defendant.

The second witness called on behalf of the plaintiff gave evidence as follows. Norbert Mukundwi testified that he was employed as a factory manager by the plaintiff. He had started in 1989 as a trainee timber-treater and had risen through the ranks to his current situation. He met the defendant in 2005 when the latter joined the company. He confirmed that in August or September 2006 there was a contract to supply MSF Holland with buildings without roofs. The contract was not in the name of MSF Holland but in Mudavanhu’s name and the contract price was quoted in Zimbabwe dollars and for payment locally. He said that the delivery notes reflected three cash payments in Zimbabwe dollars. He did not handle the payment details as his involvement was restricted to the delivery notes. His evidence was to the effect that the defendant had said to him that the delivery notes had been done to evade ZIMRA. He had never seen the documents generated in terms of which payment had been effected in Botswana. He confirmed that this transaction was the first contract by the plaintiff with MSF Holland.

He also said that the modules had been put together at the factory and that after the job was completed MSF Holland collected the buildings using its own transport. He confirmed that he had nothing to do with payment for any of the products. At the time that the buildings for MSF Holland were manufactured the defendant was responsible for contracts for the plaintiff. He also stated that the defendant was responsible for the day to day running of the plaintiff during the period in issue and that all members of staff would report to him including the two bookkeepers employed by the plaintiff. He could not recall the specific date of collection of the modules by MSF Holland but he thought it might have been in October or November 2006.

The witness also confirmed that Hangartner and his family were directors of the plaintiff and that the former would come to the premises every two weeks. After the defendant had left he attended a meeting where he was asked to comment on the contract with MSF Holland. He had not been involved in the transaction and was unable to shed any light except to say that it had been dealt with as a cash contract on three delivery notes. He got the impression Hangartner was not aware of the transaction.

The evidence from the defendant was as follows. He had joined the plaintiff in April 2005 after meeting Rolf Hangartner in 2004. They had been collaborators on a contract in Mt Hampden. Due to the manner in which he had handled his part of the contract, R Hangartner had approached him and said he had a company which produced pine modules and invited him to join him in Alpina. A letter was thereafter addressed to him resulting in him joining the plaintiff.

Before joining Alpina he had on plaintiff’s behalf facilitated the extension of a deadline on a stand owned by Sanpine, a company in which Hangartner had an interest and had also facilitated the construction of a house on the stand in question. He was not paid because the agreement had been that the proceeds from the sale of that house would be shared. He never received his share.

He was invited to Alpina after he had completing his obligations in Botswana and R Hangartner said that he would come in as a partner without payment of a salary. They agreed therefore that the defendant had to pay something to show his commitment to the business. Consequent thereto on 29 April 2005 he put in ZD$15 million into the plaintiff. On the same day it was agreed that he would be entitled to a commission at 5% of whatever “job” he brought in and this would be credited towards his payment for the shareholding in the  plaintiff. He therefore came into the company as an Executive Director. In line with the agreement between himself and Hangartner he had paid a total of ZD$42 million between 26 July and 23 September 2005. The value of the shares was as agreed in 2004 but the number of shares available for sale tohimself had not been agreed because Hangartner had said he wanted to leave Zimbabwe and he wanted to sell the shareholding in the company to the management of the plaintiff. He had also agreed with Hangartner that the plaintiff would lease his computers at ZD$350 000 monthly. The computers were therefore used by the plaintiff from April 2005 until April 2007 when the defendant left. He confirmed that he was claiming 14 757 721 shares in the plaintiff. In the alternative the defendant stated that he was claiming the sum of USD $2 136 341.25 which he said represented the total sum paid by him towards the purchase of the shares from the money he paid in cash as well as the commission earned from sales generated on behalf of Alpina.

In relation to the claim from the plaintiff the defendant stated that Medicins Sans Frontier was one of the customers he had approached who were interested in their products. Being an NGO they were not allowed to pay in foreign currency and they had insufficient Zimbabwe dollar equivalent to pay for the product. The defendant had spoken to Hangartner and they agreed in principle for the amount to be paid offshore. He was given no further details as finances were not part of his job description. Hangartner would meet with Chuma and Nduku every Tuesday and discuss finances of the plaintiff. He denied any knowledge of the payment into Bwanya’s account in Botswana and said he had never been asked about the MSF Holland contract and he first knew about it when he received a letter from the plaintiff’s lawyers after he had made demand for the shares. He said that he had not been acquainted with Bwanya before he went to Botswana in 2004.

