Company vs personal liability.

By Blessed Mhlanga | 2h ago

Mike Chimombe (right) and Moses Mpofu were arrested over a fraud case involving a US$87 million Presidential goat pass-on scheme.

The conviction of Zanu PF central committee member Mike Chimombe and Moses Mpofu in the fraud case involving a US$87 million Presidential goat pass-on scheme raises questions that any corporate executive and student of law would be well advised to study and pay attention to.

The question is: are directors personally legally liable for acts of omission or commission by the corporates that they lead, whether those actions are criminal or civil? Does the cover of separate legal persona exonerate directors and employees from criminal liability?

The circumstances of the above case are already of public record, so I will stick to the crux of these without boring you with minute details. In the main, the court ruled Chimombe and Mpofu obtained a tender via fraudulent means by presenting fake Zimbabwe Revenue Authority (Zimra) and National Social Security Authority (Nssa) certificates as part of their bid document, knowing them to be fake.

The duo then secured the tender to supply goats and received money from the government, even as they knew they had no capacity to supply the same. Consequently, they received money in local currency which the court found to be equivalent to US$7,7 million.

Mpofu, a director of the company, presented in his defence that it was not him in his personal capacity who bid for the tender. It was a registered company under the name of Blackdeck Private Limited. He argued that any documents presented belonged not to him, but to the company, and therefore, if any crime had been committed, it was the company that should have been arrested and arraigned before the courts.

Chimombe, on the other hand, denied any links with Blackdeck Private Limited in his personal capacity and argued that MilyTech, a company in which he is a director, had been subcontracted by Blackdeck. He contended that if any charges were to be preferred, they should be against the company and not him, especially since he had no interests in Blackdeck and did not control its operations.

Our law provides for two kinds of legal persons: the natural person — individual human beings who, in modern law, enjoy legal personality as a matter of course — and the juristic person or artificial persons, such as companies, which have legal rights and can sue and be sued in their own capacity.

“Even non-lawyers know that a company is a separate legal person from its shareholders and officials,” Lovemore Madhuku writes in his book Introduction to Zimbabwean Law.

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The legislature found it fit to codify and, where necessary, reform the common criminal law of Zimbabwe in conformity with the fundamental principles set out in the Constitution and other fundamental principles developed over time by our criminal justice system.

This was done to provide a concise and accessible form of what conduct our criminal justice system forbids and punishes, as well as what defences can be raised against criminal charges.

Therefore, Section 277 of the Criminal Law Code provides the answer to how corporate bodies or juristic persons can be held criminally liable if any crime has been committed by this “person.”

The Act stipulates that for the purposes of imposing criminal liability upon any corporate body: “Any conduct on the part of a director or employee of the corporate body, or any person acting on instructions or with permission, expressed or implied, given by a director or employee of the corporate body, in the exercise of his or her power or in the performance of his or her duties as such a director, employee, or authorised person, or in furthering or endeavouring to further the interests of the corporate body, will be deemed to have been the conduct of the corporate body.

“If the conduct was accompanied by any intention on the part of the director, employee, or authorised person, that intention will be deemed to have been the intention of the corporate body.”

In the Chimombe and Mpofu case, lawyers have raised Section 277 of the Criminal Law Code, arguing that the court erred in convicting the two without giving due regard and weight to the law.

“The court a quo erred in law and misdirected itself in convicting the appellant of the offence of fraud without making any categoric finding on whether or not the acts forming the subject of the alleged offence were committed by the appellant in his personal capacity or by the appellant as a director of a company known as Blackdeck, or by both the appellant and the company in question, thereby failing to apply the provisions of Section 277 of the Criminal Law (Codification and Reform) Act (Chap 9:23),” Chimombe’s lawyers submitted.

High Court Judge Justice Pisirayi Kwenda, however, removed the defence of separate legal persona and allowed the State to charge the two in their individual capacities instead of the company after arriving at the reasoned conclusion that Blackdeck was actually a victim of Chimombe and Mpofu, who stole the company’s identity to use it for fraudulent purposes.

“The perpetrators of this fraud simply accessed the legal documents belonging to Blackdeck (Pvt) Ltd and submitted them with the bid as a way of stealing the identity of the company and then used the stolen identity to commit crime,” he reasoned.

This reasoning has now become the cornerstone of the appeal that is currently before the courts, with lawyers arguing that this finding by Justice Pisirayi was questionable because the State never preferred such a charge against the two accused persons.

“Whereas the charge identified the misrepresentation relevant to the alleged fraud to be the submission of fake Zimra tax and Nssa compliance certificates, the court a quo erred in law and misdirected itself in convicting the appellant of the offence of fraud on the basis of misrepresentation of facts that were not part of the charge, in that the court went on a frolic of its own in finding that what was misrepresented consisted of stealing the corporate identity of Blackdeck (Private) Limited and capacity to supply goats,” reads the appeal.

It is important to note that the Criminal Law Code also makes directors criminally liable for crimes committed by a corporate body, as it provides as set out in the Chimombe judgment as follows: “With regards to the actus reus/criminal conduct, where there has been any conduct which constitutes a crime for which a corporate body is or was liable to prosecution, that conduct shall be deemed to have been the conduct of every person who at the time was a director or employee of the corporate body. (See s277 (3) of the Criminal Law Code). With regards to the requisite mental element, if the conduct was accompanied by any intention on the part of the person responsible for it, that intention shall be deemed to have been the intention of every other person who at the time was a director or employee of the corporate body. A director may only escape criminal liability if he or she proves on a balance of probabilities that he or she took no part in the conduct. See the proviso to s277 (3) for this defence and s18 of the Criminal Law Code for the onus and burden of proof. In terms of s277 (5), a director who is criminally liable for any conduct in terms of subsection 277 (3) shall be liable to be prosecuted and punished personally for the crime concerned.”

The case of Chimombe and Mpofu underscores the complex interplay between company liability and personal liability within the corporate framework.

While the principle of separate legal personality typically protects directors from personal liability for corporate actions, the provisions of the Criminal Law Code in Zimbabwe establishes circumstances under which directors can be held personally accountable for crimes committed by the company. This case not only raises critical questions about the accountability of corporate executives, but also highlights the need for clarity in the law regarding the responsibilities of directors in preventing fraud and other criminal activities.

As legal standards evolve, it is imperative for corporate leaders to understand their potential liabilities and the implications of their actions within the corporate structure.