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[2015] ZASCA 25
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Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd (086/2014) [2015] ZASCA 25; 2015 (4) SA 34 (SCA); [2015] 2 All SA 322 (SCA) (20 March 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 086/2014
In
the matter between:
NEWLANDS
SURGICAL CLINIC (PTY)
LTD
..........................................................
APPELLANT
and
PENINSULA
EYE CLINIC (PTY)
LTD
....................................................................
RESPONDENT
Neutral
citation:
Newlands Surgical Clinic v
Peninsula Eye Clinic
(086/2014)
[2015]
ZASCA 25
(20 March 2015).
Coram:
Brand, Lewis, Pillay JJA and Dambuza and Mayat
AJJA
Heard:
5 March 2015
Delivered:
20 March 2015
Summary:
Jurisdiction of SCA – confined
to grounds upon which leave to appeal had been granted – no
inherent jurisdiction to
go beyond these grounds.
Companies Act 71 of
2008
– reinstatement of deregistered company by virtue of
s 82(4)
has complete retrospective effect – including
validation of corporate activities during period of deregistration –
parties prejudiced by complete reinstatement afforded the opportunity
to seek relief under
s 83(4)
of the Act
ORDER
On
appeal from:
Western Cape Division of
the High Court, Cape Town (Binns-Ward J sitting as court of first
instance):
1 Paragraphs (a) and
(b) of the order of the court a quo are set aside and replaced by the
following:
‘
(a)
It is declared that the reinstatement of the first respondent as a
company in terms of
s 82(4)
of the
Companies Act 71 of 2008
had
retrospective effect from the date of its deregistration which
included the retrospective validation of its corporate activities
during that period.’
2 Paragraphs (c) and
(d) of the order of the court a quo are renumbered to (b) and (c)
respectively.
3
Save for the aforegoing amendment, the order of the court a quo is
confirmed and the appeal is dismissed with costs including
the costs
of two counsel.
JUDGMENT
Brand
JA
(Lewis, Pillay JJA and Dambuza
and Mayat AJJA concurring):
[1]
This appeal turns on the interpretation of s 82(4) of the
Companies Act 71 of 2008 (the Act) as juxtaposed with s 83(4)
of
the Act. Both sections are concerned with the restoration of the name
of a company onto the companies register after its previous
deregistration. More pertinently the issues are, first, whether the
reinstatement of a company by the Companies and Intellectual
Property
Commission (CIPC) under s 82(4) operates retrospectively so as
to validate actions performed on behalf of the company
during its
period of deregistration. Secondly, if not, whether this
reinstatement can be afforded such retrospective effect by
the court
in the exercise of its powers in terms of s 83(4). When the
matter came before Binns-Ward J in the Western Cape
Division of the
High Court, Cape Town, he decided on the first issue that, in the
main, the effect of reinstatement under s 82(4)
is not
automatically retrospective. On the second issue he held, however,
that the court indeed has the power under s 83(4)
to render the
reinstatement of the company retrospective to the extent that it is
just and equitable and thereupon proceeded to
exercise that power in
favour of the respondent. The appeal against that judgment, which has
since been reported
sub nom Peninsula
Eye Clinic (Pty) Ltd v Newlands Surgical Clinic & others
2014
(1) SA 381
(WCC), is with the leave of the court a quo.
Background
[2]
The appeal is another round in a long lasting legal contest between
the parties over a sum of money which has clearly by now
been far
outstripped by the costs of litigation. Be that as it may, for
present purposes the background facts can be confined to
the
following broad outline. The appellant, Newlands Surgical Clinic
(Pty) Ltd (Newlands), operated a surgical clinic in Newlands,
Cape
Town. The respondent, Peninsula Eye Clinic (Pty) Ltd (Peninsula), is
essentially an incorporated association of ophthalmic
surgeons. Since
Peninsula did not have its own clinic, its members made use of the
facilities offered by Newlands. To encourage
the use of its clinic,
Newlands evolved an informal system of incentives, referred to in the
course of the proceedings as kickbacks,
by which payments were made
to Peninsula at the end of each financial year in accordance with the
income generated by its doctors
for Newlands.
