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[2017] ZAWCHC 8
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Praetor and Another v Aqua Earth Consulting CC (162/2016) [2017] ZAWCHC 8 (15 February 2017)
Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Before: The Hon. Mr Justice Binns-Ward
Hearing: 9 February 2017
Judgment:
15 February 2017
Case
No. 162/2016
In
the matter between:
CARY
LAWRENCE
PRAETOR
First
Applicant
GEOTHERMAL
ENERGY SYSTEMS (PTY) LTD
(In
Liquidation)
Second
Applicant
and
AQUA
EARTH CONSULTING
CC
Respondent
JUDGMENT
BINNS-WARD
J:
[1]
Geothermal Energy Systems (Pty) Ltd
(‘Geothermal’) was placed into liquidation by this court
at the instance of the
respondent, Aqua Earth Consulting CC. A
provisional winding-up order was granted on 2 February 2016, and a
final order followed
on 15 March 2016. The winding up
application was not opposed. The matter currently before the
court is an application
for the setting aside or rescission of the
winding-up order. The parties cited as the applicants in the
current proceedings
were Mr Cary Praetor, the sole director of
Geothermal who was cited as the first applicant, and Geothermal
Energy Systems (Pty)
Ltd (in liquidation), purportedly represented by
Mr Praetor, which was cited as the second applicant.
[2]
The first applicant purported to make the
application in terms of s 354 of the Companies Act 61 of 1973.
That provision
affords standing to any liquidator, creditor or member
of a company to apply for the staying or setting aside of winding-up
proceedings.
The first applicant failed to qualify himself as a
creditor or member of the company and accordingly failed to establish
that he
had standing to proceed for relief under the provision.
It was therefore no cause for surprise that I was informed at the
commencement of the applicants’ counsel’s argument that
the first applicant sought leave to withdraw his application.
There was no tender of costs, however. Upon being pressed,
counsel would go further than to concede that the first applicant
should pay the ‘wasted costs’ occasioned by his
application. In my view there was no merit in the qualification
that the applicants’ counsel sought to attach to the extent of
the first applicant’s liability for the costs of his
abortive
application; he must take responsibility unambiguously for the costs
occasioned by it.
[3]
The application brought under Geothermal’s
name is brought in terms of its alleged right to claim a rescission
of the winding-up
order at common law. It is brought on the
basis that notwithstanding service of the papers at the company’s
registered
office, they did not come to the attention of the
company’s management. The proceedings consequently went
unopposed
in circumstances in which the company had proper grounds
upon which it could, and would, have resisted a winding-up order.
[4]
The effect of the
winding-up order was to divest the first applicant of his functions
as the company’s director and to vest
them instead in the
liquidator(s). That raises the question whether the current
application by the company, ostensibly at
the instance of Mr Praetor,
qua sole director, has been competently instituted. It appears
to be generally accepted that
a company’s directors have what
have been described as ‘residual powers’ to act on the
company’s behalf
in causing it to oppose the confirmation of
the rule in a provisional winding-up, or to appeal against a
winding-up order.
A useful collection of the relevant
jurisprudence was put together by Gautschi AJ in
Storti
v Nugent and Others
2001 (3) SA 783
(W), at 795G-796C;
[1]
see in particular
O’Connell
Manthe & Partners Inc v Vryheid Minerale (Edms) Bpk
1979 (1) SA 553
(T), at 555H-558E. It seems to me that there is
no rational basis to distinguish the standing of a board of directors
to
appeal in the company’s name against a winding-up order from
its standing similarly to apply to set aside such an order obtained
without its knowledge. Indeed, in
Storti
supra, loc. cit.,
it was stated that ‘
a
company has the right to rescind … a winding-up order
’.
It is clear from the context that the learned judge had in mind that
the application to rescind would be mounted
by the company at the
instance of its board, not its liquidators. I am willing to
accept therefore that the second applicant
has standing to bring the
rescission application, although it would probably have been correct
in such circumstances to have cited
it without the words ‘in
liquidation’ after its name. Issues such as security for
costs might arise in these
circumstances, but they were not raised in
the current case.
[5]
The respondent has taken a point of
non-joinder. It has alleged that the liquidator is a necessary
party. The applicants’
counsel resisted that contention
and submitted that the liquidator did not have a real and substantial
interest in the determination
of the matter, merely an indirect and
purely financial one. The concept of ‘a real and
substantial interest’
as the criterion for necessary joinder
can be difficult to apply at times. One of the ways of
identifying the presence of
such an interest is to ask the question
whether the relief sought in the proceedings would directly affect
the legal interests
of any party who has not been joined. If it
would, the affected party should be given notice of the proceedings
and formally
joined. A rescission of the winding-up order would
have the effect of divesting the liquidators of their office, but
that
would merely be an incidental effect of the determination of the
company’s status and thus something of an indirect character.
