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[2016] ZAWCHC 136
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Tri-Optics CC t/a Wolfe Elektries and Others v Gericke (A342/2014) [2016] ZAWCHC 136 (9 September 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(
WESTERN
CAPE DIVISION, CAPE TOWN
)
CASE
NUMBER
:
A342/2014
DATE
:
9 SEPTEMBER 2016
In
the matter between:
TRI-OPTICS
CC T/A WOLFE ELEKTRIES
1
st
Appellant
ALTHEA
WOLFE-COOTE
2
nd
Appellant
MATHEW
WOLFE-COOTE
3
rd
Appellant
and
LIONEL
GERICKE
Respondent
EX
TEMPORE JUDGMENT
ROGERS
J
:
[1]
We have before us an appeal against an order from the court
a
quo
in which the magistrate made a
declaration in terms of
s 65
of the
Close Corporations Act 69 of
1984
deeming the first respondent, which I shall refer to as the
close corporation, not to be regarded as a close corporation in
regard
to its rights and obligations and upholding an application
against all three of the present appellants, the effect of which was
to make the second and third appellants (the second and third
respondents a quo) personally liable for a judgment which the present
respondent (the applicant in the court a quo) had obtained against
the close corporation on 25 June 2012 for R74 447.
[2]
Mr Claasens appeared this morning for the second and third appellants
and Mr Fergus for the respondent.
[3]
The second appellant, to whom I shall refer by her first name Althea,
was at all material times the sole member of the close
corporation.
The third appellant, to whom I shall refer to as Mathew, is her son
and the person who according to the appellants
has conducted the
business with which are concerned, Wolfe Electrical, since about
March 2011.
[4]
Very briefly, the facts are that the respondent, to whom I shall
refer as Gericke, issued summons against Wolfe Electrical,
the
business then conducted by the close corporation, in March 2011. This
gave rise to the judgment to which I have referred in
June 2012.
Costs were subsequently taxed but when Gericke attempted to levy
execution in February 2013 the return of service indicated
that the
business of Wolfe Electrical no longer existed.
[5]
Gericke’s attorneys were subsequently notified by attorneys
acting for the current appellants that the close corporation
had been
placed in final liquidation during April 2013. This caused Gericke in
May 2013 to launch his application for relief in
terms of
section
65.
[6]
The founding affidavit in support of this relief, in which initially
only the business of Wolfe Electrical and Althea were cited
as
respondents, was extremely terse. Apart from briefly describing the
procedural history, Gericke said no more than that he was
of the
opinion that Althea had abused the corporate personality of the close
corporation because she was still conducting business
under the name
Wolfe Electrical, a fact ascertained telephonically by Gericke in a
phone call that he made to the business on 14
May 2013. He also said
that the vehicles of the business were still in use under the name
Wolfe Electrical. He attached photographs.
[8]
Althea opposed the application. She alleged that the close
corporation had ceased trading in March 2011. She had been
the sole
member. Subsequent to the cessation by the close corporation of its
business, her son Mathew had started trading under
the name Wolfe
Electrical as sole proprietor. She said she had no interest whatever
in Mathew’s business which was a different
business. She denied
any abuse of the close corporation’s corporate personality.
[9]
Gericke in reply supplied a significant amount of new material in
support of his application. He seems to have accepted for
purposes of
his application that the close corporation had ceased business in
March 2011, rather than in 2012 as he had thought
previously, but he
said among other things that the business had essentially carried on
as before, that it was being conducted
by Mathew with the same logo,
that the business had the same telephone number, fax number, email
address, post box number and used
the same vehicles. He alleged that
the business continued to employ the same personnel.
[10]
He also alleged that on 2 July 2013 he had phoned the business’
telephone landline, being the number reflected
in the telephone book
for Wolfe Electrical and the call was answered by Patrick Wolfe being
Althea’s husband. Gericke said
that during 2010, when he had
had dealings with the business Wolfe Electrical, he had dealt with
Patrick Wolfe
[11].
He also said that the business continued to be conducted at the same
premises as before namely, 15 Thom Street in Paarl. He
attached
certain documents in corroboration of his allegations.
[12]
Together with his reply Gericke served an application to join Mathew
as the third respondent in the proceedings in the
court a quo. This
was opposed but the joinder was eventually granted. Mathew then filed
an answering affidavit in which he traversed
not only the allegations
in the founding papers but also the new matter contained in the
replying affidavit.
[13]
I should mention that Althea brought an application to strike out the
new matter in the replying affidavit. Although
the magistrate’s
ruling on this application does not appear from the record, both
counsel accepted that the application had
been heard and the that
magistrate had refused to strike out the matter in question.
[14]
The first point which arises in this matter is whether the close
corporation in liquidation has been properly cited and
joined.