[3]
The situation changed when the Health Professions Council of South
Africa (HPCSA) adopted a policy prohibiting the payment of
incentives
of this kind which it conveyed by means of draft guidelines that were
published during or about 2000. So it happened
that the last
incentives or kickbacks were paid to Peninsula during 1999. By 2001
there was an accumulation of kickbacks that had
not been paid. The
attitude of Newlands was that it would not in these circumstances pay
kickbacks, but that it was willing to
make an equivalent payment
provided that it could avoid the stigma of acting in contravention of
the HPCSA policy formulated in
the draft guidelines. The initial
solution explored was that Peninsula would purchase ten per cent of
the shares in Newlands for
the amount of R570 000, which was the
equivalent of the accumulated kickbacks it would by then have
received, but that Newlands
would pay the same amount to Peninsula
disguised as some sort of charge raised by Peninsula against
Newlands. Not surprisingly
in the circumstances, the auditors of
Newlands indicated that they would treat these payments as kickbacks.
A new idea was then
conceived by the parties, which was to exchange
the ten per cent shares for equipment belonging to Peninsula in
actual use at the
Newlands clinic to be valued at R570 000
though its true value was far less. Subsequently the relationship
between the parties
soured. In the event, Newlands purported to
cancel this sale agreement on the basis that the value of the
equipment sold was nowhere
near R570 000.
[4]
Peninsula then launched an application in the Western Cape Division
to assert its rights. But the parties agreed to refer their
dispute
to a single arbitrator, who eventually upheld Peninsula’s claim
for the ten per cent shares. He also ordered Newlands
to pay
dividends on these shares, together with interest and the costs of
both the arbitration and the earlier proceedings in the
high court.
The ratio for the arbitrator’s decision appears from the
following passage in his award:
‘
Accordingly
I reject [Newlands’] contention that the agreement was to
transfer equipment with a market value of R570 000.00
to
[Newlands] in exchange for the 10% shareholding. The transfer of the
equipment and the value put on it was in my view only meant
to
camouflage the true intention of the parties namely to pay for the
shares by cancelling the kickbacks.’
[5]
After the arbitrator had published his award, Newlands sought to
introduce a new issue which relied on s 38 of the old
Companies
Act 61 of 1973 (the 1973 Act) that essentially barred a company from
rendering financial assistance in the acquisition
of its own shares.
When the arbitrator declined to entertain the s 38 issue,
Newlands brought an application in the high court
to review his
decision not to do so. In the event, the court upheld the
arbitrator’s decision and in consequence the review
application
was dismissed with costs. Newlands then exerted its right in terms of
the arbitration agreement to appeal against the
arbitrator’s
award to an arbitration panel of three members. Newlands was,
however, again unsuccessful in that the appeal
tribunal confirmed the
arbitrator’s award and in consequence dismissed the appeal with
costs.
[6]
At that point in time, it came to Peninsula’s notice that on 4
January 2008, which was before the commencement of the
arbitration
proceedings, Newlands had been deregistered as a company, in terms of
s 73 of the 1973 Act, for failure to submit
its annual returns
to the Registrar of Companies. Peninsula then made application to the
CIPC in terms of s 82(4) of the Act
for the reinstatement of
Newlands’ registration as a company. The response it received
from the CIPC led to its belief that
the application was successful.
On that premise Peninsula brought an application in the high court,
inter alia, for an order declaring
that Newlands had been reinstated
as a company retrospectively as from the date of its deregistration.
The matter came before Binns-Ward
J in February 2012. In a judgment
since reported as
Peninsula Eye Clinic
(Pty) Ltd v Newlands Surgical Clinic (Pty) (Ltd) & others
2012 (4) SA 484
(WCC), he dismissed the application, essentially for
lack of proof by Peninsula that Newlands had in fact been reinstated.
But
he gave Peninsula leave to apply again on the same papers once
that fact had been established.
[7]
Eventually, Newlands’ registration was formally reinstated by
the CIPC in terms of s 82(4) on 3 April 2012. When
this
happened, Peninsula renewed its application in the court a quo for an
order (a) affording the reinstatement retrospective
effect so as to
validate the arbitration proceedings during its period of
deregistration and (b) declaring the arbitration awards
to be orders
of court, as contemplated in terms of s 31 of the
Arbitration
Act 42 of 1965
. As I have said by way of introduction, the matter
again came before Binns-Ward J who granted both orders sought.