I am not persuaded that the liquidator is a necessary party to the
proceedings. It is customary in matters of this nature,
if the
court is inclined to grant the rescission application, for a rule to
issue before any order is made with absolute effect.
Having
regard to the wide range of interests potentially affected by such
orders there are good reasons for that practice, and
the applicants’
counsel indicated that he did not wish to advance any reasons why it
should not be followed in the current
matter. It means that if
the application were to succeed, the liquidator would in any event
have an opportunity to oppose
the confirmation of the order or to
make submissions concerning the terms upon which it should be
confirmed before it became absolute.
As it was, the parties’
legal representatives approached the liquidator extracurially at the
court’s request to ascertain
his position. In response,
the liquidator informed the applicants’ attorneys by letter,
dated 13 February 2017, that
he abided the judgment of the court.
The liquidator’s letter was put before me after the hearing by
the applicants’
counsel.
[6]
The principles applicable in the
determination of applications for the rescission of court orders at
common law are well established.
They are rehearsed in the
Appellate Division’s judgment in
Chetty
v Law Society, Transvaal
1985 (2) SA
756
(A).
Chetty
’s
case concerned an application by a disbarred attorney for the
rescission of the order made in an application by the law
society for
the removal of his name from the roll of attorneys. Miller JA,
writing for the court, observed that the
court enjoyed the power to
rescind its judgment upon ‘sufficient cause’. The
learned judge of appeal proceeded
at 756A-E, ‘
The
term “sufficient cause” (or “good cause”)
defies precise or comprehensive definition, for many and various
factors require to be considered. (See
Cairn’s
Executors v Gaarn
1912 AD 181
at
186 per Innes JA.) But it is clear that in principle and in the
long-standing practice of our Courts two essential elements
of
“sufficient cause” for rescission of a judgment by
default are:
(i) that the party seeking relief must present a
reasonable and acceptable explanation for his default; and
(ii) that on the merits such party
has a bona fide defence which, prima facie, carries some prospect of
success. (
De
Wet’s
case supra
[
De
Wet and Others v Western Bank Ltd
1979 (2) SA 1031
(A)]
at
1042;
PE
Bosman Transport Works Committee and Others v Piet Bosman Transport
(Pty) Ltd
1980
(4) SA 794
(A)
;
Smith NO v
Brummer NO and Another; Smith NO v Brummer
1954
(3) SA 352 (O)
at 357 - 8.)
It
is not sufficient if only one of these two requirements is met; for
obvious reasons a party showing no prospect of success on
the merits
will fail in an application for rescission of a default judgment
against him, no matter how reasonable and convincing
the explanation
of his default. An ordered judicial process would be negated if, on
the other hand, a party who could offer no
explanation of his default
other than his disdain of the Rules was nevertheless permitted to
have a judgment against him rescinded
on the ground that he had
reasonable prospects of success on the merits.
’
[7]
The respondent brought the winding up
proceedings in January 2016 on the basis of a claim it allegedly had
against Geothermal in
contract. The claim, which was for
payment of amounts due in respect of subcontracting work for
Geothermal undertaken by
the respondent before mid-2011, had been the
subject of dispute. The respondent alleged that the dispute had
been settled
and the amount owed to it by Geothermal fixed in terms
of an agreement reached in June 2011. When Geothermal failed to
pay,
the respondent had instituted enforcement proceedings on motion
in the High Court in Johannesburg. Geothermal had opposed
those
proceedings on the basis that the persons who had represented the
company in the settlement talks had not been authorised
to conclude
any agreement. When the application came to hearing in the
motion court, Campbell AJ considered that the
matter could not
be decided on paper and referred the claim for trial on pleadings.
The matter was thereafter initially set
down for trial at the end of
July 2014, but no judge was available to hear it. The case was
then postponed by agreement between
the parties on the understanding
that application would be made to obtain a different date on a
preferential allocation basis.
That idea appears to have come
to naught because the matter was next enrolled for hearing only on
1 December 2016.
[8]
Notwithstanding the
pending trial, and in the face of its knowledge that a court had
declined to afford it relief on paper because
of the perception that
the adjudication of the claim required the determination of pertinent
disputes of fact, the respondent nevertheless
decided to demand
payment of its claim by addressing a notice to Geothermal in terms of
s 345(1)(a) of the Companies Act 61
of 1973. That
provision provides insofar as currently relevant: ‘
A
company or body corporate shall be deemed to be unable to pay its
debts if-
(a)
a creditor, by
cession or otherwise, to whom the company is indebted in a sum not
less than one hundred rand then due-
(i)
has served on the
company,
by
leaving the same at its registered office
,
a demand requiring the company to pay the sum so due and the company
or body corporate has for three weeks thereafter neglected
to pay the
sum, or to secure or compound for it to the reasonable satisfaction
of the creditor
’
(underlining supplied for emphasis). The procedure was plainly
resorted to as a precursor to the institution of winding
up
proceedings. Section 344(f) provides that ‘
a
company may be wound up by the court if it is unable to pay its debts
as described in section 345
’.
