Lewis Group Limited v Woollam and Others (9900/2016) [2016] ZAWCHC 130; [2017] 1 All SA 192 (WCC); 2017 (2) SA 547 (WCC) (11 October 2016)

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[2016] ZAWCHC 130
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Lewis Group Limited v Woollam and Others (9900/2016) [2016] ZAWCHC 130; [2017] 1 All SA 192 (WCC); 2017 (2) SA 547 (WCC) (11 October 2016)

Republic
of South Africa
IN THE HIGH
COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case No:
9900/2016
Before: The
Hon. Mr Justice Binns-Ward
Dates of
hearing: 29-30 August, 1 September 2016
Date of
judgment: 11 October 2016
In the matter
between:
LEWIS GROUP
LIMITED
Applicant
and
DAVID FARRING
WOOLLAM
First Respondent
JOHAN
ENSLIN
Second
Respondent
LESLIE ALAN
DAVIES
Third Respondent
DAVID MORRIS
NUREK
Fourth
Respondent
HILTON
SAVEN
Fifth Respondent
JUDGMENT
BINNS-WARD J:
[1]
Lewis Group Limited, the applicant in this
case, is a public company listed on the Johannesburg Securities
Exchange.  It is
the holding company of Lewis Stores (Pty) Ltd,
which operates over 700 retail outlets throughout Southern Africa.
The company
also owns all the shares in Monarch Insurance Company
Ltd.  It has applied, in terms of s 165(3) of the Companies
Act
71 of 2008 (‘the 2008
Companies Act&rsquo
;), for an order
setting aside a demand in terms of
s 165(2)
[1]
served on it by the first respondent, Mr David Woollam.
Section 165(3) of the Act permits a company upon which such
a demand
has been served to apply ‘
to a
court to set aside the demand only on the grounds that it is
frivolous, vexatious or without merit
’.
[2]
Woollam is a person entitled to be
registered as a shareholder of the applicant company.  His
entitlement arises from his quite
recent acquisition of 3010 ordinary
shares in the applicant.  The shares are currently held for him
by a nominee.  He
describes himself as their ‘beneficial
owner’.
[3]
Woollam served the demand purporting
thereby to exercise the right conferred in terms of s 165(2)(a)
of the 2008
Companies Act.  That
provision entitles any
shareholder or person entitled to be registered as a shareholder to
‘
serve a demand upon a company to
commence or continue legal proceedings, or take related steps, to
protect the legal interests of
the company
’.
The service of such a demand is the first step that any person with
standing
[2]
is required to take to enable such person, if so advised, and if the
company does not accede to the demand, thereafter, with the
leave of
the court to be obtained in terms of
s 165(5)
, to commence or
continue the relevant legal proceedings
in
the company’s name
.
[4]
The
demand, dated 20 May 2016, calls upon the applicant company ‘
to
protect its legal interests, more specifically, …
[by
commencing]
proceedings to declare as
delinquent
’ four of the company’s
directors, namely Messrs Johan Enslin, Leslie Davies, David
Nurek and Hilton Saven (the
second to fifth respondents,
respectively).  The demand presaged six separate grounds for
Woollam’s contention that
proceedings should be instituted by
the company for a declaration that the second to fifth respondents
should be declared delinquent
directors.  These were:
1.
That loss of employment insurance was being
sold to customers of Lewis Stores who were pensioners and
self-employed persons and
thus had no insurable interest in terms of
the relevant insurance policies.
2.
That Lewis Stores’ customers were
required, whether they wished to or not, to purchase extended
warranties on goods purchased.
3.
That compulsory delivery fees were charged
to Lewis Stores customers, irrespective of whether they required
delivery of the goods
to be effected.
4.
That the group’s accounts had for
many years appeared to overstate revenue from the sale of insurance
policies.
5.
That the group had inappropriate revenue
recognition policies with regard to the sale of extended warranties
that resulted in the
on-going overstatement of reported revenue.
6.
‘
The incorrect processing of various
accounting policy errors and the changing of estimates, as “prior
year adjustments”
in the interim results for the period ended
30 September 2015.’
[3]
[5]
It is common ground that the proceedings
that Woollam wants the company to commence would be those provided
for in terms of s 162
of the 2008
Companies Act.  The
provision that a person with standing can apply to have a director or
former director declared delinquent or ‘placed under
probation’
is a novel remedy.  It was not available under any of the
statutory predecessors of the 2008
Companies Act.  The
effect of
a declaration of a person as delinquent is that he or she is
thereupon disqualified, for so long as the declaration remains
in
force, from being a director of any company;
[4]
see s 69(8)(a) of the 2008
Companies Act.
[5
]
[6]
The informed reader will have deduced from
what has been said so far that the statutory demand provided for in
terms of s 165(2)
of the 2008
Companies Act is
a procedural
precursor to the possible institution by the person serving it of
what lawyers refer to as a ‘derivative action’.

Such reader would therefore find no surprise in the heading to
s 165
,
which is ‘
Derivative actions
’.
As far as my researches could determine, however, he or she would not
have encountered a case, here or abroad, in
which the type of relief
that Woollam ultimately seeks to obtain under
s 162
in this
matter has been sought or granted in derivative proceedings.
Indeed, in the other jurisdictions, to whose systems
and law our
courts make most frequent comparative reference in the field of
company law,
[6]
equivalent orders to the ones identified in Woollam’s demand
are generally to be had at the instance of the relevant regulatory
or
statutory authority, rather than private litigants - although there
are exceptions.
[7]
In the United Kingdom, the disqualification
of directors is regulated in terms of the Company Directors
Disqualification Act, 1986.
[7]
Under the UK legislation, courts can make disqualification
orders
mero motu
in certain circumstances
[8]
and in other instances upon the application of the Secretary of State
or, upon the direction of the Secretary of State, by the
official
receiver of a company in winding-up.  Liquidators and official
and administrative receivers are required to report
to the Secretary
of State any circumstances discovered by them in the discharge of
their functions in which a disqualification
order might be
indicated.  The only individuals who appear to have standing to
apply for disqualification orders under the
UK legislation are past
or present members or creditors of any company ‘
in
relation to which that person has committed or is alleged to have
committed an offence or other default
’.
[9]
An application by a member or creditor in terms of the relevant
standing provision under the UK legislation is unambiguously
personal
in character, and definitely not to be brought derivatively.
[8]
In Australia, disqualification orders are
obtained at the instance of the Australian Securities and Investments
Commission (ASIC).
[10]
The relevant objects and functions of ASIC include maintaining,
facilitating and improving the performance of the Australian

financial system and the entities within that system in the interests
of commercial certainty, reducing business costs, promoting
the
efficiency and development of the economy and the confident and
informed participation of investors and consumers in the financial

system.
[11]
ASIC’s functions are clearly directed in the public interest.
[9]
In New Zealand, a director of a company
commits an offence if the director exercises powers or performs
duties as a director of
the company - (a) in bad faith towards the
company and believing that the conduct is not in the best interests
of the company;
and (b) knowing that the conduct will cause serious
loss to the company (s 138A of the Companies Act, 1993 (NZ)).
Upon
conviction for such an offence a director is liable to
imprisonment for up to five years or a fine not exceeding NZ$200 000

(s 373(4)).  Any person so convicted is prohibited for a
period of five years from the date of the conviction from being
a
director or from being in any way, directly or indirectly, involved
in the management of a company without first obtaining the
court’s
permission (s 382).  Notice of any application for such
permission must be given to the Registrar of Companies,
who may
oppose it.  In addition to the automatic disqualification
provided for in terms of s 382, application for a
disqualification order may be made in terms of s 383 of the New
Zealand Companies Act by the Registrar of Companies, the Financial

Markets Authority, the Official Assignee
[12]
,
or by the liquidator of the company, or by a person who is, or has
been, a shareholder or creditor of the company.  There
is no
provision for the company itself to make the application.  It is
plain therefore that the New Zealand legislation does
not contemplate
a disqualification application being brought by way of derivative
proceedings.  As in the case of the UK and
Australian
legislation, it is evident that the New Zealand disqualification of
directors regime is directed in the public interest.
[10]
The critical difference between the
statutory disqualification of directors regimes in the foreign
jurisidctions to which I have
had reference and that in terms of
s 162 of the 2008 Companies Act is that the latter gives
standing to companies to bring
proceedings for the disqualification
of their directors or former directors.
[11]
As indicated, assuming the company does not
accede to his demand, Woollam seeks to use the derivative action
remedy in terms of
s 165 to achieve a declaration in terms of
s 162 of the 2008 Companies Act in respect of four of the
company’s
seven directors.  Section 162 of the 2008
Companies Act gives standing to a number of categories of persons,
including shareholders
and companies, to apply for an order declaring
a person to be delinquent.  Subsections 162(2) and
162(5)(c) contain the
provisions concerning standing that pertain in
the context of the current case.  They apply equally
irrespective of whether
the company or a shareholder is the
applicant.  It is with reference to those subsections that any
assessment of whether Woollam’s
complaints make out a prima
facie case has to occur.  If the complaints do not concern
instances of the sort of conduct identified
in s 162(5)(c), it
would follow that his demands must be unsustainable and therefore
without merit.
[12]
Sub-section
(2) goes as follows, insofar as relevant:
(2)
A company, a shareholder, director, company secretary or prescribed

officer of a company, a registered trade union that represents
employees of the company or another representative of the employees

of a company may apply to a court for an order declaring a person
delinquent or under probation if-
(a)
the person is a director of that company or, within the 24 months

immediately preceding the application, was a director of that
company; and
(b)
any of the circumstances contemplated in-
(i)
subsection (5)(a) to (c) apply, in the case of an application
for a
declaration of delinquency; or
(ii)
...
Subsection (5)(c) provides:
(5)
A court must make an order declaring a person to be a delinquent

director if the person-
(a)
…;
(b)
…;
(c)
while a director-
(i)
grossly abused the position of director;
(ii)
took personal advantage of information or an opportunity, contrary
to
section 76(2)(a);
[13]
(iii)
intentionally, or by gross negligence, inflicted harm upon the
company
or a subsidiary of the company, contrary to section 76(2)(a);
(iv)
acted in a manner-
(aa)
that amounted to gross negligence, wilful misconduct or breach of
trust in
relation to the performance of the director's functions
within, and duties to, the company; or
(bb)
contemplated in section 77(3)(a),(b) or (c)
[14]
[13]
The
import of s 162(5)(c) received consideration in the quite recent
judgment of the Supreme Court of Appeal in
Gihwala
and Others v Grancy Property Ltd and Others
[2016] ZASCA 35
;
[2016] 2 All SA 649
(SCA) at paras. 143-144.
[14]
Treating of sub-paragraph (i) thereof,
Wallis JA remarked that a gross abuse of the position of director did
not involve ‘a
trivial misdemeanour or an unfortunate fall from
grace’.  Indeed, the adjective ‘gross’ used in
a context
like ‘gross abuse’ denotes obvious and
egregious conduct.
[15]
The conduct in question must relate to the use of
the
position
as director, it does not
relate to the performance by the person concerned of his or her
duties and functions as a director because
that is a matter dealt
with discretely in terms of sub-paragraph (iv).  Sub-paragraph
(i) does not appear to be applicable
in respect of Woollam’s
complaints.
[15]
There is no suggestion in the complaints
that any of the second to fifth respondents took personal advantage
of information or an
opportunity, contrary to section 76(2)(a) of the
2008 Companies Act.  Nothing more need therefore be said about
the import
of sub-paragraph (ii).
[16]
Sub-paragraph (iii) is somewhat clumsily
worded, more particularly by reason of its equation of the concept of
‘intentionally’
or ‘by gross negligence’
inflicting harm on the company with that of ‘knowingly causing
harm’ in s 76(2)(a).
‘Knowingly’ is
readily reconcilable with ‘intentionally’, but not so
with ‘negligently’, even
grossly so.  Nevertheless,
it is clear enough, I think, that what is required is conduct
intended
to
harm the company, alternatively an attitude of recklessness by the
director in the face of an appreciation that his or her conduct
could
cause the company harm.  While acknowledging that ‘gross
negligence’ is a concept that defies precise definition,
Scott
JA proceeded, in
MV Stella Tingas:
Transnet Ltd v Owners of the MV. Stella Tingas and Another
2003
(2) SA 473
(SCA), at para 7, to state ‘…
to
qualify as gross negligence the conduct in question, although falling
short of dolus eventualis, must involve a departure from
the standard
of the reasonable person to such an extent that it may properly be
categorized as extreme; it must demonstrate, where
there is found to
be conscious risk-taking, a complete obtuseness of mind or, where
there is no conscious risk-taking, a total
failure to take care.
If something less were required, the distinction between ordinary and
gross negligence would lose its
validity
’.
Woollam has not alleged that the second to fifth respondents
conducted themselves with the intention of harming the
company.
Sub-paragraph (iii) is therefore also not applicable in respect
of Woollam’s complaints.
[17]
Sub-paragraph (iv) covers a range of
grounds.  As will become apparent when consideration is given
later in this judgment to
Woollam’s grounds of complaint, the
only ones that could on any approach merit consideration for present
purposes are the
carrying on of the company’s business
recklessly, with gross negligence, with intent to defraud any person,
or for any fraudulent
purpose, or acquiescence in the conduct of
company’s business in that manner.
[18]
It
follows that for a company or any of its shareholders to succeed in
obtaining a declaration of delinquency in respect of any
of the
company’s directors or former directors they must demonstrate
very serious misconduct by the person concerned.  The
relevant
causes of delinquency entail either dishonesty, wilful misconduct or
gross negligence.  Establishing so-called ‘ordinary’

negligence, poor business decision-making, or misguided reliance by a
director on incorrect professional advice will not be enough.