Although Newlands
applied for leave to appeal in respect of both
aspects, the court a quo essentially confined its leave to appeal to
(a) alone.
As Newlands did not subsequently seek this court’s
leave to appeal the order in (b), proceedings on appeal were confined
to (a).
Newlands’
application to file supplementary heads
[8]
This is where matters stood some two weeks before the hearing of the
appeal. At that stage Newlands brought an application in
which it
purported to seek no more than permission to file supplementary heads
of argument. Why I say purported is that, in reality,
the import of
the relief sought went much deeper. What Newlands actually sought to
introduce by means of these supplementary heads,
was the substantive
defence that the share sale agreement on which Peninsula’s
claim rested was
contra bonos mores,
in
that it was in conflict with the HPCSA policy against incentives; and
that the contract relied upon by Peninsula was in consequence
invalid
and unenforceable. As the first gateway for the introduction of this
defence, Newlands contended that, on a proper interpretation
of the
court a quo’s order in the application for leave to appeal, it
was afforded permission to do so. This contention relied
exclusively
on paragraph 1 of that order which provided:
‘
The
application for leave to appeal to the Supreme Court of Appeal is
granted only against this court’s finding that the applicant
in
the principal case was entitled to obtain further relief from the
court in terms of
s 83(4)
of the
Companies Act 71 of 2008
subsequent to the administrative reinstatement of the respondent
company’s registration at its instance in terms of
s 82(4)
of the said Act.’
[9]
Building on the foundation of this paragraph, Newlands argued as
follows. In its application of s 83(4) – to which
reference is made in the paragraph – the court a quo held that
it was just and equitable – as contemplated by the section
–
that the arbitration proceedings, which were concluded during
Newlands’ period of deregistration, should be declared
valid
retrospectively. In considering what was just and equitable, the
court failed to take into account, however, that the share
sale
transaction which formed the basis of Peninsula’s claim, was a
simulated transaction. Its real import was to camouflage
the payment
of accumulated kickbacks which was in conflict with HPCSA policy. Had
this consideration been taken into account, so
the argument went, the
court would have concluded that it was not just and equitable to give
its imprimatur to an agreement which
was
contra
bonos mores
and therefore illegal and
void.
[10]
The flaw in the argument, as I see it, is that it loses sight of the
principle that a court order, as in the case of any other
document,
must be read in the context of the judgment as a whole and
particularly in the light of the court’s reasons for
that order
(see eg
Firestone South Africa (Pty) Ltd v Genticuro AG
1977
(4) SA 298
(A) at 304D-F). Approached in this way, it is clear to me
that the court a quo never intended to and never did afford Newlands
leave to appeal on the just and equitable issue or, for that matter,
on the issue whether or not the share sale agreement could
be
characterised as
contra bonos mores.
On the contrary, it is
obvious that leave to appeal on those issues was pertinently refused.
That much appears from various statements
in the carefully formulated
judgment on leave to appeal, of which the order forms an integral
part. Included amongst these are
the following:
‘
The
grounds upon which the application for leave to appeal is made are
fourfold, namely (i) that this court erred in finding that
the
contract which underpinned the arbitral award that was the subject of
the application in terms of
s 31
of the
Arbitration Act had
not
been shown to have been one in contravention of s 38 of the 1973
Companies Act, (ii
) that the court erred in failing to consider
whether the underlying transaction was
contra
bonos mores,
and thus enforceable,
(iii) that the court erred in not holding that [Peninsula], which had
obtained the administrative reinstatement
of the registration of
[Newlands]
in terms of s 82(4)
of the 2008
Companies Act, was
thereby precluded from subsequently
applying for any relief
in terms of
s 83(4)
of the said Act and (iv)
that even if the judgment were correct in its interpretation of the
pertinent statutory provisions, the
court erred by finding that it
was just and equitable to validate the arbitration proceedings
conducted while [Newlands] was “in
a state of deregistration”.
