CIV/APN/242/02
In the matter between:
JOHN CHING FANG LEU LESOTHO PRECIOUS GARMENTS(PTY) LIMITEDPAI YUN-HSIATSAI CHUN HSIA
1stApplicant
2ndApplicant3rdApplicant4thApplicant
AND
GRAHAM MAKHAMISE LETSOARA DR. TSIU MAKAKOLESEBALA LETSOARATHULARE MORUTHANEDEPUTY SHERIFF FARO
1st Respondent2nd Respondent3rd Respondent4th Respondent5th Respondent
JUDGMENT
Delivered by Honourable Mr. Justice G. N. MofoloOn the 17th day of March, 2005
This matter commenced on 16 February, 2004 but was postponed to25th February, 2004 as the instructing attorney Mr. Buys was desirous ofinstructing senior counsel. The matter was postponed with wasted costs toapplicants.
On 25th February, appeared both Mr. Mda and Mr. Fischer who
stated as there is a counter application it is the counter application that isbefore court in which applicants are seeking a declaratory.
Mr. Mda had submitted applicants were seeking membership anddirectorship of the 2nd respondent, the declaratory relating to 1st and 2ndrespondents. After Mr. Mda had taken a few preliminary points the courthad decided because of the complexity of the case it was not possible todecide it on paper and it had been converted into a trial in particular relatingto the validity or otherwise of share certificates. The matter had then beenpostponed to 27-30 April, 2004 for hearing on the understanding thatpotential witnesses would be those who have filed affidavits and shouldother witnesses be required, 14 days notice of such a requirement would befiled with the court.
On 29 April, 04 appeared Mr. Mda and Mr. Buys the one claimingmatter on the roll and the other disclaiming this. It appeared however thecrucial question was whether a witness intended to be called was ready togive evidence and appearing that she would not be available presently thematter had been postponed to 30 April, 2004.
Before the matter started Mr. Buys had drawn the courts attention tothe fact that because of misunderstanding between himself and Mr. FischerSC, the latter was not able to attend and he would stand in for him. Becauseof the unsatisfactory condition of transcription of the court, it was orderedthat cassettes be made available to both counsel for transcription.Unfortunately until the drafting of this judgment, transcription has not beenmade available to court.
It was rather amusing to note how a witness called neither counselwas prepared to claim responsibility for calling her.
P.W.1 Mamocha Moruthane sworn and led by Mr. Mda had statedshe is an advocate of the court and before her retirement from the civilservice she was legal adviser to the Ministry of Finance and Adjudicator ofthe Public Service. She qualified in 1983. She had come across bothapplicants and 1st respondent, and what brought them together wasformation of the company Lesotho Precious Garments (2nd respondent) acompany registered by herself in October, 1988 whose shareholders were 1strespondent, 1st 5th applicants who were subscribers and on company beingregistered became members with 100 shares each. Sometime in 1999 there
were changes to the company regarding transfer of shares. Transferors hadnot signed any document. She prepared the documents to which there wereno witnesses to the transferors. She says 1st respondent signed as transfereeand this was witnessed. The 3 witnesses were only witnesses. Tsai Chun-Hsia has not signed the document and she does not know who this TsaiChun-Hsia is. It is to be noted that Tsai Chun-Hsia appears on p.39 of theCounter Application.
The witness has testified GML5 on p.40 is exactly the same as GML4in relation to transferors and transferees for she did not know this Pai YungHsia the signature being that of 1st respondent who was forging thesignatures. She says she had no authority from applicants to act as she did.She says she got involved with 1st respondent in process of training. Shesays the documents are fraudulent and share certificates were issued as aresult of the transfers aforesaid. The signature on share certificates was hersas secretary. Now she says she was never secretary of the 2nd respondentand she falsely claimed to be secretary. She says the other signatures toannexures B, C and D are hers. She has testified the signature ofDirector is 1st respondents on all the annexures. She says D is 1strespondents signature in English. She had no authority to sign the
documents. She says she was undergoing training under 1st respondent andshe was given a training allowance. As for GML6 on p.41, she does noteven know people in the document as she was given the names and to signthe document. She says though it is shown directors resigned, they had noresigned, they had not resigned for the document is fraudulent. The newlyappointed directors had not been properly appointed and to date had not metthem. She had registered the document at the law office though it had notbeen made after the companys meeting. There was never a meeting ofshareholders to appoint 1st respondent as Managing Director. As for p. 42GML7, being resolution of members, there never was such a resolutionthough it is a document she filed with the Registrar of Companies. She saysthe signatures are false being hers and 1st respondents. She has testifiedapplicants never purported to sell their shares and divest themselves of therunning of the company and the company is not defunct.
Cross-examined by Mr. Buys she says the company had certificate tocommence business and this is in the record at p.43 titled Licence toManufacture. She says this is a certificate. She says the licence does notsay to commence business but the dates are 16 April, 1999 this is being thestyle adopted by those who issued the licence. Put to her annexure 8 is not
authority to commence business in accordance with Companys IndustrialAct of 1967, she says this is how it is styled by the Ministry of Trade. Putto her a licence to manufacture has nothing to do with a licence to trade, shesays she has nothing to say though she is an advocate of this court and asadvisor to the Ministry of Trade.
As for sec.87 (3) of the Companies Act, the company did not issue aprospectus. She says she has not come across a company which has notissued a prospectus. Asked whether the certificate was issued by theRegistrar she says the only certificate issued is GML8 on p.43. As towhether there is a difference between a licence and a certificate she says shedoes not know and put to her theres a difference namely; licence tomanufacture and certificate to trade she says she was given authority toapply for licence by applicants and 1st respondent. She says there was nominute book though there was a resolution to apply for a licence andminutes were taken by Mr. Letsoara and the meeting was informal. Shesays there were no meetings in which resolutions were recorded.
