Gilnat Investments (Pvt) Ltd v Art Corporation Limited

On 17 May 2006, the High Court dismissed the applicant's application under section 196 of the Companies Act [Cap 24:03] for relief under section 198 on grounds that the respondent company's affairs were conducted in a manner oppressive or unfairly prejudicial to holders of 5% preference shares, including the applicant. The application related to special resolutions passed on 23 August 1996 and 31 July 1999. The applicant filed notice of appeal on 7 June 2006. The Registrar called for heads of argument to be filed by 23 March 2007. Despite the instructing legal practitioner briefing counsel on 9 March 2007 and making several telephone calls, counsel failed to file heads of argument timeously due to pressure of work and health issues (lumbar spine degeneration requiring morphine medication). The heads were filed ten days late and the appeal was dismissed under rule 44(1). The applicant applied for condonation and reinstatement.

• Whether condonation should be granted for non-compliance with rule 43(2) of the Supreme Court Rules requiring timeous filing of heads of argument
• Whether the appeal had prospects of success
• Whether the relief sought in the High Court had prescribed under section 15(d) of the Prescription Act
• Whether the cause of action arose when the special resolutions were passed and prescription commenced running from that date

The application for condonation of non-compliance with rule 43(2) and reinstatement of the appeal was dismissed with costs.

In applications for condonation of non-compliance with rules of court, the court must exercise its discretion judicially by weighing factors including degree of non-compliance, explanation, prospects of success, importance of the case, respondent's interests in finality, and court convenience. Negligence of counsel, even when partially attributable to health issues, will not justify condonation where the appeal lacks prospects of success. In claims arising from allegedly unlawful special resolutions passed under the Companies Act, the cause of action arises and prescription begins to run from the date the resolutions are passed, not from when relief is sought or when effects materialize. Under section 15(d) of the Prescription Act, such debts are extinguished after three years from when they become due.

Although Justice Malaba JA agreed with the court a quo's findings on the merits of the underlying application regarding oppression and unfair prejudice under sections 196 and 198 of the Companies Act, he stated it was not necessary to deal with those merits as the prescription finding disposed of the entire dispute between the parties. The court also expressed some sympathy for the instructing legal practitioner who had taken steps to attempt compliance with the rules by briefing counsel timeously and making reminder calls, noting that condonation might have been granted on that basis if the appeal had prospects of success.

This case reinforces important principles in Zimbabwean civil procedure regarding: (1) the approach to condonation applications where counsel's negligence is the cause of non-compliance, even when health issues are a contributing factor; (2) the critical importance of prospects of success in condonation applications - even where some sympathy might exist for the explanation given, poor prospects will result in refusal; (3) the application of prescription principles to company law remedies under section 196 of the Companies Act, clarifying that the cause of action and commencement of prescription runs from when allegedly unlawful resolutions are passed, not from when effects are felt; (4) the requirement that grounds of appeal must specifically challenge findings relied upon, and failure to challenge a dispositive finding (like prescription) in the notice of appeal is fatal to reinstatement applications.