As described in the
judgment in the principal case, the proper construction and effect of
sections 82 and 83 of the 2008
Companies Act is
a matter on which
divergent views have been expressed in a number of judgments in the
High Court. It is thus evident that the interpretation
of those
provisions has given rise to sufficient difficulty for there to be a
reasonable prospect that another court might well
determine on a
proper construction different from that propounded in the judgment in
the principal case. . .
I do not consider,
however, that there is a reasonable prospect that another court would
be persuaded to come to the applicant’s
assistance on any of
the other three grounds on which the application for leave to appeal
has been brought.’
And:
‘
I
do not consider therefore that this court was qualified on the
evidence before it in the application in terms of
s 31
of the
Arbitration Act to
determine whether the contract was in fact in
contravention of the guidelines [of the HPCSA] or, if it had been,
what the legal
consequences would be. An appeal court will be in no
better position than I was, and thus equally disabled from dealing
with the
argument on the record before it.’
[11]
The alternative basis relied upon by Newlands for the introduction of
the
contra bonos mores
or illegality defence rested on the
proposition that, even if it should be held – as I did –
that the leave granted
by the court a quo was insufficiently broad to
permit an enquiry into the validity of the underlying share sale
agreement, this
court should ‘. . . in any event, in terms of
its inherent power, decline to validate those arbitration
proceedings.’
In support of this proposition Newlands sought to
rely on the principle thus formulated by Trollip JA in
Yannakou v
Apollo Club
1974 (1) SA 614
(A) at 623G-H:
‘
.
. . It is the duty of the court to take the point of illegality
mero
motu
, even if the defendant does not
plead or raise it; but it can and will only do so if the legality
appears
ex facie
the transaction or from the evidence before it, and, in the latter
event, it is also satisfied that all the necessary and relevant
facts
are before it.’
[12]
I do not believe, however, that Newlands’ reliance on the
legality principle can be sustained. The reason appears from
the
following succinct statement by Hefer JA in
Moch v Nedtravel (Pty)
Ltd t/a American Express Travel Service
1996 (3) SA 1
(A) at
7E-G:
‘
The
short answer is that the court’s “inherent reservoir of
power to regulate its procedures in the interests of the
proper
administration of justice” (per Corbett JA in
Universal
City Studios Inc and Others v Network Video (Pty) Ltd
[1986] ZASCA 3
;
1986
(2) SA 734
(A) at 754G), does not extend to the assumption of
jurisdiction not conferred upon it by statute. . .
Nowadays [this
court’s] jurisdiction derives from the Supreme Court Act [59 of
1959] and other statutes but the position remains
basically the
same.’
[13]
Since the decision in
Moch
,
the statutory basis for this court’s jurisdiction has been
superseded by the
Superior Courts Act 10 of 2013
. It is now to be
found in
s 16(1)(
a
)
of that Act, which provides that an appeal against a decision of the
high court as a court of first instance lies ‘. . .
upon
leave being granted
. . . either to the
Supreme Court of Appeal or to a full court of that division . . .’.
Leave to appeal therefore constitutes
what has become known,
particularly in administrative law parlance, as a jurisdictional
fact. Without the required leave, this
court simply has no
jurisdiction to entertain the dispute.
Section 17
of the
Superior
Courts Act then
proceeds to govern the ways in which the required
leave can be obtained. In essence,
s 17(2)
provides that it may
be granted by the court of first instance and, if refused, it may be
granted on application to this court.
[14]
It has by now become well-settled that, when a high court grants
leave to appeal it may limit the grounds of appeal or it may
grant
leave generally. In the latter event, all relevant issues may be
canvassed, including – so it was held in
Yannakou
and other cases – issues of
legality albeit that those had not been pleaded or raised by the
defendant, as long as they appear
from the evidence before the court.
But when the high court has limited the grounds of appeal, as it did
in this case, this court
has no jurisdiction to entertain an appeal
on grounds which had been specifically excluded. The fact that these
excluded grounds
involve issues of illegality does not detract from
this principle. If an appellant is dissatisfied with the high court’s
decision to limit the grounds of appeal, its remedy is to petition
this court to do away with the limitation. Since Newlands has
failed
to do so, it follows that this court has no jurisdiction to entertain
the ground of appeal resting on public policy or illegality,
which
had specifically been excluded from the ambit of leave granted by the
court a quo.