Put to her she could not act for 2nd respondent without a resolution ofcompany, she agrees. Put to her Lesotho Precious Garments and Precious
Garments is not the same thing, she says it is the same. She says afterregistration a subscriber becomes a member automatically. She says there isno difference between a subscriber and a shareholder. She says sharecertificates issued are fraudulent. Apart from securing a share certificatemembers have to have meetings and there were no meetings to decide theissue of share certificates. She says along with 1st applicant they were beingtrained by Lesotho Hawk to gain experience in textile industry andproduction. She says she prepared the lists and the document was given herat the Registrars office and she forged the signatures and signatories werepurportedly signing as directors. She agrees the document is quitenonsensical though the intention was to defraud. She says the Court is notto ignore the probability that the document was to defraud other people.She says except the typing error on the document she made no changes. Shesays she has not seen second respondents signature. She says signature byfirst respondent was made in her presence and knows first respondent from1998-99 and she did not know if he knew company law though he said shewas to prepare company documents and where to sign. She agrees there isno signature by transferors, something that is a requirement of the law. Shesays the document complies with the articles except that transferors havenot signed. She says transferors were to sign but how could they because
the documents were fictitious? She says she forged but to an extend as thewhole process was against her conscience. She says 1st respondentinstructed her what member of shares to transfer. She says the documentwrong for transfer of fictitious shares not the same as member of sharestransferred. Put to her she was expected to do certain things but did othersshe says she had a job and cannot deny that the building was previouslyoccupied by Lesotho Hawk; 1st respondent was saying he would give her anallowance to cover her expenses since Lesotho Garments had not startedoperations. 1st respondent was prepared to provide the capital though it wasto be strictly between her, the Chinese and 1st respondent who agreed toaccommodate her. She says she acted as she did for she trusted 1strespondent.
She has testified how long the training would take it was notspecified; also they were not able to secure sponsorship or guarantee. Shehad worked for Lesotho Hawk before it was liquidated and there was norequirement for purchase of assets and in any event the amount at the timewas not available. In 1999 2nd respondent had neither assets or liabilitiesnor was there a share capital. The witness has testified 1st respondent hadsaid he had a huge order from overseas but did not wish to register a new
company and preferred to keep the name as it is. She says the things she didwere surreptitious. 1st respondent had worked at Lesotho Hawk and thenwith 2nd respondent. She says she did what she did hoping 1st respondentwould accommodate her and was prepared to lie to protect her interest.
Re-examined the witness has testified 1st respondent got the moneybefore us and having done so drove us out of the company. She hasquoted section 232 of the Companies Act, 1967. She has testified she didthe things she did at 1st respondents behest and she made the documents toenable 1st respondent to cheat Basotho shareholders. As to whether therewere minutes of the company, the witness has said there were times whenthey met informally. She says there were directors at the formation of thecompany and after subscribing to the Memorandum and Articles ofAssociation there is nothing required of subscribers to become members.Applicants in the counterclaim had closed their case and respondents in thecounter claim had done the same.
Counsel had then urged the Court to incorporate the viva voceevidence into the rest of the case including Heads of argument and toadjudicate first the counterclaim. The court had found, however, that
treating the applications piecemeal would be a cumbersome exercise andthat the best option was for the Court to decide the two applications togetheror as it were, pari passu. Be this as it may in their Founding papersapplicants in the counterclaim and respondents in the counterclaim havetaken certain points in limine. I have checked my record and Heads ofArgument and find that in addressing me and in the Heads point in liminewere not specifically pressed. However, mindful of the fact that counsel hasurged the court to consider the applications as a whole, I am inclined toconsider points in limine taken though not pressed. Mr. Buys forrespondents in the counter claim took quite a number of points, namely:-IN LIMINE
4.1
There is no urgency in this matter and there are no allegations whichsupport the speculative and argumentative reasons which are set outin the Founding Affidavit. As will more fully appear from thisAffidavit, both the 1st and 5th Respondents have known, on their ownAffidavits, that the 2nd Respondent was trading since at least June,1999 and they were not involved in the trading activities of the 2nd
Respondent. They took no action whatsoever.
4.2
There is no evidence of the nature and extent of the damages theApplicants stand to suffer.
4.3
The applicants are not entitled to a Declaratory Order as they have nofuture or contingent rights to rely on and there are no allegations tosupport an allegation that such rights exist.
4.4
The application is itself fatally defective in that none of theApplicants have any right in law to relief sought in the Applicationand there is no evidence to support such contention.
4.5
All the applicants are estopped from claiming to be eithershareholders or directors of the 2nd Respondent or to be declared assuch.
4.6
There are no allegations which could support the Order soughtdeclaring the Applicants as directors or that they should be appointedas directors.
4.7
1st applicant failed to disclose vital information to this Honourable
Court which may influence this court in coming to a fair decision.4.8
The applicants have no clear right in law to the assets of the company.4.9
The 5th applicant is coming to court with dirty hands on her own
admission, and is not entitled to any relief.4.10
The applicants have misjoined the 5th applicant as a party to these
proceedings. This applicant should have been jointed as a
respondent.4.11
The application cannot be a Counter Application as the 5th respondent
is not an applicant in the main application.
I was at this stage a little confused by use of terms applicant andrespondent which are used interchangeably in the main counter applicationeven after the counter application. I am well aware though that times havechanged in preference in favour of simple easier expression instead of
clogging the mind with difficult terms and expressions; be this as it may, forthe sake of convenience and better understanding, I choose to call applicantsin the main application applicants-in-convention and respondentsrespondents-in-convention, while applicants in the counter application willbe applicants-in-reconvention and applicants in the main applicationrespondents-in-reconvention.
