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[2011] ZAGPJHC 155
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Serveco (Pty) Ltd and Others v Leaf and Another (50971/10) [2011] ZAGPJHC 155 (5 August 2011)
NOT
REPOTABLE
IN
GAUTENG SOUTH HIGH COURT OF SOUTH AFRICA
JOHANNESBURG
CASE
NO
: 50971/10
DATE
:
05. 08. 2011
In
the matter between
SERVECO
(PTY) LTD (IN LIQUIDATION)
...........................
FIRST
PLAINTIFF
ALBERT
IVAN SURMANY NO
........................................
SECOND
PLAINTIFF
NOMVUYO
YVONNE SERITI NO
.......................................
THIRD
PLAINTIFF
BENJAMIN
KGOMOADAIRA MAMOSEBO NO
.............
FOURTH
PLAINTIFF
RABOIJANE
MOSES KGOSANA NO
..................................
FIFTH
PLAINTIFF
and
MICHAEL
EDWARD LEAF
...............................................
FIRST
DEFENDANT
KHESANE
JOHANNES HLONGWANE
.....................
SECOND
DEFENDANT
Practice
- pleadings – particulars of claim – six exceptions noted
against - nature of –discussion of each –
principles
applicable- exceptions dismissed
J U D
G M E N T
VAN
OOSTEN, J: In this matter the defendants have noted eight exceptions
to the plaintiff’s particulars of claim, two of which
(exceptions 1 and 5) were not pursued, leaving the remaining six
exceptions for determination. I shall for the sake of convenience
and
consistency follow the numbering of the exceptions as set out in the
notice of exception.
The
attack on the plaintiff’s particulars of claim is launched on
the ground that it lacks the necessary averments to sustain
a cause
of action (exceptions 2, 6, 7 and 8) and that certain of the
allegations in the particulars of claim, as I shall presently
deal
with, are vague and embarrassing, irrelevant or vexatious. Counsel
for the defendants referred to the second exception as
the defendants
“real exception” and the remaining exceptions as akin to
applications to strike out.
The
plaintiff’s cause of action is based on the statutory remedy
provided for in s 424(1) of the Company’s Act 61 of
1973 (the
Act), which reads as follows:
“
When
it appears, whether it be in a winding-up, judicial management or
otherwise, that any business of the company was or is being
carried
on recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
court may, on the application of the Master, the liquidator, the
judicial manager, any creditor or member or contributory
of the
company, declare that any person who was knowingly a party to the
carrying on of the business in the manner aforesaid, shall
be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the company
as the court
may direct.”
The
first plaintiff is Serveco (Pty) Ltd (Serveco), a company in
liquidation and in respect of which the plaintiffs allege its
business was conducted in a fraudulent or reckless manner, within the
meaning of
s 424 (1) of the Act. The second to fifth plaintiffs
are the duly appointed joint liquidators of Serveco. The first and
second defendants
were at times relevant to the plaintiff’s
cause of action, the directors of Serveco while the second defendant
was also chairman
of its board of directors.
A
brief summary of the allegations as set out in the particulars of
claim is the following. Nafcoc Investments Holdings Ltd (represented
by
inter alia
the
first defendant) (Nafco) pursuant to a written sale of shares
agreement (the Nafhold agreement) acquired the majority shareholding
in Serveco, which led to the nomination and appointment of the first
and second defendants as directors of Serveco from 1 March
2004. In
that capacity the defendants stood in a fiduciary relationship to
Serveco and owed it certain duties. From April 2004
Serveco, to the
knowledge of the defendants, was trading in insolvent circumstances
and was unable to meet its current liabilities.
The defendants
subsequent to their appointment as directors of the Serveco,
undertook in regard to Serveco, to provide it with
financial
administration, management, structure and control including the
setting up of suitable structures and controls. The defendants,
however, despite repeated warnings concerning Serveco’s
financial difficulties, failed to act either in accordance with their
fiduciary duties or in the best interest of Serveco as a consequence
of which the plaintiffs seek the following order against the
defendants:
“(a)
An order in terms of Section 424 (1) of the Act that the 1st and 2nd
defendants are liable for all the debts of the
1st plaintiff
alternatively the debts incurred after 2 April 2008; alternatively 30
November 2004, further alternatively 30 June
2006.
(b)
Interest thereon at the prescribed legal rate
a
tempore
morae
to
date of payment.
(c)
Costs of suit.”
Against
this background, I turn now to consider the exceptions in their
numerical sequence.