In treating of the equivalent remedy under s 295 of the
Companies Act, 1985 (a predecessor of the Company Directors
Disqualification
Act) Sir Nicolas Browne-Wilkinson V-C remarked in
Re
Lo-Line Electric Motors Ltd.
,
[1988] 1
Ch. 477
at 486 ‘[o]
rdinary
commercial misjudgment is in itself not sufficient to justify
disqualification.  In the normal case, the conduct complained
of
must display a lack of commercial probity, although I have no doubt
that in an extreme case of gross negligence or total incompetence

disqualification could be appropriate
’.
In
Re Sevenoaks Stationers
(Retail) Ltd.
[1991] Ch. 164
(C.A.), a
case in which a director concerned had been completely remiss in
respect of his duties, although not dishonest, Dillon
LJ held (at p.
184) that ‘
incompetence or
negligence in a very marked degree ... is enough to render him unfit;
I do not think it is necessary for incompetence
to “total”,
as suggested by the Vice-Chancellor in
[
Re
Lo-Line Electric Motors
],
to
render a director unfit to take part in the management of a
company
’.  An illuminating
review of the considerations that the English courts have regarded as
relevant in this regard is
to be found in
Secretary
of State for Trade and Industry v. Goldberg (No. 2
)
[2003] EWHC 2843
(Ch.),
[2004] 1 BCLC 597.
[19]
Whether the grounds of complaint,
considered in the context of the evidence in the current proceedings,
make out a sustainable case
worthy of investigation in terms of
s 165(4), or capable of supporting an application in terms of
s 165(5) of the 2008
Companies Act for leave to proceed
derivatively will be considered presently to the extent necessary.
A preliminary question,
however, is whether a person is able to
proceed derivatively for the given relief when that person is given
standing under the
Act to proceed for such relief personally.
[20]
Despite his ownership of 3010 of the
98 057 959 issued shares in the applicant company, Woollam
is not a ‘shareholder’
within the defined meaning of the
word.  A ‘
shareholder
’
is defined in s 1 of the Act to mean, insofar as currently
relevant, ‘…
the
holder of a share issued by a company and who is entered as such in
the certificated or uncertificated securities register,
as the case
may be
’.  The applicant’s
counsel submitted, however, that Woollam could very easily qualify
himself as a shareholder
(as defined) of the applicant company simply
by obtaining the registration into his name of one or more of the
shares beneficially
owned by him.  The first respondent’s
counsel, reasonably, did not take issue with that submission.
I consider
that it would be justified in the circumstances, to
the extent that the determination of the application requires taking
the contextual
import of s 162 of the 2008 Companies Act into
account, to regard Woollam for that purpose as if he were in fact a
shareholder
of the applicant.
[21]
Pointing to the right afforded by s 162
to shareholders directly to institute proceedings for a declaration
that a director
or former director of the company in which they hold
shares is a delinquent person, the applicant’s counsel argued,
consistently
with a contention to that effect in the founding
affidavit, that as a matter of principle there is no proper basis for
Woollam
to be afforded standing on the exceptional basis implicit in
a derivative action.  The applicant’s counsel submitted

that Woollam’s demand on the company under the derivative
actions provisions of the 2008 Companies Act was plainly vexatious

because he could seek the relief personally.
[22]
Mr
De Wet
,
who took the main argument for the first respondent, conceded,
correctly in my view, that if, upon a proper construction of the
Act,
a shareholder were not entitled to avail of s 165 of the new
Companies Act for the institution of proceedings for the
remedy he
could seek personally in terms of s 162, the demand would indeed
have been vexatious.  The first respondent’s
counsel
argued, however, that Woolam’s claims to standing under ss 165
and s 162, respectively, were not mutually
exclusive, and that
he was therefore entitled to elect to proceed derivatively for relief
that he could also seek personally.
[23]
Section
165 of the 2008 Companies Act expressly abolishes our common law in
respect of derivative actions in respect of the exercise
or
protection of the rights or legal interests of companies
[16]
and puts its own provisions in the place of the abolished law. The
act of abolition is contained in subsection (1); that of substitution

in the other fifteen subsections of the provision.
[17]
[24]
Subsection (1) was probably worded in the
manner that it is cognisant of the experience in Canada, where
provincial enactments codifying
the law in respect of derivative
actions were introduced without any provision therein for the
abolition of the common law.
[18]
The failure to include an express provision abolishing the common law
remedy gave rise to contentions by some litigants that
the common law
continued in force alongside the new statutory regimes.  The
contentions were advanced by litigants who sought
to avoid the
requirement of having to obtain the leave of the courts to proceed
derivatively that had been introduced in the Canadian
statutory
regimes – as it also has been in terms of s 165 of our
Act.  It took decisions by the courts in cases
like
Farnham
v Fingold
[1973] 2 OR 132
(CA),
1973
CanLII 523 (ON CA)
and
Shield
Development Co v Snyder et al and Western Mines Ltd
[1976] 3 WWR 44
(BCSC) to conclusively confirm that the common law
had been codified by the new statutory regimes and that derivative
action proceedings
thenceforth could be prosecuted solely in
conformance with the statutory provisions.
[25]
It is evident that s 165 manifests the
comprehensive codification of the relevant law insofar as it concerns
companies (as
defined in s 1 of the Act).  The import of
‘abolition’ in the context of subsection (1) should be
understood
accordingly; it does not denote a doing away with the
established legal concept of derivative proceedings, but rather the
creation
of a slate for its statutory restatement and reform.
The restatement and reform is manifest in the content of subsections

(2) – (16).  Derivative actions at common law were
directed at obtaining redress for the company in respect of wrongs

done to the company or to recover the property of the company or to
enforce its rights.  The codified provisions in s 165

reiterate the principle that it is in respect of the ‘legal
interests’ of the company, as distinct from those of the
person
applying to institute it, that a derivative action may be permitted.
[26]
It bears noting at once that it has already
been remarked in a judgment of the appeal court that the abolition of
the common law
in terms of s 165(1) has left unaffected the
standing of shareholders to litigate directly in respect of matters
affecting
their personal, as distinct from their corporate, rights as
shareholders; see
Communicare and Others
v Khan and Another
2013 (4) SA 482
(SCA) at para 20.  This serves to underscore the enduring
distinction between the nature of the derivative action and
that of
the personal action.  The former is a remedy to be exercised in
the defence or advancement of the company’s
rights or
interests, and not the personal rights of the plaintiff.
[19]
[27]
The
term ‘derivative action’ comes from the English law.
In the corporate context, it relates to proceedings instituted
by
persons given standing to litigate in their own names for and behalf
of the corporation in respect of wrongs done to the corporation.
[20]
Such proceedings were entertained in the limited circumstances that
gave rise to the recognised exceptions to the rule in
Foss
v Harbottle
[21]
(often also called ‘the proper plaintiff rule’).
The label ‘derivative’ was applied because although
the
litigation was instituted and prosecuted in
A
’s
name, the right of action concerned was derived from
B
.
[22]
Moreover, the benefits of any judgment obtained in favour of
A
in such an action, accrue to
B
,
not
A
.
In the current case it is evident that a shareholder’s right to
seek a declaration against a director or former director
in terms of
s 162 of the 2008 Companies Act does not derive from the
company.  It is invested directly and personally
in the
shareholder by the section itself.  The shareholder’s
right co-exists with the identical right separately invested
in the
company by the very same provision.
[28]
Hoexter JA
gave the following exposition of the derivative action in
Francis
George Hill Family Trust v South African Reserve Bank and Others
1992
(3) SA 91
(A), at 97B-G:
It is trite that a company with limited liability is an
independent legal person and separate from its shareholders or
directors.
In general, therefore, when a wrong is alleged to have
been done to a company the proper plaintiff to sue the wrongdoer is
the
company itself. In English law a derivative action constitutes an
exception to that general rule. The exception is recognised when
(1)
the wrong complained of involves conduct which is either fraudulent
or
ultra vires
and (2) the wrong has been perpetrated by
directors or shareholders who are in the majority and so control the
company. See, for
example:
Burland and Others v Earle and Others
[1902] AC 83
(PC);
Edwards and Another v Halliwell and Others
[1950] 2 All ER 1064
(CA) at 1066-7;
Prudential Assurance Co Ltd v
Newman Industries Ltd and Others (No 2)
[1982] 1 All ER 354
(CA).
The principle underlying the exception to the general rule is
expounded thus by Lord Denning MR in
Wallersteiner v Moir (No 2);
Moir v Wallersteiner and Others (No 2)
[1975] 1 All ER 849
(CA) at 857
d-f
:
'If it is defrauded by a wrongdoer, the company itself
is the one person to sue for the damage. Such is the rule in
Foss
v Harbottle
. The rule is easy enough to apply when the company is
defrauded by outsiders. The company itself is the only person who can
sue.
Likewise, when it is defrauded by insiders of a minor kind, once
again the company is the only person who can sue. But suppose it
is
defrauded by insiders who control its affairs - by directors who hold
a majority of shares - who can then sue for damages? Those
directors
are themselves the wrongdoers. If a board meeting is held, they will
not authorise proceedings to be taken by the company
against
themselves. If a general meeting is called, they will vote down any
suggestion that the company should sue them themselves.
Yet the
company is the one person who is damnified. In one way or another
some means must be found for the company to sue. Otherwise
the law
would fail in its purpose. Injustice would be done without redress.'
(It
is worthy of note that in
Prudential
Assurance v Newman Industries (2)
supra,
[23]
the Court of Appeal, without finding it necessary to decide the
point, showed a notable lack of enthusiasm about adopting the broader

view that had been expressed by Vinelott J in the court of first
instance ([1981] Ch. 257 at p. 327) that a shareholder
was
entitled to prosecute an action on behalf of the company if ‘the
interests of justice do require that a minority action
should be
permitted’.
[24]
Thus, while it has always been acknowledged that the rule in
Foss
v Harbottle
is not inflexible, the
judicial approach to entertaining derivative proceedings in
circumstances not falling within the recognised
exceptions to it has
been restrained.)
[29]
The question of whether the English law in
respect of derivative actions had been adopted as part of our common
law was left open
by the Appellate Division in
Hill
Family Trust
supra.  Having
concluded that the proceedings in that matter did not on the facts of
the case fall ‘
within the
exception in English law to the rule in Foss v Harbottle
’,
the Court (at p.98B) held it to have been ‘
unnecessary
to consider the further point … whether (apart from the
statutory remedy provided by s 266 of the Companies
Act 61 of
1973) the common law exception to the rule in Foss v Harbottle forms
part of South African law
’.
[25]
[30]
Subsequent
decisions of the Supreme Court of Appeal appear, however, to have
accepted, without discussion, that the common law exception
did form
part of our law.
[26]
I think it is fair to infer in the circumstances that the rule in
Foss v Harbottle
and the exceptions to it recognised in the English jurisprudence
represent our common law on derivative actions.  Section 165

of the 2008 therefore falls to be construed as abolishing the
exceptions to the rule in
Foss v
Harbottle
imported into our law in the
form they exist in the English common law and substituting them in
codified form.
[31]
The following passage in the judgment of
Jenkins LJ in
Edwards v Halliwell
supra, at 1067 (All ER) appears to command universal respect in the
English jurisprudence as an accurate statement of the scope
of the
exceptions to the rule in
Foss v
Harbottle
:
The cases falling within the general ambit of the rule
are subject to certain exceptions. It has been noted in the course of
argument
that in cases where the act complained of is wholly
ultra
vires
the company or association the rule has no application
because there is no question of the transaction being confirmed by
any majority.
It has been further pointed out that where what has
been done amounts to what is generally called in these cases a fraud
on the
minority and the wrongdoers are themselves in control of the
company, the rule is relaxed in favour of the aggrieved minority who