I do not think that points 4.1 to 4.9 have been properly taken; all ofthem except 4.1 are characterized by one common feature: although takenpreliminarily, some are based on hard facts and law making it difficult forthe court to decide them on a single perspective. They cannot be and haveto be decided after evaluating and taking into account all the evidence in theapplication. My strong view is that they have come prematurely, exceptperhaps 4.10 and 4.11 which I will treat separately along with urgency.Otherwise I am of the view that points raised belong to the merits of thisapplication. As to urgency, in so far as applicants-in-reconvention areconcerned, I note, it does not appear that there is anything which calls forurgency on their part for the reason that it is common cause as I haveobserved above that except for subscribing to the Memorandum and Articlesof Association, there has been no association with the 2nd respondent-in-
reconvention regarding its growth and development. In fact by applicants-in-reconvention admission, they contributed nothing material to the welfareof 2nd respondent-in-reconvention and at this stage I fail to grasp whatsthere, exactly, that stands to be lost should the application not proceedurgently. Indeed except applicants-in-reconvention applying for funds andfailing, there was nothing else forthcoming from them save as a result ofP.W.1 and 5th applicant-in-reconventions activities which actuated the fourapplicants-in-reconvention to act against the 1st, 2nd and other applicants-in-convention. Except for P.W.1 and 5th applicant-in-reconventions activitieswhich, by P.W.1s admission, involved forgery and fraud, the rest ofapplicants-in-reconvention seemed complaisant and satisfied with the stateof affairs. I am not aware that should the application not proceed at urgentapplicants-in-reconvention are likely to be prejudiced or suffer harm while,on the contrary, 1st respondent-in-reconvention who has associated himselfwith and financially supported and developed the company stands to sufferharm should the application not be expedited. On this basis it would seemthis application could well be thrown out save that this court is not inclinedto do so just yet.
As for 4.10, 5th applicant-in-reconvention is not the original applicant
or respondent in the main application and whosoever was desirous ofjoining her to the proceedings is entitled to do so though I am of the viewthat such a step is to be with leave of court. I do not know on what basis 5thapplicant-in-reconvention was joined as such except perhaps that she wasjoined to bolster applicants-in-reconvention with an Answering andSupporting Affidavit and unless I am wrong, applicants-in-reconventioncase has seemed to hinge on and revolve around 5th applicant-in-reconventions evidence. Accordingly, I am inclined to dismiss 4.10. Asfor 4.11, I have already said that applicants-in-reconvention are entitled toco-join parties but with leave of court though, it would seem, if they aredependent on a particular party for the sustenance of their case, they are atlarge to join such a party. I am also inclined to dismiss 4.11.
Mr. Mda in the originating papers has also taken a couple of points inlimine; they are:-4.1
The applicants have irregularly approached this Honourable Court ex-parte and obtained an interdict without canvassing any jurisdictionalfacts for such drastic relief. Consequently, this application ought to bedismissed with costs on that ground alone.
I couldnt disagree more. 1st applicant-in-convention has a vested
right in the 2nd applicant-in-convention. 1st Applicant-in-convention wasapprehensive for, according to him, judgment by default was obtainedagainst him in circumstances it should not have been obtained against himconsidering the defective service of summons. What has compounded thesituation and increased 1st applicant-in-conventions apprehension is that,according to him, and a fact not denied by respondents-in-convention is thatthe same court file in respect of which judgment was granted by default ismissing and though 1st applicant-in-convention is desirous of rescinding thejudgment, as full facts are not available to 1st applicant-in-convention, he isnot able to proceed with rescission of judgment and he fears, while the courtfile is at large respondents-in-convention may proceed with execution muchto the prejudice of 1st applicant-in-convention. I cannot but dismiss thispoint in limine.4.2
The applicant is guilty of non-disclosure of the following facts:That 1st respondents together with 1st applicant and MamochaMoruthane were original members of 2nd applicant and subscribers ofits memorandum and articles of association as clearly evidenced bycopies of extracts of same annexed hereto and respectively markedG.M.L1 and G.M.L2. On that ground alone this application ought to
be dismissed with costs.
Well, since there are several applicants I dont know who theapplicant is guilty of non-disclosure is being referred to although we willgive 1st respondent-in-convention credit and understand him as referring to1st applicant.
In any event I dont think so for the parties mentioned are subscribersto the memorandum and articles of association and this is a notorious factcommon to 1st applicant and respondents and since the fact is commonknowledge it does not require to be disclosed for to do so would be todisclose the obvious. I have also scrutinized GML1 and GML2 (pages 65-68) and nowhere have I found the subscribers and first directors of thecompany designated as members. This point also stands to be dismissed.4.3
Non-Joinder
The applicant has irregularly omitted to join Mamocha Moruthane asa necessary party in these proceedings. Consequently this applicationis on this ground alone fatally defective and flawed and ought to be
dismissed with costs.
I will, like I did supra, assume that 1st respondent-in-convention isreferring to the 1st applicant-in-convention. In any event, I see no necessityfor the 1st applicant-in-convention to have joined Mamocha Moruthanesince she is not a necessary party in 1st applicant-in-conventions case and atno stage of the proceedings have applicants-in-convention joined MamochaMoruthane as one of them. There was no reason whatsoever and I dontthink there was any justification to foist Mamocha Moruthane as one ofapplicants-in-conventions group. People who laid a claim against 1st to 4thapplicants in convention were 1st to 4th respondents-in-convention whoelected to join Mamocha Moruthane as a defendant in CIV/T/45/2002.That respondents-in-convention treated Mamocha as a defendant in no wayobliged applicants-in-convention to treat her as such and this was testifiedto by applicants-in-convention omitting her in all their suits. Besides at nostage did Mamocha Moruthane lay a claim against the applicants-in-convention or align herself with applicants-in-convention. How, then,would applicants-in-convention treat Mamocha as one of them? It is thereason to dismiss this point.
I come now to the merits of the counter application which reads asfollows:-That Rule Nisi be issued returnable on the date to be determined bythe above Honourable Court calling upon 1st, 2nd, 3rd, 4th, 5th and 6thRespondents to show cause if any, why an order in the following terms shallnot be made:-(a) That the rules of Court as to form and service be dispensed with onaccount of the urgency of this matter.
That 1st, 2nd, 3rd and 4th Applicants be declared as bona fide membersof the Board of Directors on 2nd Respondent.
That 1st and 2nd, 3rd and 4th Respondents be restrained from interferingwith Applicants exercise of rights as members and directors of the 2ndRespondent.