THE
SECOND EXCEPTION
The
second exception relates the plaintiff’s allegations concerning
the Nafhold agreement. The relevance of the Nafhold agreement
is the
following: the defendants, as I have alluded to, were, pursuant
thereto, appointed at directors of Serveco. In rard to the
Nafhold
agreement the plaintiffs allege that the defendants unlawfully and in
breach of the provisions of s 38 of the Act, used
the financial
resources of Serveco to finance the purchase price payable to Nafco
for its majority shareholding.
Clause
4 of the Nafhold agreement makes the “continuance” of the
agreement “subject to and conditional upon the
fulfilment
of...” a number of stated conditions. The plaintiffs have not
alleged the fulfilment of any of those conditions
in the particulars
of claim. The defendants accordingly contend that fulfilment of the
suspensive conditions ought to have been
pleaded and that the absence
thereof has resulted in an incomplete cause of action having been set
out. Reliance for the contention
was placed on the well known case of
Kates’ Hope Game Farm (Pty) Ltd v
Terblanchehoek Game Farm (Pty) Ltd
1998 (1)
SA 235
(SCA) at 241C and the cases there referred to, where the
general principal regarding the pleading of a contract on which a
party
relies, is stated thus:
“
The
rule is that the litigant, whether the plaintiff or the defendant,
relying on a contract that is subject to a condition must
plead and
prove the condition and its fulfilment.”
The
plaintiffs, so the argument went, in relying on the Nafhold agreement
in support of the allegation that the defendants’
conduct was
fraudulent and/or reckless, therefore should have alleged fulfilment
of the conditions in order to complete the cause
of action. Hence, so
the argument concluded, a cause of action has not been disclosed or,
as an alternative, that “at least”,
the allegations are
vague and embarrassing.
The
exception is premised upon a misconstruction of the nature of the
cause of action relied upon by the plaintiffs, on the one
hand, and a
misreading of the ratio in the Kates’ Hope judgment (as well as
other related cases), on the other. The plaintiff’s
claim as I
have alluded to and, furthermore, as accepted by the defendants, is
based on an alleged s 424(1) liability. The claim
is plainly not
based on the Nafhold agreement and it accordingly cannot be construed
as either an action “in contract”
(see Kriegler v
Minitzer and Another
1949 (4) SA 821
(A)) or a “claim based on
contract”.
The
plaintiffs undeniably, to an extent, do place some reliance on the
Nafhold agreement. But, that is not for the purpose of setting
out a
claim based on the agreement but for an ancillary purpose which is to
provide details of the history of the matter (as to
which see Richter
v Town Council of Bloemfontein
1920 OPD 161
at 173-4) and
accordingly, the facta probantia concerning the nature of the
relationship that existed between the defendants and
Serveco and
further, in support of the alleged recklessness. The enforceability
of the Nafhold agreement is not in dispute: on
the contrary, if
regard is had to the remainder of the allegations pleaded in the
particulars of claim, the agreement undoubtedly
was of full force and
effect. I agree with counsel for the plaintiff that it has never been
laid down that a litigant is obliged
to plead fulfilment of
conditions of a contract where the claim is not based on such
contract. And to take this aspect one step
further: even
non-fulfilment of the conditions would not avail the defendants: the
plaintiff’s cause of action, as pleaded,
remains a reliance on
statutory reliability in terms of s 424(1) of the Act, in respect of
which entirely separate allegations
need to be set out to establish a
completed cause of action. As for the alternative contention, there
is, in my view, nothing “vague
and embarrassing” in the
allegations pleaded concerning the Nafhold agreement. For these
reasons I conclude that there is
no merit in this exception. It
accordingly falls to be dismissed.
THE
THIRD EXCEPTION
The
third exception concerns the plaintiff’s allegation that the
first and second defendants were shareholders in Nafhold.
The
defendants contend that this information is irrelevant and therefore
renders the plaintiff’s particulars of claim vague,
meaningless
and embarrassing and that it therefore ought to be struck out.
The
exception is misconceived. The nature of the relationship between the
defendants vis-à-vis both Servico and Nafhold,
in my view, is
of essential relevance to the cause of action pleaded. Evidence
relating to this aspect would be admissible at the
trial (See
McKelvey v Cowan NO
1980 (4) SA 525
(Z) at 526D-E). No prejudice can
result arising from this allegation and there accordingly exists no
basis for striking it out.
Moreover, I am unable to find that these
allegations are vague and embarrassing. The third exception,
accordingly, likewise, falls
to be dismissed.