are allowed to bring what is known as a minority shareholders’
action on behalf of themselves and all others. The reason
for this is
that, if they were denied that right, their grievance could never
reach the court because the wrongdoers themselves,
being in control,
would not allow the company to sue. Those exceptions are not directly
in point in this case, but they show, especially
the last one, that
the rule is not an inflexible rule and it will be relaxed where
necessary in the interests of justice.
There is a further exception which seems to me to touch
this case directly. That is the exception noted by Romer J in
Cotter
v National Union of Seamen
[[1929]
2 Ch. 58].
He pointed out that
the rule did not prevent an individual member from suing if the
matter in respect of which he was suing was
one which could validly
be done or sanctioned, not by a simple majority of the members of the
company or association, but only
by some special majority, as, for
instance, in the case of a limited company under the Companies Act, a
special resolution duly
passed as such. As Romer J pointed out, the
reason for that exception is clear, because otherwise, if the rule
were applied in
its full rigour, a company which, by its directors,
had broken its own regulations by doing something without a special
resolution
which could only be done validly by a special resolution
could assert that it alone was the proper plaintiff in any consequent
action and the effect would be to allow a company acting in breach of
its articles to do de facto by ordinary resolution that which

according to its own regulations could only be done by special
resolution.
In
Prudential Assurance
supra, at p. 211b (Chancery
Report), the Court of Appeal (Cumming-Bruce, Templeman and Brightman
LJJ writing jointly) remarked
on the reason for existence of the
derivative action as a relaxation of the rule in
Foss v Harbottle
as being that if the aggrieved minority shareholders were denied the
right to approach the court ‘
on behalf of themselves and all
others
’ ‘
their grievance could never reach the
court because the wrongdoers themselves, being in control, would not
allow the company to
sue
’.  There is nothing to be
found in s 165 of the 2008 Companies Act that alters the
essential rationale for derivative
proceedings.  It permits the
institution or continuance of proceedings in a company’s best
interests in circumstances
in which the company is refraining from
acting on its own initiative, and which would, for that reason,
otherwise not reach the
court.
[32]
Section 165 of the 2008 Companies Act also
serves to replace the statutory supplement to the common law that
used to be afforded
in terms of s 266 of the Companies Act 61 of
1973.
[27]
In certain respects the new provision reintroduces, as generally
applicable to derivative actions, various procedural aspects
that
were special to the statutory provision under the earlier Act.  For
example, (i) that derivative proceedings were
preceded by an
independent investigation, (ii) that the derivative proceedings
could only be prosecuted with the leave of
the court, (iii) that
the proceedings were conducted in the company’s name, not that
of the litigant who instituted
them and (iv) that, once
commenced, the proceedings could only be settled or withdrawn with
the leave of the court.
In all these respects the statutory
regime under both Acts differs from the position obtaining under the
common law.  All
of these aspects introduced by the statutory
regime serve to emphasise and confirm that the modern derivative
action is effectively
litigation conducted for a company by a
representative litigant under the court’s authority.  It
is not a vehicle for
a litigant to assert or protect his or her own
legal interests using the company’s name and legal personality.
[33]
One of the most obviously reformative
aspects of s 165 of the 2008 Companies Act is that standing to
bring derivative actions
is afforded more widely than it appears to
have been under the common law.  Standing is afforded under
s 165 also to
directors, employee representatives and any other
person who might obtain the court’s leave to proceed
derivatively.
The provisions which give standing to directors
and employee representatives are no doubt reflective of the modern
recognition
that persons other than shareholders have a legitimate
and cognisable interest in the assertion or defence of a company’s

legal interests in its best interests.  Thus, for example,
whilst the majority of shareholders might be prepared to condone
loss
occasioned to a company due to the negligent conduct of its
directors, employees faced with resultant redundancy or wage cuts

might have a different view and be able to persuade a court that
objectively it would be in the company’s best interests
to seek
redress against the negligent directors.
[34]
The common law requirement that a person
seeking to litigate derivatively show that the wrongdoers’
control of the company
was being exercised to thwart the company
taking action itself (
Pavlides v Jensen
[1956] Ch 565)
is significantly watered down in the codified version
of the law substituted in terms of s 165.  Section 165
of
the 2008 Companies Act requires no more than that the company has
been given the opportunity to institute the action itself.
It
is not necessary to show that the wrongdoers control the company’s
decision-making mechanism.  But that effect is
materially
counterbalanced by the provisions of s 165(5), which has
introduced a generally applicable requirement that a derivative

action may be instituted only with the court’s leave, and also
by the presumption created in s 165(7).  Before
it can
grant leave for the institution or continuation of proceedings
derivatively, a court must be satisfied, amongst other things,
that
it would be in the best interests of the company.
[28]
[35]
The continued significance in the context
of the new statutory regime of the ‘majority rule’
concept in corporate governance
(cf.
Sammel
and Others v President Brand Gold Mining Co Ltd
1969 (3) SA 629
(A) at 678H-679C) is evident in s 165(7),
[29]
which, if various things are established, including that the company
has decided not to bring or defend the proceedings, raises
a
rebuttable presumption against any person applying for leave to
institute or defend an action derivatively in which a ‘
third
party
’ is the defendant or
plaintiff, as the case might be, that the proceedings would not be in
the best interests of the company.
[36]
A ‘
third
party
’ is anyone who is not
related or inter-related to the company.  What is meant by a
relationship or inter-relationship
in this context is determined by
s 2 of the Act.  A natural person is related to a company
if he or she is in a position
to control it.  Control is
determined essentially with reference to the exercise of majority
voting rights associated with
the securities of a company.
[37]
The definition of ‘
third
parties
’ (see s 165(8)
[30]
and s 2(1)(b)
[31]
of the 2008 Companies Act) would appear to include the four directors
Woollam contends should be declared delinquent in the current
case.
This is so because it is evident that they are not able, individually
or collectively, to control the exercise of a
majority of the voting
rights associated with securities of the company, or control the
appointment or election of its directors.
[32]
[38]
Professor Cassim argues (op. cit. supra, at
pp. 107-109
[33]
)
that the aforementioned effect of sub-secs 165(7) and (8) is a
‘most disturbing’ weakness in the Act ‘as
it
overlooks the cardinal point that derivative actions in the majority
of cases are brought to protect the company against its
own errant
directors’.
[34]
In my view, the effect of the provisions amounts to no than a
reiteration, albeit in a notably diluted form, of the common
law
requirement that control of the company by the alleged wrongdoers had
to be established by the person who chose to litigate
derivatively.
It is but one of several indicators in s 165 of an intention by
the legislature to keep the codified derivative
action remedy within
recognisably similar bounds to those that delimit its availability
under the common law.  In other words,
unless it is shown that
those in control of the company are for reasons to their own
advantage but adverse to the company’s
best interests thwarting
action being taken by the company, there is a presumption that leave
to proceed derivatively should not
be granted when the company elects
not to proceed against a ‘third party’.
[39]
In considering the preliminary question it
is striking to note the absence of any express provision in s 165
affording standing
to bring derivative proceedings to certain parties
who are afforded standing to apply for declarations of delinquency
under s 162,
namely the Companies and Intellectual Property
Commission,
[35]
the Takeover Regulation Panel
[36]
and other organs of state responsible for the administration of any
legislation.
[37]
In my view, the discrete and distinctive standing provisions under
the two sections are indicative of a conscious distinction
by the
legislature between the concept of the legal interests of a
particular company, to which proceedings in terms of s 165

relate, and that of the protection of the public interest that is the
acknowledged object of s 162.
[38]
So, for example, repeated and serious infractions by a company of the
National Credit Act or of the accounting standard requirements
of the
Companies Act – matters which lie at the heart of Woollam’s
allegations – might make the National Credit
Regulator or the
Companies Commission institute proceedings in terms of s 162
against the responsible directors.  They
would have standing
under that provision, but they could not purport to use s 165.
This serves to illustrate that in
proceedings in terms of s 162,
it is not the ‘legal interests’ of the company in the
sense comprehended by s 165(2)
that are engaged.
[40]
It
is significant that the evident object of s 162 goes essentially
to the provision of a protective remedy in the public interest,
and
it is only incidentally that the provision can in some circumstances
operate arising out of a wrong done to an individual company.
[39]
In
Gihwala
supra,
at para 142, the purpose of the provision was described as being
‘
to protect the investing public,
whether sophisticated or unsophisticated, against the type of conduct
that leads to an order of
delinquency, and to protect those who deal
with companies against the misconduct of delinquent directors
’.
[40]
Its protective object was given as ‘…
to
ensure that those who invest in companies, big or small, are
protected against directors who engage in serious misconduct of
the
type described in these sections. That is conduct that breaches the
bond of trust that shareholders have in the people they
appoint to
the board of directors. Directors who show themselves unworthy of
that trust are declared delinquent and excluded from
the office of
director. It protects those who deal with companies by seeking to
ensure that the management of those companies is
in fit hands. And it
is required in the public interest that those who enjoy the benefits
of incorporation and limited liability
should not abuse their
position
’.
[41]
[41]
The remedy bears on the public law status
of the allegedly delinquent person rather than the assertion of a
company’s individual
rights, and the purpose, as Wallis JA
observed in
Gihwala
,
is the protection, in the public interest, of those who deal with
companies. Indeed, tellingly, the experience in Britain appears
to be
that disqualification proceedings often arise out of the conduct of
the affected director in relation to more than one company;
see
Wadge
Rapps & Hunt
supra, at para. 71.
That the remedy goes to the affected director’s status is
supported by the observations about
disqualification orders by Kirby
J in his minority judgment in
Rich v
ASIC
supra, at paras. 104-105:
Disqualification
from corporate management was a
quid
pro quo
for
the trust essential to the enjoyment of the powers and privileges of
that position. Because corporations are creatures of statute,
as are
their officers, the entitlement of corporate governance is a
statutory privilege. It is inherently susceptible to variation
or
withdrawal upon demonstrated unfitness to enjoy that privilege. An
impact of that withdrawal on the person affected is inescapable.

However, that impact does not give the disqualification order its
character
.
That character derives from the regulation of corporations and of the
officers whom the community permits to hold themselves out
to the
world as fit managers of shareholders' funds, entitled as such to the
confidence of investors, employees, traders and the
community
generally.
People
such as the appellants (or anyone else for that matter) have no right
to be involved in company management. It is a statutory
privilege
to be earned each day. That
privilege may be withdrawn for misconduct but also for incompetent,
improper or lax activities in the
functions of corporate management.
Given the critical importance of the good management of corporations
for investors, employees,
traders, the nation and the wider world,
the
[Australian
Corporations]
Act,
like its 1928 predecessor in Britain, has provided for the removal
from corporate management of persons guilty of repeated

contraventions of the Act.
’
(Emphasis in the original.)
[42]
Section 162 is directed at ensuring that
persons guilty of specified serious misconduct or serial
non-compliers with applicable
regulatory legislation are disqualified
from holding office as directors of
any
companies, or, if the court considers it appropriate to limit the
extent of the declaration, specified categories of companies.
[42]
Thus, in the case of the fourth respondent, the declaration that
Woollam contends should be sought would have the effect
of
terminating his appointment not only as a director of the applicant
company and one of its subsidiaries, but also of nine other

companies, some of which are listed and none of which appear to be
related to the applicant.  It would also disqualify him
from
assuming office as a director of any company whatsoever for at least
seven years from the date of the order.  There is
nothing
peculiarly in the applicant company’s legal interests about
that, which would not equally be in the interests of
any other member
of the public exposed to dealing with any company of which the fourth
respondent currently is a director, or might
in the future become
one.  The right given to the company to make an application in
terms of s 162 is therefore not to
act in its own legal
interests (which it is able to address in terms of s 71 of the
Act), but in the public interest.
This is demonstrated by the
fact that a company may remove a director in terms of s 71, and
thereafter
proceed for a declaration of delinquency against the person concerned
notwithstanding that he or she would by then no longer be
involved in
the administration of the company.  The proceedings under s 162
are discrete from the remedies that the company
might also seek to
exact against the delinquent in respect of its own legal interests by
seeking compensation for any harm inflicted
on the company.  It
is in respect of the latter remedies that a shareholder might obtain
leave to act derivatively, if appropriate.
[43]
The right of the shareholder that is
afforded protection in terms of s 162 is not a right of the
company; it is the separate
and personal right that each and every
shareholder enjoys individually as an investor to take action to
ensure that the management
of companies in general is kept in fit
hands.  The personal nature of the right, which falls to be
exercised by a shareholder
when there has been a serious breach of
what Wallis JA called the ‘bond of trust’ between a
shareholder and the company’s
directors,
[43]
is demonstrated by the consideration that a declaration of
delinquency obtained by a shareholder in company
A
will also ordinarily result in the disqualification of the director
concerned as a director of companies
B
and
C
,
even though it might be practically impossible for those others
companies to continue in business without him.  Indeed, even
the
best interests of company
A
would not stand in the way of a ability of shareholder of that
company to have a director of the company declared delinquent if
the
shareholder were able to prove misconduct by the director in respect
of the management of company
A
that showed that it would be in the public interest to have the
director declared delinquent.  In other words, considerations