That 1st, 2nd 3rd and 4th Respondents be restrained from interferingwith Applicants exercise of rights as members and directors of the 2ndRespondent.
That 1st, 2nd, 3rd and 4th Respondents and (or any relevant
officials/employees of the 2nd Respondent be directed to account toApplicants/or Applicants authorized agent) for the amounts of moneyreceived and expended by them on behalf of the 2nd Respondent with effectfrom 1999 to date of judgment of this matter.
ALTERNATIVELY: Only in the event of the above HonourableCourt rescinding the order in CIV/T/45/2002: 1st, 2nd, 3rd, and 4thRespondents be directed to give Applicants (or Applicants authorizedagent) access to 2nd Respondents books of account, bank statements and alldocuments reflecting 2nd Respondents financial status and day to daytransactions; on such dates and time as may mutually be agreed uponbetween the parties or appointed by the 5th Respondent in the event of theparties failing to agree thereto pending the determination of CIV/T/45/2002.
That 1st, 2nd, 3rd and 4th Respondents be restrained and interdictedfrom removing and/or transferring any of the assets or documents of 2ndRespondent from the jurisdiction of this Honourable Court other than in thenormal course of 2nd Respondents business pending the determination ofthis application.
That 1st, 3rdand 4th Respondents be directed to pay costs of thisapplication and 5th and 6th Respondents to pay costs only in the event ofcontesting the same.
That Applicants be granted further and/or alternative relief.
2. That prayers 1(a) and (g) operate with immediate effect as an interim
interdict.
As remarked above, I now wish to traverse the above applicationmuch as it seems to me applicants-in-reconvention have largely dependedon P.W.1 and 5th applicant Mamochas testimony and evidence as a whole.This witness was to applicant-in-reconvention a kingpin, a battering ram somuch so that, but for her, I doubt this application would have seen the lightof day. As for her evidence, it was false, I found her to be liar, a cheat, aself-confessed forgerer, fraudster, manipulator, simulator, perfidious withmachinations of a Cassius. I have not believed her evidence a whit andhave thrown it out with the contempt it deserves.
Mr. Mda for the applicants-in-reconvention has submitted at least 1stapplicant-in-convention should have been called to contradict P.W.1, 5th
applicant-in-reconvention. He has also submitted applicants-in-reconvention by virtue of having subscribed to the Memorandum andArticles of Association this made them full members and shareholders of the2nd Respondent-in-reconvention and they needed do nothing more in termsof the Companies Act, 1967.
Mr. Mda in his Heads of Argument and before me has contended thatapplicants-in-reconvention right to the membership and shareholding of the2nd respondent-in-reconvention has not been disturbed and since they have aclear right, an injury actually committed or reasonably apprehended andhaving no other satisfactory remedy, that their counter application begranted as they are interested parties in the company, entitled to theadministration, assets and dividends of the Company. He has alsosubmitted there was no waiver by applicants-in-reconvention of their rightsin the 2nd respondent-in-reconvention.
In the first place, I must answer whether applicants-in-reconventionwere deprived of their shareholding in 2nd respondent-in-reconvention. Myanswer to this is that they were not for I have not believed P.W.1 Mamochaa liar, cheat and forger who, by her own admission, lied to protect own
interest as she testified. I may add that not only applicants-in-reconventionwere purportedly deprived of their alleged shareholding including P.W.1Mamocha, but that 1st respondent-in-reconvention was also purportedlydeprived of his shareholding and have wondered how, in allegedlydepriving others of their shareholding 1st respondent-in-reconvention canalso turn on himself and deprive himself of his shareholding. This is thereason, amongst others, to reject P.W.1 and 5th applicant-in-reconventionsevidence that in her scheme she was in complicity with 1st respondent-in-reconvention for, instead, it is patently clear that P.W.1 Mamocha engagedin the insidious exercise alone, lied and forged to protect own interests asshe claimed in her evidence. I may add I do not comprehend how anybodycould have been called upon to contradict a self-confessed liar. I am notrepeating myself, this is for the sake of emphasis.
A cursory look at GML4 at p.39 of the record shows that not only wasthere an attempt to deprive applicants-in-reconvention of what shareholdingthey had, and attempt was also made to deprive 1st respondent-in-reconvention and P.W.1 and 5th applicant, how could 1st respondent-in-reconvention submit to depriving his confidant (5th applicant) and himself ofhis shareholding? Its all spoof and P.W.1s and 5th applicant-in-
reconventions allegations against the 1st respondent-in-reconvention arerejected with the contempt they deserve. I also do not comprehend therelationship between P.W.1 Mamocha and the applicants-in-reconvention.1st applicant-in-reconvention does not say who provided or furnished himwith information of Mamochas and 1st respondent-in-reconventionsscheme to deprive them of their shareholding, and yet both P.W.1 and 1strespondent-in-reconvention were reported to the police the result of whichwas applicants-in-reconvention (without Mamocha) issuing summonsagainst respondents-in-reconvention and yet, by all accounts, hadMamocha not acted as she did, chances are the status quo regarding the 2ndrespondent-in-reconvention vis-à-vis 1st respondent-in-reconvention couldhave been maintained. The question is also why did applicants-in-reconvention at first ignore Mamocha and suddenly accept her in their foldrelying on her Answering Affidavit and Supporting Affidavit for thesustenance of their counter application? Why was the fact that 1strespondent-in-reconvention was being deprived of his shareholding gloatedover making it look as if he was interested only in applicants-in-reconvention shareholding?
As for waiver, I have no doubt in my mind that applicants-in-
reconvention had waived whatever interest or rights they had in the 2ndrespondent-in-reconvention for from the time of registration and whenapplicants-in-reconvention failed to raise the capital sum required plussecurity they seem to have been inactive and passive their interest suddenlyignited by P.W.1 and Mamochas machinations, indeed but for her antics itdoes not appear that applicants-in-reconvention would have risen to theoccasion as they did. It is this business of running with the hares andhunting with the hounds that surprises one in the relationship betweenP.W.1 Mamocha and 1st respondent-in-reconvention on the one hand, andapplicants-in-reconvention on the other.