[9]
The respondent’s
resort to the procedure in terms of s 345 was unusual in the
circumstances. The provisions of
s 345 read with s 344(f)
afford no exception to the rule that the courts apply against
granting winding-up orders in
matters in which the application for
liquidation is founded on a claim that is bona fide disputed (the
so-called ‘Badenhorst
rule’
[2]
).
Bringing a winding-up application when it is known that the debt is
genuinely disputed is stigmatised as an abuse of process.
The
respondent must surely have appreciated, in the context of its
abortive endeavour to obtain judgment on its claim in motion
proceedings in the Johannesburg High Court, that any application for
the winding-up of Geothermal based on s 344(f) was liable
to be
faced off as an abuse of process.
[3]
It was nonetheless not legally precluded from resorting to the
process in the face of that risk.
[10]
The notice of demand in terms of s 345
was served at Geothermal’s registered office, as provided by
the statute.
The registered office happened to be that of a
firm of chartered accountants in Claremont. According to the
companies’
office records attached to the papers, the Claremont
address appears to have been Geothermal’s registered office
since April
2011 when the accountants at that address became the
company’s auditors. Notice of the ensuing winding-up
application
was also served at the registered office.
[11]
In terms of s 170
of the 1973 Companies Act that was in force until 1 May 2011, every
company was required to have a registered
office ‘
to
which all communications and notices may be addressed and at which
all process may be served
’
.
[4]
A change in the situation of the registered office or of the
postal address of a company for the purposes of the Act did
not take
effect unless the registrar of companies recorded the particulars
thereof.
[5]
Section 23(3)(b) of the currently applicable
Companies Act 71 of 2008
requires every company to maintain an office and to register the
address of its office, or if it has more than one, its principal
office.
[6]
The Uniform Rules of Court provide that service of process upon a
company may be effected at its registered office.
[7]
Sections 346 and 346A of the 1973
Companies Act, which
remain of
application in respect of compulsory winding-up proceedings against
allegedly insolvent companies, provide for service
of the application
and any resultant winding-up order to be effected on the company.
The context of the other provisions
of the Act just described and the
relevant rules of court shows that the scheme of the legislation
clearly contemplates that such
service will be effected at the
company’s registered office. These considerations are
important to the achievement
of ‘an ordered judicial process’.
[12]
The demand in terms of s 345 of the
1973
Companies Act and
the subsequent application for Geothermal’s
liquidation did not come to the notice of the company because it had
been decided
by the company’s management during 2012 to give
instructions to the firm of accountants at its registered office not
to accept
service of documents for the company. The reason for
this bizarre decision has not been explained. It was a decision
that plainly subverted the statutory object of the requirement that a
company must have a registered office and thwarted the purpose
of the
aforementioned rules regarding service on companies in the Uniform
Rules of Court, which are obviously directed at the ideal
of
achieving effective service of process. Geothermal did advise
the respondent during 2012 that all communications to it
should be
addressed to its business address in Camps Bay. That indication
may have been binding for purposes of the pending
litigation in the
Johannesburg High Court, but it could not legally displace the
provisions of the
Companies Act and
rule 4(1)(a)(v) of the Uniform
Rules of Court for the purpose of service upon or giving of notice to
the company in any other context.
[13]
It would seem, however, that
notwithstanding the company’s instruction, the office staff at
its registered office forwarded
documentation delivered to the
company at the registered office to the company’s last known
place of business in Camps Bay.
At some stage the company
changed its business address in Camps Bay, evidently without advising
the staff at its registered address.
In 2014, the company
ceased trading and consequently no longer had a place of business.
The personnel at its registered office
appear also not to have been
advised of this development. That much may be inferred from the
fact that the firm of accountants
whose address constituted the
company’s registered address advised the respondent when the
section 345 demand was received
that they had forwarded it to the
company’s last known place of business by registered post, but
that it had been returned
uncollected.
[14]
The founding papers in the winding-up
application disclosed the existence of the pending litigation in the
Johannesburg High Court.