Through Hangartner, the plaintiff produced two pro forma invoices in the name of MSF Holland. One is for USD $12 530.02, the other for USD $11 726.63. To his credit the defendant did not deny that he was responsible for negotiating the contract. He denied however that he had any part to play in how payment was effected and into whose off shore account it would be made. In his plea however, the defendant after denying that he caused the diversion of funds to an account not authorised by the plaintiff, averred that “it was Rolf Hangartner’s intention that amounts received in foreign currency should not be received in Zimbabwe so he directed that it be paid into Paul Bwanya’s account, his business associate whom he regularly used for such transactions.” He discounted the evidence of Hangartner to the effect that he had withdrawn the money from Bwanya’s account on the basis that he was not a signatory. He also denied suggestions that he had caused loss to the plaintiff resulting in his being asked to leave the plaintiff.

The defendant did not deny that he was responsible for putting the contract with MSF Holland in place. He admitted in his plea that payment into Bwanya’s account was done with his knowledge. The suggestion from R Hangartner is that the plaintiff did not during that period charge for its units in US dollars. It was this witness’s evidence that such a practice would have been in contravention of the foreign currency regulations in place at the time. Indeed that is a correct statement of the legal position. It does not, however, appear to be a practice that the plaintiff was averse from pursuing because I note from the e-mail from MSF Holland that the plaintiff had sent a quotation of USD$70 000 per unit to the potential client. Although the witness suggests that what was in use in the plaintiff was what was referred to as OMIR the quotation sent to MSF Holland which reflected US$70 000 was not produced leaving an impression that the currency in terms of which the business of the company was conducted was US dollar.

Does this mean therefore that the payment into Bwanya’s account was at the instance  of the plaintiff’s representative R Hangartner? As Hangartner said, the plaintiff had a sister company in Botswana into whose account the money could have been deposited if the plaintiff was going to have control of the money in the account. It is in my view, a reasonable explanation. The plaintiff is a company and assuming that it was the intention to have the purchase price for the units paid into an offshore account, it would be more practical from a business point of view for the payment to be made into an account over which it had control.

The evidence of the defendant on the contract with MSF Holland is very inconsistent and contradictory as regards the participation of Hangartner and the details of the payment. In one breath he said that he had not been involved in the financial matters of Alpina and that it was the preserve of the bookkeepers and Hangartner. In another breath he suggests that he had arranged for payment of the purchase price in Botswana on the instructions of Hangartner. In a different version of the same issue the defendant suggests he and Hangartner had a telephonic conversation in which he and the latter had a discussion about the contract but in this discussion the question of payment by the client was never raised between them. The evidence of Mukundwi to the effect that the defendant was responsible for the entire process, including the manner of payment of that particular contract was not seriously challenged. It was in fact suggested to the witness during his cross-examination that the defendant had advised the witness that the reason for raising invoices in the name of Mudavanhu was to evade exchange control regulations. The defendant confirmed this during his own evidence.

Given his evidence that he was entitled to a commission of 5% on the business generated by him, this evidence is clearly untruthful and not worthy of belief. It is also contrary to the discussion that he had with Mukundwi where he admitted creating three cash invoices in the name of Mudavanhu in order to evade exchange control regulations. The need to evade exchange control regulations could not have arisen unless payment on the contract was being effected in a manner that contravened those regulations. We know from the evidence that payment was effected in Bwanya’s account contrary to the regulations. I am inclined therefore to accept the evidence of the plaintiff that the defendant was responsible for the diversion of funds to Bwanya’s account in Botswana.The suggestion that the plaintiff would authorise payment into an account where it had no control is highly improbable even if the holder of the account was a friend of a director of the plaintiff. On the evidence before me it is more likely that Bwanya was a friend of the defendant rather than R Hangartner. The relationship between the plaintiff and the defendant started with a foray into Botswana by the defendant on behalf of the plaintiff specifically because the latter had contacts which the plaintiff lacked. If Bwanya was known to Hangartner to the extent alluded to by the defendant, there would have been no need for the defendant to be afforded an opportunity to generate business on behalf of the plaintiff where he would have earned commission. The plaintiff would have utilised someone already in Botswana at the time. There is no suggestion that at the time Bwanya was resident anywhere other than Botswana at the particular time. I find the evidence of the plaintiff more credible on this aspect. I therefore find for the plaintiff in this regard.