I must now answer the crucial question whether applicants-in-reconvention are members, shareholders and directors of the 2nd respondentand entitled to the relief they seek. It is common cause that applicants-in-reconvention subscribed to a Memorandum of Association and Articles ofAssociation. Mr. Mda has contended this entitles them not only tomembership of the company but also to its shareholding and as they have aclear right, an injury committed or reasonably apprehended with noalternative satisfactory remedy, they are entitled to the relief they seek.
In forming the Company, applicants-in-reconvention including 1strespondent-in-reconvention subscribed to Memorandum and Articles ofAssociation and the subscribers became, as is usually the case, first directorsof the company. With respect, it does not appear that meetings of thecompany were held for official administration of the company save thatapplicants-in-reconvention sought capital for the development of thecompany. Actually after this failure applicants-in-reconvention seem tohave disappeared from the scene in so far as their relationship with the 1stand 2nd respondents-in-reconvention is concerned. It has been representedon behalf of applicants-in-reconvention that as soon as 1st respondent-in-reconvention secured funds for the running of the 2nd respondent-in-reconvention, respondents-in-reconvention made things difficult forapplicants-in-reconvention by sidelining them or kicking them out of theadministration of the 2nd respondent-in-reconvention.
I cannot disagree more for if so applicants-in-reconvention shouldhave appealed to the Registrar of Companies for resolution of their problem.I have said that applicants-in-reconvention claim to be both members andshareholders of the 2nd respondent-in-reconvention. It could well be theyare members; but I doubt they are shareholders. Strange things appear to
have taken place in the formation of the 2nd respondent-in-reconvention. ToMemorandum of Association is annexed a document (page 34) showingsubscribers and number of shares taken and against each subscriber appearsNumber of shares taken by each subscriber and they are 100 against eachsubscriber. I doubt the format. Normally in the formation of a companysubscribers subscribe to Memorandum and Articles of Association byallotting themselves any number of shares to obviate registration of thecompany and once registration has been completed administrativerequirements as envisaged by the Companies Act take place such as keepinga register of members and a minutes book. Members are reflected in theRegister of Company, directors are chosen e.g. the Chairman, ManagingDirector and Secretary who is in charge of the minutes. It is in Companymeetings that business of the company is transacted such as allocation ofshares and payment of shares taken in cash or kind. All these do not appearto have featured in the business of the 2nd respondent-in-reconvention.Apart from this, shares are as a rule allotted as to number taken and thevalue thereof, e.g. 10 shares of R1 each. The allottee would then prefer topay the shares allotted for cash or only for a portion of the original allottedshares. If he does so, he is a shareholder in the proportion of shares paidfor, otherwise he is not a shareholder. Shares in a company are not paper
shares, they are debentures and stock denoting that its so many shares ofR1 each as the case may be. Shares are of value. The reason they are sold.You cannot sell or be deprived of something that is not of value in moneyterms in a company constituted as the 2nd respondent-in-reconvention.
The dictionary meaning of subscribe (Oxford Illustrated) is: write(ones name) at foot of document, sign ones name to document, signify,assent or adhesion by signing ones name, put ones signature to in token ofassent, approval; express ones agreement; enter ones name in list ofcontributors; make or promise a contribution, contribute (specified sum) toor to common fund, society, etc., or for common object, raise or guaranteeraising of by subscription thus; subscribe to, undertake to buy (periodical)regularly. Subscription to Memorandum and Articles is no more than anagreement, and undertaking by subscribers to buy shares at some future timeif they have not been purchased on subscribing to the Memorandum andArticles aforesaid. It has to be to augment capital of the company for if nothow can a company operate and function without capital? In thisapplication, it is the same subscriber who became first directors of the 2ndrespondent-in-reconvention and it stands to reason that if they did notcontribute a specified sum of money to the common fund or capital of the
2nd respondent-in-reconvention, they cannot be and are not shareholders ofthe 2nd respondent-in-reconvention.
The problem with applicants-in-reconventions case is that the sharestaken, not only were they of no value and not indicating the rate at the timeof subscription to the Memorandum and Articles of Association, there wasalso no indication of when they became due. How could they be forapplicants-in-reconvention simply subscribed to nameless and faceless 100shares? As I have said above, the while applicants-in-reconventionsubscribed to the Memorandum and Articles of Association, this was merelyan agreement, token of assent and approval to form a company with noshares offered as is contemplated by the Companys Act. It is hardlysurprising applicants-in-reconvention names dont appear in the Register ofCompanies. The shares, if any, were never deprived nor were theytransferred for the reason that, in my opinion, no such shares worthy oftransfer were in existence. This is so because 100 shares is quitemeaningless nor has the deficiency been cured by P.W.1 Mamochasevidence who kept on referring to 100 shares.
Annexures GML4 and GML5 were a hopeless mess for the attempt
was to transfer M600.00 to 3rd and 4th respondents-in-reconventionrespectively and yet the so-called shares allocated (p.34 of theCounterclaim) applicants-in-reconvention and 1st respondent-in-reconvention were 600 shares. How could 600 alleged shares suddenlybecame 1,200 shares? In any event how can 100 shares in page 34 suddenlybecome M600.00 or fully paid shares of M2 (two Maloti) when thefounding document (p.34) made no reference to the value of shares taken?How can purely 600 shares (p.34) suddenly materialise into M600.00 orfully paid shares of M2? When were these shares paid and wheres theevidence that they were paid? In my view annexures GM4, GM5, and Chave done nothing to cure the defect in the subscribers document on page 34aforesaid. This court is not prepared to read in between lines or drawinferences for these cannot be drawn in circumstances where there shouldhave been evidence or evidence is available. Contents of document on page34 aforesaid and contents of annexures GML4, GML5, B and C are soconflicting, they are irreconcilable.