that are pivotal in any application for leave to act derivatively in
terms of s 165 do not bear at all on proceedings in terms
of
s 162.
[44]
A shareholder proceeding personally in
terms of s 162 is also not required to satisfy the court that a
declaration of delinquency
of the director concerned entailed ‘a
serious question of material consequence to the company’.
Nor is he or
she required to serve a demand in terms of s 165(2)
on any of the other companies of which the director concerned also
serves
as a director, notwithstanding that in the context of
egregious misconduct by the director necessitating the protection of
persons
dealing with companies in general being the rationale for the
remedy, the legal interests of such other companies in the obtaining

of a protective order would be indistinguishable from that of the
company on which a demand would have to be served.
[45]
Moreover, the investigation procedure
contemplated in s 165(4) would be likely to give rise to an
intractable conflict of interest
situation when it is not the
interests of the company, but the personal status of the directors
themselves that is in issue.
The directors, who might
constitute a number required to make up that needed for a quorate
meeting of the board,
[44]
would probably be required to recuse themselves, thus putting the
company in a position in which it was not able to decide whether
to
proceed itself or not.  A decision by the company that it will
not proceed is a
sine qua non
to the institution of a derivative action.  The preliminary
procedures in terms of s 165 are just not well suited to

proceedings by shareholders for the declaration of the directors as
delinquent.
[46]
There would also be something paradoxical
in the notion that a shareholder could put a company to the trouble
and expense of commissioning
an investigation and thereafter be
refused leave by a court in terms of s 165(5) to proceed
derivatively, only to be able
to proceed personally for the relief
regardless.  The antinomy that is inherent in the construction
of the legislation contended
for by the first respondent’s
counsel is unlikely to have been intended by the legislature.
[47]
The purpose of the demand and the
contemplated ensuing investigation is to provide a filter.  The
leave that a person seeking
to litigate derivatively must obtain in
terms of s 165(5) serves a similar purpose.  I think it is
important in this
respect to acknowledge that the evident purpose of
the demand and investigation is to give
the
company
the opportunity to make a
properly informed decision whether to litigate itself.  It is
significant in this respect that the
investigator’s report
falls to be submitted to the company’s board of directors, not
to the complainant.  The
statutorily mandated investigation is
not intended to provide a mechanism for disgruntled parties to launch
a fishing expedition
for facts to found an action. On the contrary a
complainant who is unable in its demand to set forth with cogency,
albeit not necessarily
with the precision required for pleading it, a
basis for the company to institute or continue with the contemplated
proceedings
would be acting vexatiously.  The inbuilt filtering
process, with its attendant impositions on the company and the court,
is an entirely redundant exercise, however, if the intending litigant
is able to proceed for the relief sought regardless of its
outcome.
There is no inbuilt filtering process for proceedings in
terms of s 162.
[48]
The right given by s 162(2) to
shareholders to apply personally for a declaration of delinquency is
exactly co-extensive with
the standing afforded to companies under
the same provision.  Treating of a situation in which the same
wrongful act was both
a wrong to the company and a wrong to each
individual shareholder the Ontario Court of Appeal stated, in
Goldex
Mines Ltd. v. Revill
(1974)
1974
CanLII 433 (ON CA)
, 7 O.R. (2d)
216:
In one sense every injury to a company is indirectly
an injury to its shareholders. On the other hand, if one applies the
test:
“
Is this wrongful act one in
respect of which the company could sue?", a shareholder who is
personally and directly injured
must surely be entitled to say, as a
matter of logic, "the company cannot sue for my injury; it can
only sue for its own”.
The
corollary must surely be that when both the company and the
shareholder have the same standing to sue for the same relief on
the
basis of the same facts the company must be entitled to say the
shareholder has no need in the interests of justice to litigate
in
the corporation’s name when he can do so in his own.  In
Goldex Mines
the court answered the question ‘
Where
the same acts of directors or of shareholders cause damage to the
company and also to shareholders or a class of them, is
a
shareholder's cause of action for the wrong done to him derivative?
’
in the negative.
[45]
[49]
A delinquency declaration being the remedy
ultimately sought by Woollam, it bears remembering that the duty of
company directors
to act honestly and in accordance with their
fiduciary duties to the company is owed not only to the company, but
also to the shareholders
personally.
[46]
That is borne out by the provisions of s 218(2) of the Act
(accepting, of course, that a shareholder could not claim
under that
provision for so-called ‘reflective loss’ because that
would expose the directors to double jeopardy); cf. also
Grancy
Property Limited and Another v Gihwala and Others; In Re: Grancy
Property Limited and Another v Gihwala and Others
[2014] ZAWCHC 97
, at para. 104.  These considerations
afford further indications that it is not within the scheme of the
Act that shareholders
should ordinarily seek to proceed derivatively
to obtain the remedy available in terms of s 162.  The
rationale for derivative
proceedings, whether under the common law or
in terms of s 165 of the 2008 Companies Act, is to afford a
means, in the interest
of justice, for redress to be obtained where
‘the proper (corporate) plaintiff’ declines to seek it.
The rationale
for derivative proceedings is absent when the person
who would otherwise be done an injustice by reason of ‘the
proper plaintiff’s’
failure to act has personal standing
to seek the indicated relief.
[47]
[50]
The qualification ‘ordinarily’
was inserted in the preceding paragraph because, notwithstanding the
reasons I have given
for finding that standing to litigate
derivatively is generally not indicated when the litigant has
standing to obtain its remedy
by litigating personally, the language
of ss 162 and 165 read together does not expressly exclude the
use of the derivative
action procedure in s 162 proceedings.
It is not inconceivable that, exceptionally, it might be appropriate
in certain
circumstances.  It would be appropriate, in
construing the Act in accordance with the precepts of ss 5 and 7
thereof,
to recognise as much.
[51]
An example that suggests itself as a
possibility is a case in which the company has already instituted
proceedings for a declaration
of delinquency, but for reasons that do
bear scrutiny has failed to prosecute them to conclusion.  In
those circumstances
the best interests of the company might be served
by the continuation of the proceedings derivatively.  The costs
incurred
by the company in taking the case to the stage that had been
reached when proceedings had stalled would be squandered were the
complainant shareholder to initiate proceedings afresh for the same
relief on the same facts in its own name.  A sensible basis
in
the company’s best interests for the granting of derivative
standing to a shareholder could conceivably be demonstrable
in the
postulated example.
[52]
There is nothing, however, in the nature of
Woollam’s complaints or the content of his demand to indicate
why he should be
allowed to proceed derivatively for relief that he
is able to claim personally.  In my judgement, for the reasons
discussed,
that shows that his resort to s 165 of the 2008
Companies Act is vexatious in the circumstances.
[53]
But even were I wrong in that conclusion,
it is also clear that there is no merit in Woollam’s demand to
have the second to
fifth respondents declared as delinquent persons
at the instance of the company.  As mentioned, to succeed in
showing that
the company had the makings of a cognisable claim to
declarations of delinquency against its directors Woollam would have
to qualify
the complaints against them set out in his demand as
falling within the ambit of s 162(5)(c).  To determine
whether he
has succeeded in doing that, the court has to assess the
content of his demand in the context of the evidence adduced in the
proceedings
in terms of s 165(3) to have it set aside; see
Amdocs
SA
Joint Enterprise (Pty) Ltd v Kwezi Technologies (Pty) Ltd
2014
(5) SA 532
(GJ), at para. 15.  It bears noting, however, that
making out a cognisable claim does not require of the complainant to
demonstrate
in his demand that the claim enjoys good prospects of
success.
[54]
At para. 15 of
Amdocs
SA
, GS Myburgh AJ remarked that the
‘
applicant bears the onus in this
regard and the absence of merit must be clearly shown
’
and at para. 17 he added, ‘[t]
he
threshold which a complainant has to cross is a low one.
Conversely, the onus and burden of persuasion which an applicant
for
relief in terms of s 165(3) bears is a rather heavy one
’.
With respect, I consider that, to an extent, these statements might
conduce to the wrong approach.
[55]
It is correct that the onus in an application in
terms of s 165(3) is on the company.  The nature of the
onus is that
which ordinarily applies in civil litigation.  The
company must prove on a balance of probability that the demand is
frivolous,
vexatious or without merit.  ‘Heaviness’
does not enter the equation; there is no presumption in favour of the

complainant that its demand is
not
frivolous, vexatious or without merit, anymore than there is one in
favour of the company that it
is
.
The statutory provisions do not give rise to any inherent probability
one way or the other.  It is usually only in
situations where
there is an inherent probability in favour of, or against, some
proposition that the courts pronounce that ‘clear’

evidence is required to displace the effect.  Consider in this
regard the observations of Watermeyer JA in
Gates
v Gates
1939 AD 150
, at p. 155:
I
t
is true that in certain cases[,] more especially in those in which
charges of criminal or immoral conduct are made, it has repeatedly

been said that such charges must be proved by the “clearest”
evidence or “clear and satisfactory” evidence
or “clear
and convincing” evidence, or some similar phrase. There is not,
however, in truth any variation in the standard
of proof required in
such cases. The requirement is still proof sufficient to carry
conviction to a reasonable mind, but the reasonable
mind is not so
easily convinced in such cases because in a civilised community there
are moral and legal sanctions against immoral
and criminal conduct
and consequently probabilities against such conduct are stronger than
they are against conduct which is not
immoral or criminal.
[56]
Similarly, there is no special dispensation
in favour of complainants - as the reference to ‘a low
threshold’ might
suggest - when it comes to considering the
cogency of a demand in terms of s 165(2).  I agree with the
learned acting
judge’s statement (at para. 17) that the court
will not expect a demand to necessarily comply with the formal
requirements
of a pleading, but if it is to withstand a challenge
based on an allegation that it is without merit, it will have to make
out
the basis of a cognisable claim (or defence) by the company in
respect of the matter that the complainant would wish to pursue
derivatively should the company not do so directly.  Section 165
does not expressly prescribe the requirements a demand must
meet, but
the implication that it must coherently make out a cognisable case is
evident in the provision that the demand constitutes
the framework
for the (conceivably costly) independent investigation that the
company is expected to commission upon its receipt.
The
investigation is not intended to ascertain whether a case might be
found; it is to investigate the merits of the case alleged
by the
complainant and the viability of the company pursuing
that
case.
[48]
[57]
Turning then to consider the demand.
First ground of complaint
[58]
As to the first complaint in Woollam’s
demand:  It is common ground that loss of employment insurance
was sold to some
customers of Lewis Stores (Pty) Ltd who were
pensioners or self-employed persons and thus had no insurable
interest.  It is
also not in dispute that the resulting revenue,
which should not have been generated, had been reflected in the
applicant’s
group consolidated financial statements.
Woollam identified the problem in a paper, entitled
Lewis
Group – Fact or Fiction
, that he
circulated to the media and to the applicant’s major
shareholders in July 2015.  The report and attendant complaint