I turn now to consider the counter-claim. The defendant paid an amount of Z$42 million into the plaintiff’s operations. This much is admitted by the plaintiff’s director Hangartner. The defendant states that it was meant to pay for shares within the plaintiff. Again this is not disputed by the plaintiff’s witness. However, it is clear from the evidence of both parties that there was no agreement reached on the sale of the shares to the defendant. The letter to the defendant written by R Hangartner on 24 September 2004 states in specific terms that the defendant was being seriously considered as a partner in the plaintiff. In the meantime, and to gain experience he was availed the opportunity to gain experience and exposure in the plaintiff’s business through exploring business opportunities in Botswana. The letter is specific that negotiations and documents would take time. I must state at this juncture that this letter appears to be the document upon which the defendant bases his claim for commission..

The portion dealing with commission is framed as follows:

“Tackling small projects in the interim period enables you to earn 5% commission and gain experience. We consider the market in Botswana as the most promising for time and return.”

The defendant has claimed the same rate of commission on earnings by the plaintiff in Zimbabwe and has sought to rely on the letter in question as the sine qua non for his entitlement. Unfortunately, the letter is specific in its terms. The commission to be earned is solely related to jobs in Botswana. Effectively, therefore, the defendant has not established that he was legally entitled to claim the sum of Z$533 422 813.21 reflected as commission on gross sales in his counter-claim. He has not established an agreement between the plaintiff and himself to earn a commission on business generated within Zimbabwe for the plaintiff by himself. Consequently the link to a claim for allocation of shares predicated on such claim must fail.

I turn next to consider whether the defendant has established an agreement for him to be allocated the number of shares claimed or a cash payment in the alternative. In his evidence in chief, the defendant clearly stated that he and Hangartner did not agree on the number of shares that he could purchase because the latter had indicated his intention to leave Zimbabwe and dispose of his interest in the company to ‘management’. When the defendant resigned he claimed certain sums and the shares in a letter dated 26 June 2007. It is common cause that upon receipt of the letter, R Hangartner made certain comments on the letter and based on those comments, the defendant claims an entitlement to amongst others 1059 shares in Alpina. In addition to this, on 28 September 2006 the plaintiff’s representative R Hangartner addressed an e-mail to the defendant on the issue of shares. The pertinent paragraph in the e-mail reads as follows:

“Shares disguised as “indigenization” Government schemes to legalise the plunder of industrial and commercial assets by party favourites, after the same clique has enriched itself under cover of Land Reform. The intended 50% stake in a company without capital injection critically endangers your shareholding and career. The Company’s assets will be at the risk of self-enriching raiders.

It is imperative that both elected shareholders purchase the maximum number of shares in October by saving every dollar and liquidating assets for this priority. Shares are valued at US cents 7,5 each.”

Exhibit 33 which appears to be an internal accounting entry within the plaintiff suggests that a loan to the plaintiff from the defendant was changed to a share account. On its own, the document does not add much value to the defendant’s claim, but if taken cumulatively with the other documents, it paints a picture of the defendant having paid for shares in the plaintiff.

The plaintiff is registered as a private company. The expression “private company” denotes a company other than a co-operative company, which, by its articles-

Restricts the right to transfer its shares; and

Limits the number of its members to fifty, not including persons who, having been formerly in the employment of the company, were while in that employment and have continued, after the determination of that employment, to be members of the company; and

Prohibits any invitation to the public to subscribe for any shares or debentures of the company.