There is, indeed, authority for the proposition that, as Mr. Mda hascorrectly submitted, once a Memorandum and Articles of Association havebeen subscribed to and shares allotted that is all that is required for where
subscribers have been allotted specific shares it could well be that they havepaid these before the subscription aforesaid and not having paid them callsare made for payment and failing payment share are forfeited. In the instantcase there were no specific identifiable shares issues for which calls couldbe made and no wonder P.W.1 Mamocha engaged in her skewed feats ofmanipulation and deceit. I am of the view that while applicants-in-reconvention by virtue of signing the Memorandum and Articles of Association may be termed members of the 2nd respondent-in-reconvention,cautions of the concession as I am, they are nevertheless not shareholders ofthe 2nd respondent-in-reconvention at all. This decision would, it wouldseem, also count against the 1st respondent-in-reconvention or does it? Idont think so for I am of the view that by reason of his capital injection in2nd respondent he is to be treated as shareholder and director of 2ndrespondent-in-reconvention (cf Ex parte Liquidators Curlewis CitrusGrowers Co-operative Co. Ltd., 1935 T.P.D. 389).
Even if I am wrong that by reason of applicants-in reconventionhaving merely subscribed to the Memorandum and Articles of Associationwhile they are members of the 2nd respondent-in-reconvention they are notshareholders thereof, both Mr. Buys and Mr. Mda have prevailed on me to
advert to Moosa v. Lallo and Another, 1957 (4) SA 207 (O.P.D.) for a sounddecision in this application. At first I was a little skeptical but having readthe case I am to thank them because they could not have done me a betterboon. According to the case, once shares have been allotted this is enoughfor they would have been paid before or become due. Caney, J. in the abovecase does not seem to have been influenced by non-compliance with theCompanies Act regarding the keeping of a register of allotments at itsregistered office for these considerations do not affect the existence orvalidity of the allotment or issue of shares to the plaintiff (p.220). Further,it is normally contemplated that a shareholder will pay the price of hisshares in cash upon allotment or before issue of certificate though all this isa matter of agreement between the parties. Moreover, there is a also needfor a shareholder to pay to the company money to meet his subscription tothe capital of the company (pp 220-221). It is, having regard to thejudgment in Moosas case above that in order to be a shareholder, it is acondition precedent that a shareholder will pay the price of his shares incash upon allotment or before issue of certificate although this is a matter ofagreement between the parties, between parties meaning, in my view, in ameeting of shareholders as I have indicated above. Applicants-in-reconvention, did not pay their shares in cash upon allotment nor were
there meetings by shareholders to determine payment of shares quite apartfrom the fact that shares allotted applicants-in-reconvention were facelessand undeterminable; this, notwithstanding applicants-in-reconventions casethat payment of shares was not called for in terms of the Companys Act. Ihave already rejected this contention for reasons stated above. In theunlikely event applicants-in-reconvention paid their shares, the onus is onthem to establish the fact and they failed to do so. And, according to MotorFund Corporation (in Liquidation) v. Linden Bros., 1927 NPD 279 if ashareholder pays for some only in cash, to that extent he had, in any event, ashareholding in the company. It becomes potently clear that for one to be ashareholder in a company, he must pay his shares or some of them in cashand only then does he become a shareholder apart from the fact that byagreement of parties cash in kind i.e. services or property may act in lieu ofcash payment. None of these requirements are associated with applicants-in-reconvention for in their case having failed to raise capital or security itappears it was for them tools down expecting that as they had subscribed tothe Memorandum and Articles of the 2nd respondent-in-reconvention theywere, afterall, members and shareholders in 2nd respondent-in-reconvention.
According to authorities quoted by Caney J. on p.221 of Moosas
case above, entry on the register has to do with membership of a companyand compliance with requirements of the Companies Act (a requisite withour Companies Act, 1967) though the act must be seen as no more thansheer formality for, what makes one a shareholder is payment of shares. Onthe same page, namely p.221, Caney J. returning to two cases quoted by Mr.Pretorius being Doornkop Sugar Estate Ltd. v. Maxwell and others, 1926WLD, 127 and Nicols case, 29 Ch. 421at pp.426 and 427 said as heunderstood the cases, entry on the register is required to make a person amember of the company. He has further said but he does not understandallotment to him to be incomplete, nor that he is denied the rights inherentin his shares if, in consequence of the allotment, he has paid what is due tothem and the company has issued him with a share certificate ---- (myemphasis).
I understand the learned Judge to say that entry in the register thougha sheer formality, it is required to make one a member of the companythough he does not understand the allotment to be incomplete nor is he, byso doing, denied rights inherent in his shares if, in consequence of theallotment, he has paid his shares and been issued a share certificate so that itseems to me the first step is allotment of shares. Then comes entry into the
register of members, payment of shares (if not already paid at time ofregistration of company) and last issuance of a share certificate.
The problem with applicants-in-reconvention is that I do not takenumber of shares taken by each subscriber as 100 or anything to thateffect as having taken shares in the 2nd respondent-in-reconvention becausenothing signals that such shares were taken since they are neitheridentifiable nor of value. My view is that at time of registration of the 2ndrespondent-in-reconvention applicants-in-reconvention took no shares at allin the 2nd respondent-in-reconvention. If applicants-in-reconvention tookno shares in 2nd respondent-in-reconvention, how could they be entered intoa register of members? Even if they took shares, there is no evidence that atany stage of 2nd respondent-in-reconvention they paid what is due tothem, the reason applicants-in-reconvention were not issued with andcould never be issued with share certificates. It boggles the mind howapplicants-in-reconvention having not paid their dues, not having beenentered into the register of members of the 2nd respondent-in-reconventionand not issued with share certificates could transfer their shares to the 3rdand 4th respondent-in-reconvention or anybody else? By their ownadmission though, applicants-in-reconvention have not paid so-called shares
allotted them because this was not necessary; it follows that not only arethey not members of the 2nd respondent-in-reconvention, they are not itsshareholders either and consequently as was said in Randfontein Estates Ltdvs. the Master, 1909 T. S. 978 at pp. 981, 982 shares are simply rights inaction ---- jura in personam ----entitling their owner to a certain interest inthe company, its assets and dividends.