by Woollam’s company, Summit Financial Partners (Pty) Ltd
(‘Summit’), to the National Credit Regulator prompted
an
investigation by the applicant company, which confirmed the existence
of the problem and led to the institution of remedial
measures,
including the repayment of the premiums together with interest.
Capital repayments in this respect amounted to
less than one per cent
of the premiums that the company had received over the relevant
period.
[59]
Woollam is unable to controvert the
evidence that the applicant has adduced on oath by one of its
directors - whose fitness to hold
the office he has not sought to
impugn - that this has happened because of erroneous data capturing
by personnel in the shops where
the transactions concerned were
processed.  If the data had been correctly captured, the
computer program used for the processing
of the proposals for
insurance would automatically have excluded their acceptance.
Consequent upon the identification of the problem,
the applicant has,
according to the deponent to the founding affidavit, commissioned
improvements to its information technology
system and put in place
measures to enhance staff training.  It has also established a
call centre that interviews applicants
for credit and verifies the
particulars about them captured on the electronic data base.
[60]
Whether the applicant or its subsidiary
should be sanctioned for what has happened is a question that has
been under consideration
by the relevant statutory authorities in
terms of the
National Credit Act 34 of 2005
.  Woollam is
critical of the content of the response given by the third
respondent, who is an executive director of Lewis
Stores (Pty) Ltd,
in the answering affidavit before the National Credit Tribunal.
He says it concentrated on technical reasons
why the Tribunal should
not consider the complaint, rather than giving answers to questions
such as whether the employees concerned
in the transactions had been
identified and disciplined, and how much of the amount falling to be
repaid to customers had been
settled.  He was equally critical
of the failure of the second, fourth and fifth respondents to furnish
that information.
There is no suggestion that regulator has
considered proceedings against any of the applicant’s
directors.  It was the
subsidiary company - and not any of the
applicant’s directors – that was referred by the National
Credit Regulator
to the National Credit Tribunal.
[61]
Most pertinently, there is nothing in the
body of Woollam’s demand, or the evidence before court in the
current proceedings
to connect any of the four directors singled out
in the demand with the incidents of insurance being sold by the
subsidiary company
to persons who did not qualify for it.  The
fourth and fifth respondents are not even directors of Lewis Stores
(Pty) Ltd.
Woollam’s demand does not make out a prima
facie case of dishonest or grossly negligent conduct by the directors
concerned.
It does not show that any of them was guilty of
wilful misconduct.  On the contrary, the evidence shows that
upon being alerted
to the issue, the applicant’s board acted
quickly and responsibly to address it.  Pertinently, there is
nothing in the
demand to explain why certain non-executive directors
on the applicant’s board have been targeted in the demand, and
the
others not.  On its face that is indicative of
vexatiousness, but I do not find it necessary to make a determination
in that
regard.
[62]
In short, Woollam has not qualified his
complaint against the second to fifth respondents as falling within
the categories of conduct
described in s 162(5)(c) of the 2008
Companies Act.
[49]
That means it is without merit.
Second ground of complaint
[63]
It is not in dispute that in the majority
of transactions concluded by Lewis Stores (Pty) Ltd the customer
purchases an extended
product warranty.  The applicant has
adduced evidence that this is not compulsory, however.  This is
borne out by the
evidence, which Woollam has not been able to
controvert, that the extended product warranty has not been purchased
in more than
a quarter of the millions of transactions concluded by
the company.  Woollam contends that the practice of selling the
extended
product warranty is unconscionable in many cases because the
manufacturer in any event often provides a product warranty that
extends
for longer than the standard one-year warranty that Lewis
Stores stipulates must be provided by all its suppliers.  The
applicant
has countered that the extended warranty operates from the
expiry of the warranty provided by the supplier.
[64]
Woollam’s complaint is that the Lewis
Stores (Pty) Ltd’s conduct in respect of the sale of extended
product warranties
contravenes
s 102
of the
National Credit
Act.  Despite
the attention drawn to it, this issue does not,
however, appear to have been referred to the National Credit Tribunal
by the National
Credit Regulator.
[65]
For the purposes of the present matter no
more need be said than that none of the matters raised in Woollam’s
second ground
of complaint implicates conduct by any of the directors
falling within the scope of s 162(5)(c) of the 2008 Companies
Act.
His allegations do not merit an investigation by the
company into the question whether it should apply for declarations of
delinquency
against the second to fifth respondents.
Third Ground of complaint
[66]
It is common ground that Lewis Stores (Pty)
Ltd charges first-time purchasers on credit a delivery (or
‘handling’) fee,
even in respect of goods in respect of
which delivery would not ordinarily be required because the goods are
of a type that could
easily be carried out of the store by the
customer.  The evidence adduced by the applicant is that this is
done because it
is considered necessary to confirm the physical
address given by the first-time credit customer.  Having regard
to the notice-to-consumer
requirements imposed on credit providers in
terms of the
National Credit Act before
they are able to prosecute
enforcement proceedings in the event of default, the concern of Lewis
Stores (Pty) Ltd to verify the
addresses of its credit customers is
understandable.  Whether its means of doing so entails making a
prohibited charge within
the meaning of
s 100
of the
National
Credit Act, as
alleged by Woollam in his demand, does not fall for
determination in these proceedings.  The matter was referred by
Woollam’s
company, Summit, to the National Credit Regulator,
which reportedly has not seen fit to refer the practice to the
National Credit
Tribunal.  It suffices for present purposes to
hold that even if it did, that would not make out a case of fraud
against the
subsidiary company.  Even less, would it follow that
the four directors of the holding company singled out by Woollam for
the purposes of proceedings in terms of s 162 of the 2008
Companies Act were thereby guilty of the sort of conduct referred
to
in s 162(5)(c) of that Act.
Fourth ground of complaint
[67]
It will be recalled that the fourth ground
of complaint stated in Woollam’s demand was that the company’s
accounts had
for many years appeared to overstate revenue from the
sale of credit protection insurance policies.  I do not find it
necessary
for present purposes to provide the detail of Woollam’s
complaint in this respect.  Suffice it to say that it arose from

the accounting implications of the manner in which the Lewis Group
had responded to the introduction of the requirement in terms
of the
National Credit Act that
credit protection insurance policies must
provide for the monthly payment of premiums by credit receivers.
Prior to the commencement
of the Act, Lewis had debited the
customer’s account upfront for the insurance cover for the
entire executory period of the
instalment transaction, and
capitalised the one-off premium as part of the principal debt.
Lewis’s response to the
requirement introduced by
s 106(4)(b)
of the
National Credit Act had
been to structure the financial
aspects of the group’s credit protection insurance business
through a system of inter-company
transactions between Lewis Stores
and Monarch Insurance.
[68]
Woollam described the structure of the
inter-company transactions as follows in the first of his
aforementioned reports, written
on 22 June 2015:
§
Lewis Stores
pays a single upfront “premium” to Monarch Insurance on
behalf of the customer on day 1 of the transaction,
without the
explicit knowledge or approval of the customer.  It records this
transaction in the books of Lewis Stores in an
“Insurance
Prepaid Suspense A/C”, since it could not charge this premium
to the actual debtor’s account.
Monarch Insurance would
record this as a premium received.
§
Monarch
Insurance then pays Lewis Stores a broker commission of 20% on this
single insurance premium, which is recorded as an expense
in Monarch
and income in Lewis Stores.  Monarch also pays Lewis Stores a
binder fee of a further 25% of the premiums received
as compensation
for administering the policy.
§
Monarch
reinsures 40% of the policy risks with Constantia Insurance Company
Ltd. under a proportional reinsurance treaty and pays
40% of the
premiums received from Lewis Stores to the reinsurer.
§
The reinsurer
pays Monarch a commission on these premiums of 35%.
§
In terms of the
reinsurance treaty, the reinsurer pays a “profit commission”
on the balance of the premiums received
after deducting proportional
claims paid and a small margin (estimated to be around 2,5%).
Monarch records this “profit
commission” as income in its
books.
§
Monarch creates
an unearned premium reserve and it would appear that this reserve is
based on the net premiums received from Lewis
Stores net of
reinsurance.
§
Lewis Stores then
collects the monthly premiums from the customer and credits the
Insurance Prepaid Suspense A/C.
Woollam directed a number of criticisms at this business arrangement,
including at what he considered to be its commercial and
tax
inefficiency.  For present purposes the essence of his complaint
was that the practice resulted in the recognition of
a portion of the
profits earned on the premiums upfront rather than evenly over the
period that the customer paid them
[69]
Woollam raised this issue with the third
respondent and in the two reports he wrote, titled
Lewis
Group – Fact or Fiction?
and
Lewis Group – The Emperor’s
New Clothes
, and made available to the
investing public in the lead-up to the applicant’s annual
general meeting in August 2015.
(Woollam actually purchased his
first few shares in the applicant company on 26 June 2015 after
he had written the first of
his aforementioned reports, dated 22 June
2015.)
[70]
The applicant responded to the first
report, which appeared to impact adversely on the applicant’s
share price, in a SENS
statement issued on 7 August 2015.  The
statement assured investors that the directors were satisfied that
the consolidated
financial statements of the group fairly represented
the group’s financial position and performance and had been
prepared
in compliance with the International Financial Reporting
Standards, as required by the Companies Act.  The relevant part
of
the SENS statement went as follows:
Following consideration of allegations regarding certain
of the group’s accounting treatments, particularly re-insurance
profit
commission and ancillary services, the directors are of the
view that the consolidated financial statements present fairly in all

material respects, the consolidated financial position and
performance of the Lewis Group in accordance with International
Financial
Reporting Standards (“IFRS”).
The consolidated financial statements of Lewis Group
Ltd. in respect of the 2015 financial year have been audited by
PricewaterhouseCoopers
Inc., the group’s auditors, who have
expressed an opinion that the consolidated financial statements
present fairly, in all
material respects, the consolidated financial
position of Lewis Group Ltd. as at 31 March 2015 and its consolidated
financial performance
for the year then ended in accordance with IFRS
and the requirements of the Companies Act of South Africa.
These
audited financial statements have not been amended subsequent to the
aforementioned allegations being made.
[71]
Woollam wrote the second of his
aforementioned reports, dated 9 August 2015, in response to the
publication of the SENS statement.
In it, amongst other things,
he set out 11 questions that he indicated he intended to pose about
credit protection insurance at
the upcoming annual general meeting.
[72]
The SENS statement was issued after the
applicant’s board of directors had specially considered
Woollam’s allegations
and sought advice from the company’s
external auditors, PricewaterhouseCoopers (‘PwC’).
It went further
and obtained confirmation of the advice that it had
been given from PwC’s technical committee.  It was on the
basis
of the professional advice that the board had obtained that the
financial statements were submitted to the company’s annual

general meeting on 14 August 2015.
[73]
Nevertheless, after the annual general
meeting, which Woollam attended and at which he vocally persisted
with his criticisms, the
applicant’s board appointed a
sub-committee charged with reviewing the company’s accounting
policies.  The review
was undertaken in conjunction with PwC.
Certain flaws were identified and remedial revisions to the company’s
accounting
policies were implemented.  This gave rise to the
restatement of certain aspects of the company’s 2015 results
and those
of preceding years.  These were reported as part of
the unaudited half year results published on 9 November 2015.

The effect of the adjustments was that the company’s reported
earnings per share for the year ended 31 March 2015 were reduced
from
944.8c per share to 907.5c per share and headline earnings per share
from 882.7c per share to 845.3c per share.
[74]
The Johannesburg Securities Exchange
enquired into the circumstances of the adjustment of the group’s
results and appears
to have been satisfied with the explanations
provided by the applicant.
[75]
The revisions to the applicant’s
accounting policies in a sense vindicated some of the concerns voiced
by Woollam in the reports
he published before the annual general
meeting and at the meeting itself, although the effect on the
restated figures was of a
much lesser extent than he had propounded
.  That the board defended itself against Woollam’s
allegations at the annual
general meeting, whilst subsequently
effectively conceding that he had in fact been making some valid
points, does not, however,
make out a case for delinquency.
[76]
The unrebutted evidence is that the board’s
position - articulated at the meeting by the fourth respondent in his
capacity
as non-executive chairman - was premised on advice specially
obtained for the purpose from the company’s external auditors.

