Home » Business » Firm Gets Nod to Sue SMM

A South Africa-registered company, CJ Petrow and Company (Pvt) Ltd has been given the green light to sue Shabanie Mashava Mine to recover over US$3.6 million aanced to it for recapitalisation after the firm was placed under a reconstruction order.

SMM was placed under reconstruction in September 2004 because of financial problems stemming from mismanagement and accumulating debt to State.

Mr Afaras Gwaradzimba was appointed administrator.

After the reconstruction order, Mr Gwaradzimba secured two loans from CJ Petrow and Co to repay its suppliers in South Africa to keep the asbestos mining company afloat.

According to the agreement between the two companies, SMM would sell its products to CJ Petrow and Co with the latter retaining an amount equivalent to 40 percent of each invoice.

The loan tenure was up to February 2010.

However, SMM Holdings breached the loan terms and CJ Petrow and Co’s repeated efforts to recover the debt failed.

It then approached Mr Gwaradzimba seeking leave to sue SMM for recovery of US$3 635 158.31 in terms of the provisions of the Reconstruction Act, but this was turned down.

Mr Gwaradzimba said allowing CJ Petrow and Co to sue SMM would open floodgates for lawsuits against the mining company.

This prompted CJ Petrow and Co to approach the High Court challenging the SMM administrator’s decision.

Justice Joseph Martin Mafusire ruled in favour of CJ Petrow and Co in a judgment in which he slammed the conduct of Mr Gwaradzimba for using the law to shield himself from the consequences of his own infractions.

“The decision of the respondent (Mr Gwaradzimba) on 28 August 2012 refusing the request by applicant (CJ Petrow and Co). . . for leave to institute civil proceedings against SMM Holdings is hereby set aside.

The applicant is granted leave to institute proceedings against SMM in respect of US$3 635 158-31 together with costs of suit and interest as applicable thereon,” ruled Justice Mafusire.

Justice Mafusire slammed Mr Gwaradzimba’s conduct saying it “offends against the notions of justice and fair play in the minds of reasonable men”.

“The respondent refused that permission despite acknowledging the debt and tacitly, the breach,” said the Judge.

“His fear had been that the applicant’s suit would open up the floodgates, a Pandora’s Box, as his lawyers put it.”

He said it was Mr Gwaradzimba himself and not the failed SMM management of the past that brought about the state of affairs that resulted in the debt due to CJ Petrow and Co.

“In my view, his decision to refuse the leave had classically been concerned with self-preservation.

It had evidently been designed to shield himself from the consequences of his own infraction.

That was wrong. That was in breach of Section 3 of the Administrative Justice Act.”

SMM lawyer Aocate Thabani Mpofu, argued that CJ Petrow and Co’s loans did not deserve preferential treatment.

The SA company, he said, had aanced the loans well knowing the precarious financial situation of SMM and had therefore taken a well calculated risk.

But A Adrian P de Bourbon’s argument was that his client should not suffer the restrictions of the law which required permission of the administrator of SMM to sue.

He also argued that while the pre-constructions loans had been incurred by the failed management of SMM his client’s loans had been incurred by Mr Gwaradzimba himself.

To this end, he said, Mr Gwaradzimba’s decision was grossly wrong. Government tasked Mr Gwaradzimba to revive SMM in 2004.

Since then former board members and beneficial shareholders of SMM have instigated multiple legal battles against the Government move.

However, most of the cases have now been determined and the administrator is now focusing on identifying potential investors.

Source : The Herald