As to applicants-in-reconvention including the 5th applicant-in-reconvention Mamocha Moruthane, as they have no right in action ---- jurain personam entitling them to any interest in the 2nd respondent-reconvention, its assets and dividends, I do not see how their declaratoryorder can be entertained for a declaratory as to ownership must show a clearsight on the part of an applicant and where such a clear right does not exist,the declaratory cannot but fail.
I come now to the Main Application or Application-in-convention inwhich applicants have approached this Court for an order in the followingterms:
1. Directing that the Rules regulating service of process be dispensedwith and that this Application be heard as an urgent application.
2. Directing that any execution of an Order of this Honourable Court
dated the 29th April, 2002 in CIV/T/45/2002 be stayed pending theoutcome of this application, criminal proceedings instituted againstthe 1st Applicant and the outcome of an action the Applicants intent toinstitute against the Respondents in due course.
Interdicting and restraining all the Respondents from entering thebusiness premises of the 2nd Applicant for any reason whatsoeverand/or in any way to interfere with, obstruct or adversely influencethe conduct of its business pending the outcome of this Application.
Interdicting and restraining any of the Respondents from exercising,executing or doing anything as alleged shareholders or directors ofthe 2nd Applicant, or to perform any act or duty or omit to do so as adirector of the 2nd Applicant.
Directing that a Rule Nisi be issued calling upon the Respondents toshow cause on a date to be determined by this Honourable Court whythis Order should not be made a Final Order of Court and why theRespondents should not be ordered to pay the costs of thisApplication jointly and severally, the one to pay the others to beabsolved.
Directing that paragraphs 2, 3 and 4 operate with immediate effect asan Interim pending the outcome of this Application.
Granting leave to the Applicants to approach this Honourable Courton the same papers, duly supplemented where necessary for an Orderrescinding the default 2002 on the 15th April, 2002.
Granting leave to the Applicants to defend the action instituted inCIV/T/45/2002.
Granting such further and/or alternative relief as this HonourableCourt may deem necessary in the circumstances.
In support of their case the Founding Affidavit of the 1st applicant-in
convention was lodged in personal capacity of the 1st applicant-in-convention who has claimed at paragraph 3 that the affidavit is deposed toin his capacity as a director and duly authorized representative of the 2ndapplicant his authority emanating from his position as Managing Director ofthe 2nd applicant to attend to day to day business affairs of the 2nd Applicantand attending to legal matters of this nature.
At paragraph 4 he has said he was not able to convene a meeting ofdirectors though he confirms such a meeting will be held within the nextday or two for verification of his authority and a Resolution to the effect.
Whilst I am at this juncture, it does appear that a resolution ofcompany was passed on 20 May, 2002 with reference to paragraph 4 above.
At paragraph 9 the deponent has deposed he conducts the business of2nd applicant and is in charge of daily manufacturing process and completebusiness of the 2nd Applicant and knows what transpires in the factory on adaily basis.
He was called to the CID office and there informed a case of fraud
was being investigated against him. He had been told to report atMagistrates Court where he reported and was charged (paras. 10-12). Onleaving court he had found a document at the factory of 2nd applicant, asdocument purported to be a court order. It surprised him. He had consultedhis attorneys who informed him some process must have been served beforethe order could be granted. Action had been instituted against him andothers in CIV/T/282/2001 and although he defended the action plaintiff hadwithdrawn the action and tendered costs which had not been paid and aWarrant of Execution had been issued for recovery of costs. He has claimedthe dispute before court is the same as in CIV/T/282/2001 which waswithdrawn and costs were outstanding and he is advised respondents cannotproceed with a new case before settling costs in a previous action and in anyevent has preferred to leave the matter at that. I might at this juncture buttin to say it appears this is something the applicant is not disposed at presentto have decided by this Court (see paras 13-17 of Founding Affidavit).
1st applicant has deposed when his legal representatives attempted tofind the Court file they could not find it and to date the file is missing andapplicants have not been able to peruse the file and establish on what basisthe judgment was granted. He had caused further investigations and a copy
of the Summons and Return of Service was found. I will assume thatreference here is to CIV/T/45/2002 (paras. 18-20). According to 1stapplicant the Summons was not properly served for the reason that:
The return of service is defective and does not comply with Rulesof Court.
Summons does not set out residential or business address of either 3rdor 4th respondents claiming the particulars to be unknown yet 5threspondent claiming to have served Summons at the registered officeof 2nd applicant contrary to provisions of Rule 4 (a) and (b).
I will also assume that 3rd and 4th respondents is reference to 3rd and4th applicants.
1st applicant claims the Summons was not served personally on himbut in terms of the Return of Service at the registered office of the 2ndApplicant.
The Return of Service does not allege service took place at 1stapplicants place of employment, place of business or residence ofany person who is in charge of the premises at the time of deliveryand apparently of sixteen years or over.
The alleged service on 2nd applicant is defective not having been
effected by delivering a copy of process to some responsible employee at the registered head office of the 2nd applicant the Returnof Service failing to identify the person upon whom service waseffected (paras 21-22).
At paragraph 23 1st applicant alleges 3rd and 4th applicants were not inLesotho and service could not have been on the reception or receptionistbecause 2nd applicant has neither of these.
At paragraph 25 1st applicant asks for rescission of judgment in thatjudgment was erroneously sought and granted in absence of applicants.Judgment a patent error and granted by a mistake common to both parties.At paragraph 26 because judgment a nullity it does not change the de factocontrol over the affairs of the 2nd applicant and Board of Directors andapplicants not barred from taking decisions in respect of the business of the2nd applicant.
At paragraph 27 the deponent has deposed there may be moreinformation from the Court file once it is discovered and applicants maydecide to approach Court with supplementary affidavits and apply for leave
and are prejudiced by the fact that the court file is missing.