It bears emphasis in this connection that the 2008 Companies Act
expressly contemplates that directors are entitled to rely in
good
faith on any information, opinions, recommendations, reports or
statements, including
financial
statement
s and other financial
data, prepared or presented by qualified employees of the company and
legal counsel, accountants, or other
professional persons retained by
the company, the board or a committee as to matters involving skills
or expertise that the directors
reasonably believe are matters within
the particular person’s professional or expert competence.
[50]
Indeed, I would find it surprising if non-executive directors of a
public company carrying on business on the scale that
the applicant’s
subsidiary operating companies do would find it possible to discharge
their duties other than with material
reliance on such inputs and
advice.
[77]
That the board should, after the annual
general meeting, have commissioned a special investigation into the
appropriateness of the
company’s accounting policies, adopted
its recommendations and consequently published adjusted financial
results is completely
irreconcilable with fraudulent or grossly
negligent behaviour on the directors’ part.
Fifth ground of complaint
[78]
Woollam’s fifth ground of complaint
was related to a matter he raised with the third respondent at the
annual general meeting.
It related to his allegation that the
company had inappropriate revenue recognition policies with regard to
extended product warranties,
which resulted in the on-going
overstatement of reported revenue.
[79]
Woollam had asked whether the income
generated from the sale of extended product warranties was amortised
to the group’s income
statement from the date of sale or from
the date of expiry of the manufacturer’s warranty.  The
third respondent informed
him that it was the latter.  When the
third respondent gave the answer at the meeting he had sought and
received confirmation
from the PwC audit partner who was present that
he was answering correctly.  The answer was, however,
subsequently discovered
to have been incorrect, and the true position
was made apparent when the adjusted results were published in
November 2015.
Indeed, one of the changes in accounting policy
instituted after the aforementioned review was to amortise the income
from the
date of the expiry of the manufacturer’s warranty
instead of from the date of sale of the dealer’s extended
warranty.
The effect was to slightly reduce the group’s
reported income for the periods in question.  The reduction in
reported
income did not, however, have a material effect on the
company’s financial position as reported at the meeting.
[80]
Woollam has accused the third respondent
and the unnamed partner of PwC who supported him at the meeting of
lying.  The allegation
has been denied.  It was explained
that the incorrect answer was given in error.  The probabilities
support the truth
of the denial.  The third respondent would
have nothing to gain by deliberately giving an incorrect answer.
His action
in seeking confirmation from the PwC partner suggests that
he was not absolutely certain of the correctness of the answer when
he gave it.  In my view that would have been apparent to anyone
present at the meeting.
[81]
The mistake was unfortunate, especially
emanating, as it did, from the financial director of Lewis Stores
(Pty) Ltd.  But making
it fell far short of the serious
misconduct or dereliction of duty required to qualify Woollam’s
complaint in terms of s 162(5)(c)
of the Act.
Sixth ground of complaint
[82]
Woollam’s demand did not expand on
the sixth ground of complaint as worded in paragraph [4], above.
It is thus not apparent
to what extent, if any, it added to what has
already been treated of under his fourth and fifth grounds of
complaint.
Conclusion
[83]
In the result Woollam’s demand failed
to demonstrate that the company had the makings of a cognisable case
for the relief
that he insisted the company should pursue against the
second to fifth respondents.
Absence of good faith
[84]
The applicant has alleged that Woollam’s
resort to s 165 of the 2008 Companies Act was motivated by a
collateral purpose
and is not in good faith.  It contends on
this basis too that the demand is vexatious.  The applicant
relies in this
connection on the fact that in the period from 2013
Woollam has taken short positions in Lewis Group shares and also on
his acquisition
of an insignificant holding in the shares only after
he had caused Summit to report the company to the National Credit
Regulator
and published his first paper.  Woollam’s
acquisition of the shares had therefore occurred in circumstances in
which
he might expect the share price to go down and was therefore
not a genuine investment, but merely a means to further his
collateral
purpose.
[85]
Simply put, taking a short position in
stock is an investment strategy whereby the investor ‘borrows’
shares from a
holder thereof, normally at an agreed fee, and sells
them into the market at a time when he expects the price to drop.
The
investor then purchases an equivalent number of shares at the
lower price to which they have fallen to be able to return them to

the ‘lender’ (usually a brokerage firm).  His profit
is the difference between the price at which he sold the
shares and
that at which he purchased replacements to return to the ‘lender’,
less, of course, the costs of the transactions.
[86]
The bad publicity given to the applicant
company as a result of Woollam’s actions had a demonstrably
adverse effect on its
share price.  The applicant alleges that
Woollam’s conduct was directed at engineering movements in the
share price
to benefit his short-selling activities.  The
applicant regards the demand as yet another device in Woollam’s
allegedly
self-serving activities.  It has alleged that
Woollam’s acquisition of a relatively infinitesimal number of
shares in
the company
[51]
– his business partner in Summit has acquired a single share –
was opportunistic and undertaken only to enable him
to initiate
proceedings in terms of s 165.  It argues that Woollam has
no genuine interest in the protection of the company’s
legal
interests and that his initiation of proceedings in terms of s 165
is not in good faith.
[87]
Woollam admits having held short positions
on the applicant’s securities at various times, but has
declined the invitation
issued to him in the applicant’s
founding affidavit to make a full disclosure of his trading
activities in this regard.
Woollam maintains that there was
nothing out of the ordinary about his short-selling of shares in the
Lewis Group as they are allegedly
one of the most widely short-traded
stocks in the market.  It is noteworthy, however, that Woollam
failed to disclose his
short-trading activities when involved in
publicising his adverse opinions on the applicant’s business
activities.
That does seem to me to raise an ethical question.
I understand that the question forms part of the matters concerning
Woollam’s
alleged conduct that has been referred by the
applicant to the Financial Services Board for investigation.
For the reasons
given below I not find it necessary to determine the
question in these proceedings.
[88]
Woollam would have to satisfy the court
that he was acting in good faith were he subsequently to apply in
terms of s 165(5)
for leave to proceed derivatively.
[52]
The questions concerning his conduct raised by the applicant would
certainly be germane in that connection.  And, in
addressing
them, Woollam would bear the onus of proof.
[89]
I understood the first respondent’s
counsel to have submitted that issues concerning good faith were not
relevant at this
stage because the process in terms of s 165(5)
was wholly discrete from that in terms of s 165(3) with which
the current
proceedings are concerned.  To the extent that it
purported to state a general proposition, I would be hesitant to
accept
that argument.  The purpose of an application by the
company in terms of s 165(3) is to pre-empt the multi-stage
process
that can follow when a person signals their intention to
proceed derivatively by serving a demand.  That a company might
have
an interest in doing so could arise from the prejudicial
consequences of the publicity that might attend the more drawn out
process,
not to mention the expense and inconvenience of an
independent investigation in terms of s 165(4).  While the
focus in
any enquiry into whether the demand is without merit will be
on whether a prima facie case has been made out for the company to

pursue, matters that might be pertinent to demonstrating that it is
frivolous or vexatious within the meaning of s 165(3)
could
overlap with those that would relevant to any enquiry into good faith
and the best interests of the company in terms of s 165(5).
[90]
Nevertheless, it is clear that the
arguments that the applicant’s counsel advanced on the bases
that the demand should be
set aside because Woollam was acting for an
ulterior motive and because he had acquired his nominal holding in
the applicant company
with prior knowledge of the matters that are
the subject matter of his demand fall more appropriately for
consideration in the
enquiry that is enjoined in any application that
Woollam might bring in terms of s 165(5) of the Act.
Indeed, the Australian
authority
[53]
with which Mr
Hodes
SC
supported this leg of the argument for the applicant was concerned
with applications in terms of s 237 of the Australian

Corporations Act, 2001, which is the equivalent of s 165(5) of
the 2008 Companies Act.
[91]
The demand procedure, and the attendant
opportunity given to the company to have the demand set aside, do not
feature in the statutory
regimes that regulate the bringing of
derivative proceedings in Australia, the United Kingdom, New Zealand
or Canada.  The
local provision seems to be a carry-over in
modified form of an aspect of the regime that used to apply in terms
of s 266
of the 1973 Companies Act.  The provisions of
s 165(3) of the 2008 Companies Act afford the company
essentially the same
basis for warding off derivative proceedings at
an early stage as it used to enjoy when opposing an application
brought by a shareholder
in terms of s 266(3) of the 1973 Act.
[92]
Logically, one would have expected that a
company could oppose the initiation of the process to commence
derivative proceedings,
not only on the grounds provided in terms of
s 165(3), but also on the basis of showing, if were able to,
that the intending
litigant would not be able to satisfy all of the
requirements of s 165(5).  The provisions of s 165(3),
which expressly
and emphatically limit the bases upon which a company
can have a demand set aside, appear to have been inspired by the
jurisprudence
in respect of s 266(3) of the 1973 Act, in which
it was held that an application for the appointment of a provisional
curator
ad litem
to investigate a demand made in terms of s 266(2) would be
refused if the company showed that the demand was without merit,
or
frivolous and vexatious; see
Van Zyl v
Loucol (Pty) Ltd
1985 (2) SA 680
(NC),
at 685G-I, and
Thurgood v Dirk Kruger
Traders (Pty) Ltd
1990 (2) SA 44
(E),
at 49H-50.  The anomaly that a company will often be unable in
an application in terms of s 165(3) to see off derivative

proceedings on the basis that the complainant will not be able to
satisfy the requirements of s 165(5) appears to be the result
of
an awkward cobbling together in s 165 of the 2008 Companies Act
of various concepts and procedures lifted from quite disparate

preceding local and foreign legislation.
Application by the first respondent to introduce fourth set
affidavit
[93]
Lastly, it remains to provide reasons for
the orders I made on 29 August 2016 admitting certain parts of an
affidavit by Woollam
deposed to on 22 August 2016.  The first
respondent had made application for the admission of the deposition
as a fourth set
affidavit.  The application was opposed by the
company.  I indicated that reasons for the orders would be
provided in
this judgment.
[94]
The affidavit was directed at two issues.
Firstly, it sought to supplement the demand by introducing an
additional ground;
and secondly, it set out Woollam’s answers
to new matter in the applicant’s replying papers.  I
considered it
just and appropriate to admit those parts of the
affidavit that constituted an answer to the new matter. As for the
rest, I was
of view that the applicant’s objection was well
made that it was not within the statutory scheme that additional
grounds
for a demand be introduced
in
medias res
in a pending application in
terms of s 165(3), and that the company was entitled to fifteen
days’ notice to consider
the newly added ground of demand and,
if so advised, to within that time bring separate proceedings to have
what amounted to a
fresh demand set aside.  It has subsequently
been brought to my notice by the parties that such separate
proceedings have
indeed been instituted.
[95]
Mr
Katz
SC, who argued the application for the first respondent, submitted
that the affidavit should be admitted and the proceedings postponed

to enable the applicant to respond to the additional matter.  I
was not persuaded to exercise my discretion in favour of that

course.  The matter had had a rather drawn out run-up to a
hearing and the first respondent had failed to comply with the

timetable provided in an order taken by agreement between the parties
from Magona AJ on 15 June 2016.  This weighed against
the grant
of any indulgence.  The papers were relatively voluminous and
the applicant had incurred the expense of preparing
for a hearing on
29 August 2016.  It was anxious to obtain a determination of its
extant application.
Costs
[96]
A preliminary hearing was arranged to take
place on 18 August 2016.  The purpose was to dispose of an
application by the first
respondent to strike out the applicant’s
replying affidavit in its entirety.  At a late stage the first
respondent indicated
that he was abandoning that application and
electing to apply instead for the admission of the aforementioned
fourth set affidavit.
The first respondent will be ordered to
pay the applicant’s costs in the striking out application,
including the wasted costs
in respect of the reservation of 18 August
2016 for the purposes of the hearing of the application, such costs
to include the costs
of two counsel.
[97]
The first respondent achieved partial
success in its application for the admission of his fourth set
affidavit.  The issue
that was primarily in contention in that
application, however, was whether the first respondent could
introduce an additional ground
for his statutory demand.  On
that issue he was unsuccessful.  He was nevertheless entitled to
have a further affidavit
admitted owing to the new matter contained
in the applicant’s replying affidavit.  I have decided
that fairness will
be served if each party has to bear its own costs
in respect of the application for the admission of the fourth set
affidavit.
(For the information of the taxing master it is
recorded that proceedings on 29 August 2016 were taken up until 14h45
with this
interlocutory application.)
[98]
The applicant has been successful in its
application to set aside the demand, dated 20 May 2016 and there is
no reason why costs
should not follow the result.  The applicant
sought costs against the first respondent on a punitive scale on
account of what
it alleged had been the first respondent’s lack
of good faith.  For the reasons given above I have found it
inappropriate
to determine that aspect of the matter in these
proceedings and accordingly the costs will be allowed on the scale as
between party
and party.
Orders
[99]
The following orders are made:
(a)        The demand, dated 20
May 2016, served on the applicant by the first respondent in
terms of
s 165(2)
of the
Companies Act 71 of 2008
is hereby set aside in
terms of
s 165(3)
of the said Act.
(b)        The first respondent is
ordered to pay the applicant’s costs of suit in the
application
in terms of s 165(3) of the Act, including the costs attendant
on the application to strike out the applicant’s
replying
affidavit that was set down for hearing on 18 August 2016.  The
costs so awarded shall include the costs of two counsel.
(c)        The
applicant and the first respondent shall bear their own costs in
respect of the
application by the first respondent for the admission
of his affidavit deposed to on 22 August 2016.
A.G.
BINNS-WARD
Judge
of the High Court
APPEARANCES
Applicant’s
counsel:

P.B. Hodes SC
D. Goldberg
Applicant’s
attorneys:

