Cone Textiles Housing Co-Operative Society v Philson Chisale and Others

The plaintiff was a co-operative society registered under the Co-operative Societies Act. The seven defendants were members of the plaintiff's management committee who were suspended on 3 April 2006 and removed from office on 6 May 2006. The plaintiff was allocated immovable property in Zengeza 3 Extension Chitungwiza for subdivision and sale to its members by the local council. The land was subdivided into 145 stands for the benefit of members. The plaintiff alleged that the defendants unlawfully and unprocedurally sold 145 stands belonging to members to non-members and converted the proceeds to their own use. The plaintiff claimed compensation valued at US$256,000 (US$2,000 per stand). The defendants denied fraudulent sales, averring that sales were conducted with consent of affected registered members who executed agreements of sale, received proceeds, and utilized them to their advantage. It was common cause that 17 stands were specifically authorized for sale by general meeting on 5 March 2000, leaving 128 stands in dispute. The defendants relied on authorization from a general meeting of 9 April 2000 to sell unspecified number of extra stands.

• Whether the plaintiff had locus standi to bring a delictual claim against its own management committee
• Whether the proceedings were premature before exhausting domestic remedies under sections 114 and 115 of the Co-operative Societies Act
• Whether the defendants unlawfully and unprocedurally sold stands belonging to the plaintiff's members
• Whether members whose stands were sold received compensation or replacement stands
• Whether the defendants were liable for the claim sought

The first, second, third, fourth and sixth defendants were ordered to pay jointly and severally (the one paying the others to be absolved) to the plaintiff the sum of US$4,000 together with interest at the prescribed rate from the date of judgment to the date of payment in full and costs of suit.

The binding legal principles established are: (1) A co-operative society has locus standi to bring delictual claims against its management committee members under section 59 of the Co-operative Societies Act, which makes management committee members jointly and severally liable for losses incurred due to negligence, default, breach of duty or breach of trust. (2) Section 115 of the Co-operative Societies Act, which provides for dispute resolution by the Registrar, does not apply to delictual claims by a society against its own management committee and does not oust the inherent jurisdiction of the courts. (3) The procedural requirements for expulsion of members set out in co-operative by-laws are mandatory and must be strictly followed, including calling a special general meeting, giving proper notice, allowing the member to make representations, and obtaining a two-thirds majority vote. (4) Automatic expulsion of members for arrears in subscriptions without following prescribed procedures is unlawful. (5) Management committee members who dispose of members' property without following mandatory procedures are liable to the co-operative for losses caused thereby.

The court made several non-binding observations: (1) That the audit report commissioned by the new management committee was flawed because it was based on inadequate and incomplete information due to the defendants' legal practitioners refusing to surrender documents. (2) That the detailed income and expenditure reports prepared by the defendants, though unaudited, appeared to be a fair representation of the co-operative's financial state during the relevant period. (3) That the defendants' failure to produce documents was attributable to "inept legal advice" rather than creative accounting or fraud. (4) That the letters from the local authority purporting to repossess stands were "vague and embarrassing" and did not comply with the lease agreements' cancellation provisions. (5) That the production of the defendants' documents "may very well reduce the extent of prejudice to the plaintiff." The court also expressed sympathy for the position of the supervising ministry official Chamboko, noting he had no reason to mislead the court despite having testified against the defendants in criminal proceedings.

This case is significant in South African and Zimbabwean co-operative law as it clarifies: (1) the locus standi of a co-operative society to bring delictual claims against its own management committee under section 59 of the Co-operative Societies Act; (2) that section 115 dispute resolution mechanisms do not oust the inherent jurisdiction of courts to hear delictual claims by co-operatives against their management committees; (3) the mandatory nature of procedural requirements in co-operative by-laws for expulsion of members and disposal of their property; (4) that management committee members can be held personally liable for losses caused to the co-operative through breach of duty; and (5) the evidentiary standards required to prove misappropriation of co-operative funds, particularly the importance of proper audits and access to source documents.