Consequently, it is the articles that provide for the management of the company, the appointment, qualification, powers, duties and proceedings of its managers, directors, the issue of shares and share certificates, the forfeiture and transfer of shares, the alteration of capital, meetings, votes and notices and disposal of profits and accounts and audits.

On the other hand, the memorandum provides for the share capital which it is proposed for the registration of a company. The share capital is divided into shares of a fixed amount or the number of shares if the company is to have shares of no par value. The nominal capital of a company is the amount stated in the memorandum of association and shares may not be issued for a greater amount unless an increase of the nominal capital has been duly resolved. Issued capital represents the nominal value of shares actually issued or allotted and the balance of the nominal capital is unissued share capital.

The articles of a private company must place restrictions on its right to transfer shares, limit the number of its members and prohibit any offer to the public for the subscription of any shares or debentures of the company. In order for the defendant to seek that shares be transferred to him, it was incumbent in my view, that he places before the court evidence that in fact the company had allotted to him a certain number of shares, even, if the value of those shares was not established. An offer to purchase shares is generally made on specified forms and once the offer is accepted by the company, such offer constitutes an allotment. In order to be valid, an allotment of shares has to be made by the proper authority on behalf of the company. See P.V.Damadara Reddy v Indian National Agencies [1945] 15 Comp Cas 148(Mad.) Over and above the allotment of shares by the authority tasked with the allotment, there must be communication of the allotment to the prospective shareholder. Unless notice of an allotment has been communicated to him, a person cannot be treated as a shareholder. A contract for the allotment of shares is like any other contract, in the sense that there must be an offer and acceptance, the notification of the allotment, being the acceptance of the offer to purchase shares.

Provided that the memorandum does not contain a special condition prohibiting an alteration of share capital, then a company having a share capital, if so authorised by its articles, may, by special resolution, alter its share capital in a number of ways. This principle is in my view, inimical to the defendant’s counter-claim for shares in the plaintiff. The financial statements from Ernst & Young for the year 2004 to 2005 prepared for the plaintiff shows a share capital of 1 200 000 shares. It was incumbent upon the defendant in his counter-claim to establish that the shares he is claiming are within the nominal share capital of the plaintiff and that in fact there exists within the share capital unissued shares equal to what he claims to be transferred to him.

I find merit in the submission by Mr Drury that the function of a court is to give effect to the agreement between parties and not to create a contract for them. Consequently, this court is not empowered to violate the essential principles that provide that a court is limited to interpreting the contract of the parties and cannot go further and create one for them. Nor is the court empowered to fill in essential elements that were neither discussed nor agreed between the parties. A party seeking to have a contract enforced by the court must show that such essential elements existed and must as a consequence place them before the court for interpretation and consequent relief arising therefrom. I have not been furnished with proof that the defendant in reconvention actually purchased the number of shares he claims nor is there evidence before me of the value of such shares.

I turn next to the claim in the alternative, being damages in lieu of specific performance for delivery of shares. The amount claimed as damages in US$2 136 341.25. The parties are in agreement that the defendant had paid an amount of Z$42 million between April 2005 and April 2007 when he resigned. There has been no evidence placed before this court to establish how that amount is converted to US$2 136 341.25. The defendant appears to have arbitrarily applied an exchange rate of Z$250.00 to one US$1. There has been no attempt made to link that rate of exchange to a particular period between the payment of the said amount and the present. Over and above this, without having established the existence of an agreement and its terms and conditions it is difficult to hold that the defendant would be entitled to damages without the allegations of breach. The defendant has not pleaded breach of contract on the part of the plaintiff and as such there is no causa for a claim for damages.

For the reasons set out above, I find that the plaintiff has established its claim against the defendant. The counter-claim has not been successful and falls to be dismissed. In the premises I will issue an order in the following terms:

IT IS HEREBY ORDERED AS FOLLOWS:

The defendant shall pay to the plaintiff the sum of US$24 256.65 together with interest thereon at the prescribed rate from date of summons to date of payment

The defendant is ordered to pay the plaintiff’s costs of suit.

The defendant’s counterclaim is dismissed with costs.

Honey &Blanckenberg, plaintiff’s legal practitioners

Matipano and Associates, defendant’s legal practitioners