Edward Nathan Sonnenbergs
Cape Town
First
Respondent’s counsel:
A. Katz SC
H.N. De Wet
D. Lubbe
First
Respondent’s attorneys:
Marcusse Law Firm
Observatory
Cape Town
[1]
The text of the relevant parts of s 165 is set out in note 17,
below.
[2]
The classes of person afforded standing to initiate derivative
proceedings are identified in s 165(2) of Act 71 of 2008;
see
note 17, below.
[3]
The wording of the sixth ground of complaint is quoted directly from
the notice of demand.
[4]
Unless, in terms of s 162(6)(b)(i), the
court making the declaration limits the application of its order ‘to
one or
more particular categories of companies’.
[5]
A declaration of delinquency in terms of s 162 of the 2008
Companies
Act can
potentially even have repercussions for the affected
individual beyond the borders of South Africa.  So, for
example, in
terms of s 206B(6) of the Australian Corporations
Act, 2001, a person who is the subject of an order made by a court
in
a foreign jurisdiction prohibiting that person from being the
director of a company is thereby disqualified from managing any
corporation in Australia if that foreign jurisdiction is identified
in the relevant regulations to the Act.  A delinquency
order
obtained in South Africa may also afford grounds for the granting of
a similar order in New Zealand in terms of s 383(1)(ca)
of the
Companies Act, 1993 (NZ).
[6]
Section 5(2) of the 2008 Companies Act provides: ‘
To
the extent appropriate, a court interpreting or applying this Act
may consider foreign company law.
’
[7]
An account of the history, going back to 1928, of the preceding
legislation that culminated in the currently applicable statute
is
given in
Official Receiver v Wadge Rapps & Hunt (a firm) &
Anor
[2003] UKHL 49
, [2003]
4 All ER 18
(HL), at
paras. 32-38.
[8]
In the context of making winding-up orders, for example.
[9]
Section 16(2) of the Company Directors Disqualification Act, 1986
(UK).
[10]
See Part 2D.6 of the Australian Corporations Act, 2001.
[11]
See s 1 of the Australian Securities and Investment Commission
Act, 2001.
[12]
In New Zealand official assignees are officers of
the court, whose functions are comparable to those exercised by the
masters
of the court in this country.
[13]
Section 76(2)(a) of the Act provides:
A
director of a company must-
(a)
not use the position of director,
or any information obtained while acting in the capacity of a
director-
(i)
to gain an advantage for the
director, or for another person other than the company or a
wholly-owned subsidiary of the company;
or
(ii)
to knowingly cause harm to the company
or a subsidiary of the company; …
[14]
Section 77(3)(a) – (c) of the Act provides:
Liability
of directors and prescribed officers
(1)
…
(2)
…
(3)
A director of a company is liable for any loss, damages or costs
sustained by the company as a direct or
indirect consequence of the
director having-
(a)
acted in the name of the company, signed anything on behalf of the
company, or purported to bind the company
or authorise the taking of
any action by or on behalf of the company, despite knowing that the
director lacked the authority
to do so;
(b)
acquiesced in the carrying on of the company's business despite
knowing that it was being conducted in a
manner prohibited by
section 22 (1);
(c)
been a party to an act or omission by the company despite knowing
that the act or omission was calculated
to defraud a creditor,
employee or shareholder of the company, or had another fraudulent
purpose; …
[15]
In
Ex parte Gore and others
NNO
2013 (3) SA 382
(WCC),
at para 34, I referred to the expression ‘
gross abuse’
used in
s 65
of the
Close Corporations Act 69 of 1984
as
‘
having a more extreme connotation
’ than that of
‘
unconscionable abuse
’ in
s 20(9)
of the
Companies Act 71 of 2008
.
[16]
The abolition is limited in extent; see note 20, below.
[17]
Section 165 of the 2008
Companies Act is
a
lengthy provision.  The parts that are most relevant for
current purposes go as follows:
(1)
Any right at common law of a person other than a company to bring or
prosecute any legal proceedings on behalf
of that company is
abolished, and the rights in this section are in substitution for
any such abolished right.
(2)
A person may serve a demand upon a company to commence or continue
legal proceedings, or take related steps,
to protect the legal
interests of the company if the person-
(a)
is a shareholder or a person entitled to be registered as a
shareholder, of the company or of a related
company;
(b)
is a director or prescribed officer of the company or of a related
company;
(c)
is a registered trade union that represents employees of the
company, or another representative of
employees of the company; or
(d)
has been granted leave of the court to do so, which may be granted
only if the court is satisfied that it
is necessary or expedient to
do so to protect a legal right of that other person.
(3)
A company that has been served with a demand in terms of subsection
(2) may apply within 15 business days
to a court to set aside the
demand only on the grounds that it is frivolous, vexatious or
without merit.
(4)
If a company does not make an application contemplated in subsection
(3), or the court does not set aside
the demand in terms of that
subsection, the company must-
(a)
appoint an independent and impartial person or committee to
investigate the demand, and report to the board
on-
(i)
any facts or circumstances-
(aa)
that may gave rise to a cause of action contemplated in the demand;
or
(bb)
that may relate to any proceedings contemplated in the demand;
(ii)
the probable costs that would be incurred if the company pursued any
such cause of action or continued
any such proceedings; and
(iii)
whether it appears to be in the best interests of the company to
pursue any such cause of action or continue
any such proceedings;
and
(b)
within 60 business days after being served with the demand, or
within a longer time as a court, on application
by the company, may
allow, either-
(i)
initiate or continue legal proceedings, or take related legal steps
to protect the legal interests
of the company, as contemplated in
the demand; or
(ii)
serve a notice on the person who made the demand, refusing to comply
with it.
(5)
A person who has made a demand in terms of subsection (2) may apply
to a court for leave to bring or continue
proceedings in the name
and on behalf of the company, and the court may grant leave only if-
(a)
the company-
(i)
has failed to take any particular step required by subsection (4);
(ii)
appointed an investigator or committee who was not independent and
impartial;
(iii)
accepted a report that was inadequate in its preparation, or was
irrational or unreasonable in its conclusions
or recommendations;
(iv)
acted in a manner that was inconsistent with the reasonable report
of an independent, impartial investigator
or committee; or
(v)
has served a notice refusing to comply with the demand, as
contemplated in subsection (4) (b) (ii);
and
(b)
the court is satisfied that-
(i)
the applicant is acting in good faith;
(ii)
the proposed or continuing proceedings involve the trial of a
serious question of material consequence
to the company; and
(iii)
it is in the best interests of the company that the applicant be
granted leave to commence the proposed proceedings
or continue the
proceedings, as the case may be.
(6)
In exceptional circumstances, a person contemplated in subsection
(2) may apply to a court for leave to
bring proceedings in the name
and on behalf of the company without making a demand as contemplated
in that subsection, or without
affording the company time to respond
to the demand in accordance with subsection (4), and the court may
grant leave only if
the court is satisfied that-
(a)
the delay required for the procedures contemplated in subsections
(3) to (5) to be completed may result in-
(i)
irreparable harm to the company; or
(ii)
substantial prejudice to the interests of the applicant or another
person;
(b)
there is a reasonable probability that the company may not act to
prevent that harm or prejudice, or act to protect the company's

interests that the applicant seeks to protect; and
(c)
that the requirements of subsection (5) (b) are satisfied.
(7)
A rebuttable presumption that granting leave is not in the best
interests of the company arises if it is
established that-
(a)
the proposed or continuing proceedings are by-
(i)
the company against a third party; or
(ii)
a third party against the company;
(b)
the company has decided-
(i)
not to bring the proceedings;
(ii)
not to defend the proceedings; or
(iii)
to discontinue, settle or compromise the proceedings; and
(c)
all of the directors who participated in that decision-
(i)
acted in good faith for a proper purpose;
(ii)
did not have a personal financial interest in the decision, and were
not related to a person who had a
personal financial interest in the
decision;
(iii)
informed themselves about the subject matter of the decision to the
extent they reasonably believed to be appropriate;
and
(iv)
reasonably believed that the decision was in the best interests of
the company.
(8)
For the purposes of subsection (7)-
(a)
a person is a third party if the company and that person are not
related or inter-related; and
(b)
proceedings by or against the company include any appeal from a
decision made in proceedings by or against the company.
(9)
…
(13)
…
(14)
If the shareholders of a company have ratified or approved any
particular conduct of the company-
(a)
the ratification or approval-
(i)
does not prevent a person from making a demand, applying for leave,
or bringing or intervening in
proceedings with leave under this
section; and
(ii)
does not prejudice the outcome of any application for leave, or
proceedings brought or intervened in with
leave under this section;
or
(b)
the court may take that ratification or approval into account in
making any judgment or order.
(15)
Proceedings brought or intervened in with leave under this section
must not
be discontinued, compromised or settled without the leave
of the court.
(16)
For greater certainty, the right of a person in terms of this
section to
serve a demand on a company, or apply to a court for
leave, may be exercised by that person directly, or by the
Commission or
Panel, or another person on behalf of that first
person, in the manner permitted by
section 157.
[18]
Section 99 of the Ontario Business Corporations
Act, 1970 and s 222 of the British Columbia Companies Act 1972
are cited
as examples in Oliver Schreiner’s paper
The
Shareholders’ Derivative Action – A Comparative Study of
Procedures
(1979) 96 SALJ 203.
[19]
The position is aptly expressed by Schreiner op
cit supra, at p. 209, ‘
Where a
legal wrong is done to a shareholder, i.e. his rights
qua
shareholder are invaded, a personal action
will lie.  A derivative action, by contrast, is one brought by
a member on behalf
of the company, and has as its cause of action an
alleged wrong done to the company.
’
[20]
The procedural remedy is not confined to matters
pertaining to companies.  It would be available in respect of
any corporate
body.  The salient English authority of
Edwards
and Another v Halliwell and Others
[1950] 2 All ER 1064
(CA), for example, concerned the affairs of a
trade union.  Section 165(1) of the 2008 Companies Act
abolishes the common
law on derivative actions only insofar as
companies (as defined) are affected.  It is therefore not an
act of general abolition.
[21]
Foss v Harbottle
[1843] EngR 478
;
(1843)
2 Hare 461
;
67 ER 189.
Although it is common to speak of ‘the
exceptions to the rule in
Foss v
Harbottle
’, the expression can
be somewhat misleading because the so-called ‘exceptions’
in point of fact are part of
its embodiment.
[22]
MF Cassim
The New Derivative Action under the Companies Act
(Juta
2016) at pp.13-14.
[23]
Also reported at [1982] Ch. 204.
[24]
At pp. 222-223 of the Chancery Division
Report.  See also in this regard the remarks of Danckwerts J
in
Pavlides v Jensen and Others
[1956] Ch. 565
, at 574-5.
[25]
A positive finding that the rule in
Foss
v Harbottle
and its exceptions form
part of our common law was made in
TWK
Agriculture Ltd v Forestry Co-operative
Ltd
2006 (6) SA 20
(N).  Theron J cited
Gundelfinger
v African Textile Manufacturers Ltd and Others
1939
AD 314
at 324-5 in support of her finding.  The remarks made
there were obiter, however.  Moreover, Stratford CJ appears to

have conceived of the remedy available to the minority shareholder
in the face of a fraud by the majority as the
actio
doli
, which suggests that he actually
had in mind a personal,
not
a derivative action.  The learned Chief Justice went further
and stated that the remedy that he conceived would be available