Although Gericke was permitted to amend his notice of motion so as to
describe the close corporation as being in liquidation,
it does not
appear that any attempt was made to serve the application on the
liquidator, if there was one, alternatively on the
Master. Mr
Claasens told us this morning from the bar that, as far as his
instructions go, the final liquidation order was referred
to the
Master but that nothing has happened since then and that no
liquidator has been appointed.
[15]
If this is correct, it is obviously very unsatisfactory in
respect of a liquidation order granted in April 2013. In view
of the
conclusion we have reached on the merits, it is unnecessary to decide
whether in these circumstances the application should
have been
served on the Master as the temporary custodian of the affairs of the
liquidated close corporation pending the appointment
of a
liquidator.
[16]
A second question which it is convenient to address at this stage is
the nature of the power which
s 65
confers on the trial court to
make an order disregarding the corporate personality of a close
corporation. The section says that
if the applicant for relief
establishes a gross abuse of the corporation’s juristic
personality, the Court “may”
make a declaration. Mr
Fergus submitted that this indicated that the trial court had a true
discretion and that on appeal a court
would only interfere if the
discretionary power was exercised on a wrong principle or
capriciously or arbitrarily.
[17]
The word “may” does not always point to a discretion in
the narrow or true sense. The matter was recently
discussed in
Trencon Construction (Pty) Limited v
Industrial Development Corporation of South Africa Ltd & Another
2015 (5) SA 245
(CC) in paras 83-89 with reference
inter
alia
to the leading decision on
this point
Media Workers Association of
South Africa & Others v Press Corporation of South Africa Ltd
[1992] ZASCA 149
;
1992 (4) SA 791
(A). The word “may” in this setting can
indicate a discretion in the broader sense, namely that the court is
entitled
to have regard to a number of disparate and incommensurable
features in coming to a decision. In other words, the court must make
a value judgment. This is not a discretion in the true narrow sense
in which the repository of the power can follow any one of
a number
of available courses and still act correctly.
[18]
I am inclined to think that the power conferred by
s 65
is a
broad value judgment rather than a narrow discretion and in that
sense may have a similar meaning to the word when it appears
in
s 424
of the old Companies Act and in various provisions relating to
voidable dispositions in the Insolvency Act. If that is correct,
we
would be entitled to consider the merits of the matter and would not
be limited to intervening on the narrow grounds that the
magistrate
acted on a wrong principle or arbitrarily or capriciously.
[19]
However even if we were dealing with a discretion in the true and
narrow sense, I think for reasons I am going to briefly
indicate that
we would be entitled to intervene.
[20]
In regard to the new matter in reply, I think that since the
magistrate rejected the striking-out application and since Mathew
had
an opportunity to respond fully to the replying affidavit, which he
in fact did, and since Althea could have taken the same
opportunity,
we would not be justified in upholding Mr Claasens’ submission
that we should confine our attention to the founding
affidavit.
[21]
Reference was made by Mr Claasens to the
Plascon-Evans
rule which obviously applies in motion proceedings in lower courts as
it does in the High Court. Mr Fergus submitted that there
were not in
fact any material disputes of fact. In particular the circumstances
which Gericke had set out in his replying affidavit
were not disputed
save for one point, namely the business premises from which Mathew
now operates are, according to the appellants,
located at 15 Thom
Street, not (as the Gericke said) 26 Thom Street (where the close
corporation’s business premises had
been located).
[22]
I think it is correct that, save for that, the other particulars
about identical telephone numbers and the like are not
factually in
dispute. But the
Plascon-Evans
rule required the magistrate to accept what the appellants said about
the fact that the close corporation ceased business in March
2011,
that Mathew had no involvement in the business of the close
corporation, that he is the now proprietor of the business conducted
under the name Wolfe Electrical, and that Althea has no interest in
the business which Mathew conducts. Those facts were asserted
by the
appellants and cannot be rejected as manifestly false on the papers.
[23]
Because Gericke chose to proceed by way of motion, he deprived
himself of the benefits of a trial action. In particular he
could not
call for discovery and did not have the opportunity to cross-examine
Althea or Mathew and any other relevant witnesses.
The result
was that certain facts which are understandably not within his
personal knowledge could not be ascertained and therefore
the
material on which he was asking the court a quo to operate was
inevitably somewhat limited.
[24]
When one turns to the merits and considers whether a gross abuse of
juristic personality has been proved, the immediate
question arises:
What is so wrong with the close corporation having ceased its
business and with another person, whether associated
with the close
corporation or not, starting up the same business under the same
name? As far as I am aware, a person who is the
sole shareholder of a
company would be entitled, because of the straitened financial
circumstances of the company, to cease its
business and to start a
new business of the same kind.
[25]
Of course if assets were transferred to the new business other than
at fair value, and if the company or corporation
in those
circumstances were unable to meet creditors’ claims, there
might be some impropriety. The standard remedy would
be to liquidate
the company and for the liquidator to impeach any voidable
dispositions which took place. But in principle a person
who has
conducted business through a company or close corporation which is
facing large claims is not obliged to continue conducting
the
business and to earn further income just so that the creditors can be
paid. That might be honourable but it is not on my understanding
what
the law requires.