There was no disclosure, however, of
the fact that the persons at Geothermal’s registered office had
notified the respondent
that Geothermal itself had not been in
physical receipt of the demand in terms of s 354 or that notice
to, or service upon
the company at its registered office was
factually ineffectual in the circumstances. In my judgment the
respondent’s
failure to make this disclosure to the court
seized of the winding-up application is to be deprecated. I
consider that a
party possessed of information that calls into
question the effectiveness of the notice and service upon which it
relies in any
proceedings is duty bound to disclose it to the court,
for upon such disclosure the court might be minded to give additional
directions
to achieve effective service. But the ethical
consideration to which I have referred does not detract from the
legal effectiveness
of notice given and service effected in
accordance with the applicable statutory prescripts. It could
not be said that there
was anything irregular about an order that
issued consequent upon such notice or service. The statutory
framework puts the
onus on every company to ensure that notice at its
registered office is effective. It would have been open to the
respondent,
had it made disclosure of the response it had received
from Geothermal’s registered office, to submit to the court
that,
having effected service within the law, it should not be
required to do more. And the court would have been acting
entirely
within the law if it chose to accept that argument.
The position certainly did not result in the order being erroneously
granted in the relevant sense of that term and it is therefore
unsurprising that Geothermal did not seek relief in terms of rule
42.
[15]
Notice of provisional winding-up of the
company was published in the Government Gazette. The notice was
drawn to Mr Praetor’s
attention by Absa Bank. Praetor
caused his attorneys to investigate, but the investigation appears to
have been sloppily
undertaken and Praetor was informed that no record
of a winding-up application could be found at the High Court.
The applicant’s
attorneys also directed an enquiry to the
respondent’s attorneys in March 2016, but, discourteously, the
respondent’s
attorneys failed to reply. In the result, it
was only in early October 2016 that Mr Praetor obtained
confirmation that
Geothermal had indeed been placed into liquidation
when he was contacted by the liquidator, who furnished a copy of his
certificate
of appointment as such. The current application for
rescission of the order was thereafter instituted on 21 November 2016
[16]
I am satisfied that Geothermal would be in
a position to mount a viable opposition to the winding-up
application. The history
sketched above establishes that the
claim on which the winding-up application was founded has been
disputed in other undetermined
proceedings. It is also evident
that another court has already found the basis of that dispute to
have given rise to a triable
matter. It is arguable that the
court that made the winding-up order was misdirected in doing so in
the face of that evidence,
but that is immaterial for present
purposes because the current proceedings are not an appeal.
[17]
In
Chetty
’s
case supra, the Appellate Division was of the view that the court of
first instance might have erred in treating Mr Chetty
as a fugitive
from justice and that the peculiar circumstances attending the
maladministration of his trust account might have
merited a less
severe sanction than his striking from the roll of attorneys.
The appeal court made no determinative findings
in that regard, but
it was prepared to allow on account of them that Mr Chetty had a bona
fide defence which, prima facie, carried
some prospect of success.
The court nonetheless rejected Mr Chetty’s claim for a
rescission of the striking off order
made against him because his
explanation for his failure to have opposed the application was
lacking.
[18]
In my judgment the current application is
doomed to failure on the same principle. It is not a reasonable
and acceptable explanation
for Geothermal to say it did not receive
notice of the application because it deliberately, but for
unexplained reasons, instituted
measures that rendered its registered
office ineffectual for its statutory purpose. Geothermal’s
behaviour was fundamentally
inimical to ‘an ordered judicial
process’ and nothing has been said to warrant condoning it.
[19]
In the result, consistently with the effect
of the approach adopted in
Chetty
’s
case, the application for rescission will be dismissed.
[20]
The following order is made:
1.
The
first applicant is granted leave to withdraw his application in terms
of s 354 of the Companies Act 61 of 1973 for the
setting aside
of the winding-up proceedings in respect of Geothermal Energy Systems
(Pty) Ltd (in liquidation).
2.
The
first applicant is directed to pay the respondent’s costs of
suit in the aforementioned application.
3.
The
second applicant’s application for the rescission of the final
winding-up order, dated 15 March 2016, in respect
of Geothermal
Energy Systems (Pty) Ltd (in liquidation) is dismissed with costs.
___________________
A.G. BINNS-WARD
Judge of the High Court
[1]
Inasmuch
as the learned acting judge made passing reference to Australian
authority in the passage cited, it bears mention that
the position
in that country was altered by the introduction of s 471A of
the Corporations Act, 2001. Directors seeking
to represent the
company after a winding up order has been made now require the
approval of the court or of the liquidators in
order to carry out
any function or power as an officer of the company.
[2]
After
the excursus on the principle set out in
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
1956
(2) SA 346 (T).
[3]
Framing
its application also under the just and equitable ground in terms of
s 344(h) would not make any difference in the
peculiar factual
circumstances.
[4]
Section
170(1)(b) of the 1973 Companies Act.
[5]
Section
170(2)(d) of the 1973 Companies Act.
[6]
In
Sibakhulu
Construction (Pty) Ltd v Wedgewood Village Golf Country Estate (Pty)
Ltd (Nedbank Ltd Intervening)
2013 (1) SA 191
(WCC) it was held that ‘principal office’
denoted a company’s principal place of business.
[7]
Rule
4(1)(a)(v) of the Uniform Rules of Court.