would be limited to a matter in which ‘the majority should use
its voting power to obtain
for itself
a benefit at the expense of the minority’.  The judgment
of Tindall AJP in
Moti v Moti and
Hassim Moti Ltd
1934 TPD 428
, to which
Theron J also referred, gives a clearer indication of an acceptance
by a South African court of the rule (there identified
by reference
to
Burland v Earle
supra and Palmer,
Company Precedents
13
th
ed. vol 1 at 1246) and its exceptions as part of our common law.
McClelland v Hullett and Others
1992 (1) SA 456
(D), also cited in
TWK
Agriculture
concerned an action that
the court determined was personal in nature and thus did not
implicate the rule, although it is evident
from the judgment that
Booysen J considered it to be part of our law, as did Cloete J
in
Fedsure Life Assurance Co Ltd v
Worldwide African Investment Holdings (Pty) Ltd and Others
2003 (3) SA 268
(W) at para 55.  The judgment in
McClelland
v Hullett
was subsequently disapproved
in
Itzikowitz v Absa Bank Ltd
2016 (4) SA 432
(SCA), at para. 13; see note 26, below.
[26]
See
Wimbledon Lodge
(Pty) Ltd v Gore NO and Others
2003
(5) SA 315
(SCA) ([2003]
2 All SA 179)
at para 18,
Trinity
Asset Management (Pty) Ltd and Others v Investec Bank Ltd and Others
2009 (4) SA 89
(SCA)
Letseng Diamonds
Ltd v JCI Ltd and Others
2009 (4) SA
58
(SCA),
Cassim and Another v Voyager
Property Management and Others
2011
(6) SA 544
(SCA) at para 16,
Communicare
supra,
Gihwala
and Others v Grancy Property Ltd and Others
[2016] ZASCA 35
;
[2016] 2 All SA 649
(SCA) at paras. 107-111 and
Itzikowitz v Absa Bank Ltd
2016 (4) SA 432
(SCA).  In
Trinity
Asset Management
,
Letseng
Diamonds
and
Communicare
,
it was found on the facts that the rule in
Foss
v Harbottle
was of no application.
This was because the relief sought in those cases arose from rights
that were personal to the litigants.
The proceedings in those
cases were not being prosecuted derivatively.  It is clear,
however, that the question of standing
that was disputatious in each
of those cases was considered in the context of an
ex
hypothesi
acceptance by the court that
an objection to standing on the basis of the rule in
Foss
v Harbottle
was cognisable in our
law.  In
Itzikowitz
,
the Supreme Court of Appeal quoted Lord Bingham’s exposition
of the rule in
Johnson v Gore Wood &
Co (a firm)
[2000] UKHL 65
;
[2001] 1 All ER 481
(HL)
and that of the English Court of Appeal in
Prudential
Assurance Co Ltd v Newman Industries Ltd and Others (No 2)
supra,
at pp 222-223 (Chancery Division Reports) in support of the its
conclusion that certain judgments of the High Court
that had been
relied upon in argument (
McLelland v Hulett and Others
1992 (1) SA 456
(D),
Kalinko v Nisbet and Others
2002 (5)
SA 766
(W) and
McCrae v Absa Bank Limited
[2009] ZAGPJHC 7 (7
April 2009))
had been wrongly decided,
essentially on the basis that the decisions had gone against the
rule.
[27]
Section 266 of the 1973 Act provided for a
derivative action at the instance of any member of a company when
the company had suffered
damages or loss or been deprived of a
benefit as a result of any wrong, breach of trust or breach of faith
committed by any director
or officer of the company while such
person held office as such.  The action might be instituted
notwithstanding that the
company might have ratified or condoned the
wrong.  Its institution had to be preceded by notice to the
company affording
it one month’s notice to institute
proceedings itself; whereafter, failing the institution of the
proceedings by the company,
the member could apply to court for the
appointment of a curator
ad litem
to institute the proceedings in the company’s name.  The
member had to satisfy the court of the existence of prima
facie
grounds for the contemplated proceedings and that an investigation
into such grounds and the desirability of the institution
of the
proceedings was justified.  If the court were so satisfied, a
provisional curator
ad litem
would be appointed to conduct the investigation and report his
findings to the court upon a given return day.  If the court

were persuaded by the report that the institution of proceedings was
appropriate, it would confirm the appointment of the curator
ad
litem
and issue such directions for
the institution and conduct of the contemplated proceedings as it
might think necessary.
A curator
ad
litem
appointed in terms of s 266
of the 1973 Companies Act, whether appointed provisionally or
finally, was invested with the
powers given in terms of s 260
of that Act to an inspector appointed in terms of s 257 to
investigate the affairs of
a company (s 267 of A61/1973). Wide
powers were thereby afforded to such curators
ad
litem
to interrogate relevant persons
under oath and to obtain and examine books and documents.  The
court might order any applicant
for the appointment of a curator
ad
litem
in terms of these provisions to
provide security for the costs of the company in opposing any such
application and for the costs
of a provisional curator before making
a provisional order.
[28]
Section 165(5)(b)(iii) of the 2008 Companies Act.
[29]
See note 17,
above.
[30]
See note 17, above.
[31]
Section 2(1)(b) provides:
‘
For
all purposes of this Act-
an
individual is related to a juristic person if the individual
directly or indirectly controls the juristic person, as determined

in accordance with subsection (2)
’
.
Subsection (2) provides,
insofar as relevant to natural persons in control of companies:
For
the purpose of subsection (1), a person controls a juristic person,
or its business, if-
(a
)
in the case of a juristic person that
is a company-
(i)
…; or
(ii)
that first person together with any related or inter-related person,
is-
(aa)
directly or indirectly able to exercise or control the exercise of a
majority of the voting rights
associated with securities of that
company, whether pursuant to a shareholder agreement or otherwise;
or
(bb)
has the right to appoint or elect, or control the appointment or
election of, directors of that company
who control a majority of the
votes at a meeting of the board;
(b)
…;
(c)
; or
(d)
that first person has the ability to materially influence the policy

of the juristic person in a manner comparable to a person who, in
ordinary commercial practice, would be able to exercise an
element
of control referred to in paragraph (a), (b) or (c).
[32]
The unqualified statement in
Mbethe v United Manganese of
Kalihari (Pty) Ltd
2016 (5) SA 414
(GJ) at para. 90 that
derivative proceedings against the directors of the company do not
implicate the presumption in terms
of s 165(7) is incorrect,
with respect.  If the directors are not in control of the
company in the relevant sense,
they are ‘third parties’
for the purpose of the presumption.
[33]
Note 22, above.
[34]
The wording of s 165(7)(c) of the 2008 Companies Act replicates
that of s 237(3) of the Australian Corporations Act,
2001.
In copying the Australian provision the local statutory draftsperson
may have overlooked that the definition of ‘related
party’
in the Australian statute (provided in s 228) includes the
directors of a public company.  Whether intended
or not, it is
nevertheless clear that s 165(7) of our statute consequently
can give rise to a quite different effect to
its identically worded
Australian equivalent.
[35]
Section 162(3) of the 2008 Companies Act.
[36]
Ibid.
[37]
Section 162(4) of the 2008 Companies Act.
[38]
I have not overlooked the provisions of s 157.
[39]
This view is supported by judicial comment on
equivalent legislation in other countries.  So, in
Official
Receiver v Wadge Rapps & Hunt
(a firm) & Anor
[2003] UKHL 49
,
[2003] 4 All ER 18
(HL), at para 15, Lord Hope
of Craighead remarked of the Company Directors Disqualification Act,
1986, ‘
The overriding purpose of the disqualification
regime is to protect the public interest
’; and, at
para 79, Lord Walker of Gestingthorpe (in the context of
considering the information gathering powers of
an official receiver
in the course of winding-up proceedings) stated of the
disqualification procedure, the institution of criminal
prosecutions
and summary proceedings in respect of misfeasance in the course of a
winding-up, ‘…
these procedures exist for the
protection of the general public,
not in the interests of
the creditors or shareholders of the particular company
which is in liquidation. Indeed it may be contrary to the financial
interests of the creditors and shareholders for these procedures
to
be invoked
’ (emphasis supplied).  In what McHugh J
described (in
Rich v Australian Securities and Investments
Commission
[2004] HCA 42
;
220 CLR 129
;
209 ALR 271
;
78 ALJR 1354
at para 48) as ‘the leading [Australian] authority on the
reasons for a court exercising its powers … to order
the
disqualification of a person from managing corporations’,
Re
HIH Insurance Ltd (in prov liq); Australian Securities and
Investments Commission v Adler
[2002] NSWSC 483
;
(2002) 42 ACSR
80
(also cited as
Asic v Adler and 4 Ors
), Santow J,
identified (at para 56) a number of objects to which
disqualification orders were directed.  These included:
‘
(i)
Disqualification orders are designed to protect the public from the
harmful use of the corporate structure or from use that
is contrary
to proper commercial standards …
(ii) The
banning order is designed to protect the public by seeking to
safeguard the public interest in the transparency and accountability

of companies and in the suitability of directors to hold office …
(iii)
Protection of the public also envisages protection of individuals
that deal with companies, including consumers, creditors,

shareholders and investors …
(iv) The
banning order is protective against present and future misuse of the
corporate structure …
’.
[40]
Per Wallis JA.  The learned judge of appeal stated that s 162
is not a penal provision.  From what follows at
para 148
of the judgment it is clear that by ‘penal’ the judge
intended to convey that the operation of the
provision does not have
a character akin to a criminal sanction.  The statement was
made in the context of addressing an
argument by the appellant’s
counsel that the provisions of s 162(5)(c) and 162(6)(b)(ii)
were unconstitutional because
there was no discretion vested in the
court either to refuse to make a delinquency order if the
requirements of s 162(5)
(c)
were satisfied, or to
moderate the period of such order to a period of less than seven
years.   The argument appears
to have advanced with
reliance on judgments such as
S v Dodo
[2001] ZACC 16
;
2001 (3) SA 382
(CC),
which, as is well known, bore on the constitutionality of the
minimum sentence regime created in terms of the
Criminal Law
Amendment Act 105 of 1997
.  For an interesting comparative
debate, in the context of determining a claim by the appellant
directors to privilege against
having to make discovery on the
grounds that it might expose them to penalties, on whether the
equivalent Australian provisions
fall to be characterised as
‘punitive’, in the sense of imposing a ‘civil
penalty’, or as ‘protective’,
see
Rich v
Australian Securities and Investments Commission
supra.
[41]
At para 144.
[42]
Wallis JA offered the following illustration: ‘
In addition
the court may restrict the operation of the declaration of
delinquency to one or more particular categories of company.
A
director declared delinquent in relation to a financial services
company may be permitted to be a director of an engineering
firm.
’
(
Gihwala
supra, at para 144).  One can readily
imagine how a restriction of the declaration by category might be
appropriate
in cases in which the cause for the declaration has been
the repeated infraction of some or other legislation that is
applicable
in respect of certain categories of company, but not
others.
[43]
See
Gihwala
supra, at para 144; in the passage quoted in
para. [40], above.
[44]
It is not apparent in the evidence, but it would not surprise me if
the three directors in the applicant company’s seven
member
board who are not targeted in Woollam’s demand would not on
their own comprise a quorate number.
[45]
Professor MF Cassim argues (op. cit. supra, at pp.84-5) that a
‘
central factor in determining whether a proposed
derivative action is in the best interests of the company
[a
requirement for leave in terms of
s 165(5)]
is the
availability of an alternative remedy …  If there are
alternative measures to address the grievance of the
applicant that
would produce substantially the same redress, the court should
refuse to to grant leave to the applicant to institute
derivative
proceedings
’;
a fortiori
where it is not an
alternative, but the very same measure that is personally available
to produce precisely the same redress.
[46]
The notion, following the decision in
Percival
v.
Wright
[1902] 2 Ch. 421
, that a director’s fiduciary duty is
exclusively to the company, and not to its shareholders, appears to
be still entrenched
in our law (see, for example, the commentary in
P. Delport et al.
Henochsberg on the Companies Act 71 of
2008
(as updated to May 2016) at p. 298(4) and LAWSA vol.
4(2) at para. 132). A more flexible characterisation of the
ambit
of the fiduciary nature of directors’ duties is evident
in other jurisdictions; see, for example
Coleman v. Myers
[1977] 2 NZLR at 297 (CA), which was endorsed in
Dusik v. Newton
1985 CanLII 406 (BC CA)
, at para 35-39.  In my view the effect
of s 218(2) of the 2008
Companies Act renders
any debate on the
subject largely academic.  As mentioned, the Supreme Court of
Appeal acknowledged in
Gihwala
supra, at para 144, that the
relationship between shareholders and the directors they have put
into office involves a ‘
bond of trust’
.
[47]
There is no merit in the contention by the first respondent’s
counsel that certain procedural advantages available to a
litigant
proceeding derivatively support the notion that where a litigant
wishes to pursue a claim for a remedy that the company
could equally
pursue derivative proceedings should be permitted.  Counsel
referred in this regard to the provisions of
s 165(9)(e)
, which
allows for access to the company’s books.  The argument
overlooks that the advantages are available only to
a person who has
satisfied the requirements for obtaining leave to proceed
derivatively.  Their promise plays no role in
the determination
of whether leave should be granted.
[48]
I do not agree with the submission by the first respondent’s
counsel that the investigation is intended to provide ‘incidental

benefits’ by turning up possible bases of claim not adumbrated
in the demand.  The argument goes against the language
of
s 165(4)
, which expressly relates the scope of investigation
and consequent report to the cause of action and proceedings
‘
contemplated in the demand
’.
[49]
See para. [13] - [18], above.
[50]
Section 76 of the Act generally, and subsections (3)-(5), in
particular.
[51]
Woollam acquired 10 shares in the applicant company on 26 June
2015 and then a further 3000 shares on 8 July 2016,when his

answering papers in the current application were due.
[52]
See s 165(5)(b)(i) of the 2008
Companies Act.
[53
]
Swansson v Pratt
[2002] NSWSC 583
,
(2002) 42 ACSR 313
and
Maher v Honeysett and Maher Electrical Contractors
[2005]
NSWSC 859
; see also