The
retrospective effect of reinstatement
[15]
This brings me to the issues relating to the retrospective effect of
Newlands’ reinstatement as a company under s 82(4)
of the
Act, those being the only ones arising from the ground upon which
leave to appeal was obtained and hence the only ones open
for
reconsideration. The issues thus arising must be understood in the
context of the established principle that deregistration
puts an end
to the existence of a company. It brings an end to its corporate
personality ‘in the same way that a natural
person ceases to
exist at death’ (see
Miller &
others v Nafcoc Investment Holding Co Ltd & others
2010
(6) SA 390
;
(324/09)
[2010] ZASCA 25
(SCA)
para 11). All subsequent actions purportedly taken on behalf of the
deregistered company are consequently void and of no
effect. Its
property passes automatically – ie without any form of delivery
– into the ownership of the State as
bona
vacantia
(see eg
Rainbow
Diamonds (Edms) Bpk & andere v Suid-Afrikaanse Nasionale
Lewensassuransiemaatskappy
1984 (3) SA
1
(A) at 10-11). It follows that unless the reinstatement of Newlands
has, or is afforded, retrospective effect, (a) the arbitration
proceedings, (b) the associated court proceedings, together with (c)
the orders and awards that were made in favour of Peninsula
against
Newlands in those proceedings, would simply be null and void. This is
so because, as far as dates are concerned, we know
that Newlands was
deregistered on 4 January 2008 and that all these proceedings
occurred before it was reinstated on 3 April 2012.
To say that a
conclusion of non-retrospectivity would have a seriously detrimental
effect on Peninsula would clearly be an understatement.
[16]
Peninsula submitted (a) that the court a quo had erred in finding
that reinstatement by the CIPC in terms of s 82(4) did
not
automatically validate the arbitration proceedings with retrospective
effect; but (b) that the court was right in holding that
it was
authorised and that it should afford the reinstatement such
retrospective effect in terms of s 83(4). Newlands’
contentions, on the other hand, were a mirror image of these, in that
it submitted (a) that the court was right in finding that
the
reinstatement in terms of s 82(4) did not automatically operate
retrospectively so as to validate the arbitration proceedings;
but
(b) that the court erred in finding that it was authorised in terms
of s 83(4) to afford the reinstatement under s 82(4)
such
retrospective effect. Evaluation of these contentions clearly
revolves primarily around the provisions of these two sub-sections.
But before I turn to them, it is appropriate to deal with their
legislative background.
Legislative
history
[17]
Under the 1973 Act, deregistration and subsequent restoration of the
registration of a company so deregistered were governed
by s 73.
In terms of sections 73(1) - (3), a company was liable to be
deregistered by the Registrar of Companies if it
had failed, for a
period of more than six months, to lodge an annual return in
compliance with s 173 of that Act or if the
Registrar had
reasonable cause to believe that the company was not carrying on
business, and the company failed to respond adequately
to the
Registrar’s consequent inquiries. As to restoration of a
company so deregistered, s 73(6)(
a
) and 73(6A) provided:
‘
6
(
a
) The
Court may, on application by any interested person or the Registrar,
if it is satisfied that a company was at the time of
its
deregistration carrying on business or was in operation, or otherwise
that it is just that the registration of the company
be restored,
make an order that the said registration be restored accordingly, and
thereupon the company shall be deemed to have
continued in existence
as if it had not been deregistered.
(
b
) Any such
order may contain such directions and make such provision as the
Court deems just for placing the company and all other
persons in the
position, as nearly as may be, as if the company had not been
deregistered.
. . .
(6A)
Notwithstanding subsection (6), the Registrar may, if a company has
been deregistered due to its failure to lodge an
annual return in
terms of section 173 on application by the company concerned and
on payment of the prescribed fee, restore
the registration of the
company, and thereupon the company shall be deemed to have continued
in existence as if it had not been
deregistered. Provided that the
Registrar may only so restore the registration of the company after
it has lodged the outstanding
annual return and paid the outstanding
prescribed fee in respect thereof.’