[26]
As to whether assets were transferred other than at fair value, the
evidence simply is not before us. One knows that
two Ford Bantam
bakkies, which were about five or six years old as at 2012, were
during that year registered in Mathew’s
name, having previously
been registered in the name of the close corporation. However Gericke
has not alleged that Mathew did not
acquire the bakkies at fair
value. The appellants themselves have said nothing about the matter.
I am not sure that we are entitled
simply to infer that they were
given to Mathew without value.
[27]
It is true that on the appellants’ version Mathew has been
using the same business name but I do not think that
that in itself
indicates any impropriety in the use of the close corporation. If it
has ceased business, I cannot see why
a family member should
not be permitted to start business under the same name if there is no
objection from the close corporation
or the persons who control the
close corporation. Perhaps there was some goodwill attaching to the
name but the evidence simply
does not allow us to form any view as to
what goodwill, if any, this business had and what the value of it
was.
[28]
Gericke might have ascertained more information if he had displayed a
keener interest in the liquidation. If he had examined
the
liquidation papers, of which we know nothing, there may have been
evidence about the assets and liabilities of the close corporation.
In that way Gericke might have ascertained more information but, as
matters stand, we do not know that there was any taking over
of
assets at low or improper values.
[29]
Apart from the fact that on the
Plascon-Evans
principle we must accept what the appellants have said about the
cessation of the one business and the commencement of the new
business, there are indications that Mathew has taken the proper
steps to conduct business in his own name. One can see from certain
invoices forming part of the papers that the bank account of the
business which Mathew now conducts is a different bank account
to the
one which the close corporation conducted. One can also see that he
has his own VAT number. The sequence of invoice numbers,
from the few
samples contained in the papers, indicates that he started a new
sequence of invoices with his business. The sample
invoice from the
close corporation is an invoice with a significantly higher sequence
number.
[30]
I would be willing to accept in assessing this matter that the
claim which the close corporation was facing from Gericke
was among
the reasons why Althea decided to cease conducting the close
corporation’s business. Whether that claim was the
sole
motivating factor we cannot say but, as I have indicated, the fact
that she felt it was not worth the while to carry on business
in the
face of claims from creditors does not mean that the cessation of the
corporation’s business was an abuse by her of
the close
corporation’s personality.
[31]
Mathew’s decision to start conducting business under the name
Wolfe Electrical was not an act which he performed
on behalf of or
taking advantage of the close corporation’s juristic
personality. On the contrary he has from the outset,
on the
appellants’ version, conducted business personally and will of
course be personally liable for any of the business’
claims
since the time he started it.
[32]
Even if, contrary to my view, one were to think that there was an
abuse of juristic personality, the question would still
arise whether
it was proper to make the s 65 declaration. Even if this were a
true discretion power rather than a broader
value judgment, the
magistrate should at least have asked himself whether the granting of
the order would achieve justice which
after all is why in appropriate
circumstances the court can disregard the juristic personality of a
company or close corporation.
[33]
The effect of the magistrate’s order is that the personal
assets of Althea and Mathew would be available in satisfaction
of
Gericke’s claim, despite the fact that those assets have never
had anything to do with the business of Wolfe Electrical
and would
not have been available if Wolfe Electrical as a business conducted
by the close corporation had simply continued or
if the business had
been placed in liquidation and no substitute business started.
[34]
I put to Mr Fergus the example that Althea might have owned a house
for the last 20 or 30 years that would never have been
available to
Gericke before. Why should it be available to him now? Yet that is
the effect of a blunt order declaring Althea and
Mathew personally
liable on the judgment debt. The magistrate did not as far as we can
see ask himself that question and did not
consider whether Gericke
was any worse off than if the business had simply closed its doors
without any new business being started.
The close corporation might
still have been hopelessly insolvent even if it had continued owning
the Bantam bakkies and whatever
other assets and book debts were
still owing to it.
[35]
I cannot see that a declaration was just in the present
circumstances. This does not mean that we would condone any
impropriety
that might have occurred between the close corporation
and Mathew in the transfer of assets but these are matters on which
there
is simply not evidence enabling us to pass any comment. It may
be worth Gericke’s while to investigate it further.
[36]
IN THE CIRCUMSTANCES I HAVE COME TO
THE CONCLUSION THAT THE APPEAL SHOULD BE UPHELD WITH COSTS AND THAT
THE COURT A QUO’S
ORDER SHOULD BE SET ASIDE AND REPLACED WITH
ONE DISMISSING THE APPLICATION WITH COSTS. IN REGARD TO THE
SCALE OF COSTS, I
DO NOT THINK THERE IS A BASIS FOR THE SPECIAL COSTS
ORDER THAT MR CLAASENS SOUGHT.
__________________
ROGERS
J
I
agree.
_________________
KOSE
AJ