THE
FOURTH EXCEPTION
The
fourth exception is directed at the plaintiff’s allegation that
the defendants had a duty not to prefer their own interests
above
those of Serveco. The complaint raised is this: nowhere in the
particulars of claim do the plaintiffs allege, as a fact,
that either
defendant preferred his own interest over those of Servo. The attack
was launched unaccompanied by armoury. The facts
in support of the
alleged duty are specifically pleaded: in paragraph 16.13 of the
particulars of claim the plaintiffs plead that
the defendants “stood
in a fiduciary relationship to the first plaintiff and from August
2005 remained on the board of directors
of the first plaintiff solely
in order to act in and protect their interest and/or the interests of
Nafhold to the exclusion of
the interests of Serveco...”
(underlining added).
The
exception accordingly fails.
THE
SIXTH EXCEPTION
The
sixth exception refers to the defendants’ alleged fraudulent
and/or reckless conducting of the business of Serveco, in
retrenching
Serveco’s financial manager and subsequently settling his claim
based on unfair dismissal, with the knowledge
that Nafhold was in the
final stages of launching an application for the winding-up of
Serveco and, moreover, in failing to appoint
a suitable substitute
for Serveco’s financial manager at a time when Serveco was in
dire financial straits. The defendants
contend that these
allegations, without more, do not constitute either fraud or
recklessness within the meaning of s 424(1) of
the Act.
There
is no merit in the exception. As correctly pointed out by counsel for
the plaintiffs the exception concerns only certain
allegations
pleaded by the plaintiffs and therefore does not go to the root of
the cause of action as a whole, which on its own,
provides sufficient
reason for its dismissal.
But
the exception cannot succeed for another reason: the facts pleaded
form part of the mosaic of events which, objectively measured,
are
not only relevant but also essential as a basis for the ultimate
value judgment concerning recklessness or gross negligence,
this
Court will be required to make. It cannot be said that the alleged
failure to appoint a suitable replacement for Serveco’s
financial manager was of no consequence: read in its proper context
it may well be one of the factors to be taken into account
in
deciding whether the defendants left the financial administration of
Serveco in incompetent hands or, for that matter, unattended
to. The
exception accordingly is without merit and falls to be dismissed.
THE
SEVENTH EXCEPTION
The
seventh exception is that the plaintiffs have failed to furnish
particulars in regard to the allegation that the defendants
failed to
act in accordance with their fiduciary duties and in the best
interest of Serveco. The exception is based on a misreading
of the
plaintiff’s particulars of claim, taken as a whole. The
specific fiduciary duties of the defendants are pleaded in
paragraph
13.5 of the plaintiff’s particulars of claim and particulars of
the defendants’ breaches are pleaded in paragraph
16.3 to 16.14
of the particulars of claim. Sufficient particularity in my view has
been pleaded in order to enable the defendants
to plead thereto. Such
further particularity as the defendants may require can be obtained
in the further pre-trial procedures
provided for in the Rules of this
Court. It therefore cannot be said that the defendants are
embarrassed in their attempt to plead.
The exception accordingly must
fail.
THE
EIGHTH EXCEPTION
The
final exception concerns the plaintiff’s allegations that the
defendants failed to maintain accounts and audited statements
of
Serveco for the period from May 2004 to May 2006. The defendants’
complaint is directed at the use of the words “maintain
account/audited statement” in view of the fact that there was
no obligation on the defendants to “maintain” accounts
or
audited statements.
The
exception rests on shaky foundations. The operative word, “maintain”,
as counsel for the plaintiffs pointed out,
has a variety of meanings
inter alia to “cause or enable.” Again, read in its
proper context, it is clear what the
plaintiffs intended to convey.
It is specifically pleaded that the defendants “undertook to
provide the first plaintiff with
suitable financial direction,
administration, management, structure and control; to set up suitable
structures and controls through
inter alia monthly reporting,
preparation of financial statements, reports and accounts and the
management of debtor and creditor
accounts”. Their failure to
do so, as alleged, may well lead to the conclusion that they failed
to maintain accounts and/or
audited statements or that because of
their failure to maintain proper financial records, audited accounts
and/or statements could
not be prepared. For these reasons it cannot
be said that the defendants are prejudiced in any way in their
further conduct of
the case and it follows that the exception must
fail.
In
conclusion, the defendants have failed to demonstrate that upon every
possible interpretation of the particulars of claim no
cause of
action is disclosed or that the particulars of claim are vague and
embarrassing (Amalgamated Footwear and Leather Industries
v Jordan
and Co Ltd
1948 (2) SA 891
(C) at 893. In the final analysis the
defendants have in any event failed to show prejudice.
In
the result the exceptions are dismissed with costs.
COUNSEL
FOR THE PLAINTIFFS:ADV GD WICKINS
COUNSEL
FOR THE DEFENDANTS :ADV JM SUTTNER
…
.........................................................
:ADV
(MS) P CIRONE