At paragraphs 28 and 29 1st applicant expresses the view that criminalproceedings are pending before court in respect of himself and Mamochaand it may take time before the criminal case is heard and fate of theaccused is decided and in the meantime respondents may attempt to levy theorder which they obtained and take over the business of the 2nd applicant.At paragraph 30 he says 2nd applicant employs 4000 employees for themanufacture of clothing and other textile products for the export market andinterruption with the business of 2nd applicant could cause much loss toshareholders and employees and paragraph 31 prays that execution bestayed pending the result of the present application and the criminalproceedings instituted. He has said at paragraph 32 that balance ofconvenience favours applicants that execution be stayed as respondentscannot be prejudiced by stay of execution and that stay of execution alsofavours respondents. So far as rescission of judgment is concerned, it couldseem applicant is disposed to have the matter heard not now but in duecourse.
I have already dealt with preliminary objections and at paragraph 8.1the deponent Makhamisa G. Letsoara says there was proper service in
CIV/T/45/2002. All I have to decide in this application is in my consideredopinion whether in CIV/T/45/2002 there was proper service on defendantsfor if the service was proper I have no reason to grant orders prayed for; onthe other hand if service is irregular there is reason to grant the applicationas in the application for rescission of judgment applicants may well succeed.
What is disturbing though is pagination in this application. It is ofthe utmost importance that original documents be filed together and copiestogether. More often than not original papers are not filed at all. Theproblem is where this happens the court may inadventurously deal withcopies with little information as to precise information as contained inoriginal documents. Perhaps the problem in the instant application is thatsome documents were unearthed when a paginated record had beencompiled; even so, an effort is to me made to ensure that original documentsare incorporated. The result could have been shattering had the court notfortuitously stumbled on the original Return of Service, for otherwise theCourt would have depended, for its judgment, on a copy of the return ofservice instead of the original return. Moreover, what appears to be copy ofthe Return of Service is filed with the paginated record in the mainApplication and original Return of Service is not paginated but filed with
summons in CIV/T/45/2002 and the Court Order. The original Return ofService should have been filed with the paginated record as I have said.The original is endorsed at the back, writing on both the original and copyappears to be the same though for my inquiries I will prefer to depend on theoriginal copy which reads: I served 1st, 2nd, 3rd and 5th defendants bydelivering summons upon the receptionist at their respective work place onthe registered offices of the 5th defendant situated at site. The date is 14February, 2002 and the Return of Service is signed 12/03/02. Theendorsement at the back of the Return of Service reads:-Whereas I served 6thand 7thdefendants at their respective offices, I4thdefendant by delivering process upon Mamating an adultwho resides in same premises as 4thdefendant at Lower Thamae urbanarea.
I have no quarrel with the later service for it appears proper and inaccordance with rules appertaining to service of process. As for face of theReturn of Service, I am wondering why service in respect of 1st, 2nd 3rd and5th defendants was on the undisclosed receptionist and why, unlike serviceat the back of the Return of Service T. Faro the Deputy Sheriff did no recordon whom service was effected and his/her age was not shown as he did inrespect of service to 4th, 6th and 7th defendants. In any event, if defendantswere present, why was service not effect on them personally instead ofsubstituted service? It is resorted to where the whereabouts of defendants or
parties is unknown or cannot be found. And yet in his Supporting Affidavitthe Deputy Sheriff Tsolo Faro has deposed at paragraph 3(a) that on 30July, 2001 he was in company of his colleague T. Leraisa who had gone toserve a process on applicants and were escorted from the gate of 2ndrespondents premises to the latters registered office manned by an adultChinese lady and having explained purpose of their visit she called 1stapplicant from some office. After some explanations Leraisa had servedsummons upon the 1st applicant on behalf of the rest of the applicants(defendants therein. At paragraph 3(b) he says on the 14 February, 2002accompanied by 1st respondent he had proceeded to premises of 2ndapplicant to effect service in CIV/T/45/2002 and they were escorted to theregistered office of 2nd applicant where a Chinese lady was in control of theoffice and on the basis of 1st applicants explanation as to their relationshipwith 2nd applicant coupled with the fact that the Chinese lady (receptionist)was in control of the office he served the summons on her on behalf of 1st to4th applicants. I cannot accept this mumbo jumbo, its if anything, farcical.Why did he not serve the summons on 1st applicant as he had done inpresence of Leraisa? In any event whats mysterious or unacceptable aboutmentioning the name of the Chinese lady he served the process on? The lawrequires the name and age of the person on whom process is served for the
reason that should there be a squabble about the individual on whomprocess was served, he or she can always be called to testify. The onlyreason Tsolo Faro withholds or withheld the name of the so-called Chinesereceptionist is because there is no such Chinese receptionist at premises ofthe 2nd applicant. On this ground alone I reject the contention that servicewas effected on 1st, 2nd, 3rd and 5th defendants.
In so far as the counter application is concerned, I have already saidthat it is not a question of subscription to the Memorandum and Articles ofAssociation and allotment of shares that make one a shareholder in acompany but payment of a specific number of shares that make one ashareholder. As I have already remarked, I wonder what sort of certificatewould be issued applicants-in-reconvention since they have not purchasedshares entitling them to the issuance of a share certificate?
I repeat, in Randfontein Estates Ltd. vs. The Maser, 1909 TS 978pp. 981 982 Innes, CJ, as shown above, is said to have found shares are
simply rights of action jura in personam entitling their owner to a
certain interest in the company its assets and dividends. Since applicants-in-reconvention namely Graham Makhamisa Letsoara, Dr. Tsiu Makakole,
Sebala Letsoara, Thulare Moruthane and Mamocha Moruthane have notpaid their shares, they have no rights of action jura personam entitling themto certain interest in the 2nd applicant-in-convention (2nd respondent-in-reconvention), its assets and dividends and accordingly the counterapplication is dismissed with costs to the 1st and 2nd applicants-in-convention (respondents-in-reconvention respectively). The mainApplication or Application in-convention is granted with costs though suchcosts are to be costs in the counter application.
G. N. MOFOLOJUDGE
For the Applicants : Mr. Buys
For the Respondents
:
Mr. Mda