[18]
On the basis of these provisions this court held in
Insamcor (Pty)
Ltd v Dorbyl Light & General Engineering (Pty) Ltd; Dorbyl Light
& General Engineering (Pty) Ltd v Insamcor
(Pty) Ltd
2007 (4)
SA 467
; (63/06, 319/06)
[2007] ZASCA 6
(SCA) para 23 that the
consequence of restoring a deregistered company to the register under
s 73(6) was
ipso facto
to revive all rights and
obligations of the company that had been extinguished by
deregistration with retrospective effect. More
recently it was held
in
CA Focus CC v Village Freezer t/a Ashmel Spar
2013 (6) SA
549
; (731/12)
[2013] ZASCA 136
(SCA) para 10-21, with reference to
the virtually identically worded
s 26(7)
of the
Close
Corporations Act 69 of 1984
, that the consequence of restoration was
to validate retrospectively all acts done on behalf of the company
during the interim
period as if deregistration had never occurred
(see also
Kadoma Trading 15 (Pty) Ltd v Noble Crest CC
2013
(3) SA 338
; (452/2012)
[2013] ZASCA 52
(SCA) paras 13 and 14). In all
these cases it was recognised at the same time that the
indiscriminate automatic retrospective reinstatement
of all corporate
activity could have a severely detrimental effect on third parties.
So it was said, for example, in
Insamcor
(para 24):
‘
.
. . it is an oversimplification to regard a restoration order as no
more than an 'as you were'. It can clearly cause severe prejudice
to
third parties. In [
Ex parte Sengol
Investments (Pty) Ltd
1982 (3) SA 474
(T) at 477C] Van Dijkhorst J gave the example of those who, upon
deregistration, acquired rights to company property, who will
lose
those rights when the registration of the company is restored.
Examples of such prejudice have also been recognised in other
jurisdictions. . . .’
And
that in consequence (para 27):
‘
.
. . it is, in my view, self-evident that third parties who will or
may be prejudiced by the restoration order must be given the
opportunity to persuade the Court not to exercise its discretion in
favour of a restoration order. Alternatively, they may endeavour
to
persuade the Court to make the order subject to such directions under
s 73(6)(
b
)
as may serve to alleviate its prejudicial consequences.’
[19]
Despite these potentially prejudicial consequences resulting from
automatic retrospective validation, it was held, however,
that this
construction of
s 73(6)
and
s 73(6A)
could not be avoided.
What compelled this conclusion was, of course, the pertinent
provision contained in both subsections (and
in
s 26(7)
of the
Close Corporations Act) that
upon restoration, ‘. . . the
company shall be deemed to have continued in existence as if it had
not been deregistered.’
Unlike
s 73(6)(
b
),
however, and similar to s 73(6A) of the 1973 Act,
s 26(7)
of the
Close Corporations Act left
no room for alleviation of these
consequences by court order or otherwise.
[20]
It will be observed that neither
s 73(6)
nor
s 73(6A)
pertained to the deregistration of companies that were wound up after
liquidation, nor to the possible restoration of a company
deregistered in this way. These matters were dealt with in chapter
XIV of the 1973 Act under the heading ‘Winding-up of
companies’. More pertinently, s 419 in this chapter
provided for the dissolution of companies after they had been
completely
wound up. In terms of s 420, the court was then
afforded the authority to declare ‘. . . the dissolution [under
s 419]
to have been void and, thereupon any proceedings may be
taken against the company as might have been taken if the company had
not
been dissolved.’ Unlike s 73(6) and 73(6A) this
section therefore made no express reference to retrospectivity.
Section
420, incidentally, still governs the position with regard to
companies wound up by reason of insolvency. This is so because,
despite
the repeal of the 1973 Act, chapter XIV of that Act –
including s 420 – remains in force with regard to
insolvent
companies until further notice, by virtue of para 9,
schedule 5 of the 2008 Act. Nonetheless, because the wording of s 420
is so different from the provisions that are of direct concern to us,
the section fortunately does not have to detain us. I say
fortunately
because the construction of s 420 is known to have given rise to
problems of its own (see eg
Motala &
others v Master of the High Court (North Gauteng) & others
[2014]
2 All SA 154
; (313/13)
[2013] ZASCA 185
(SCA) ).
The
pertinent provisions of the 2008 Act
[21]
Subsections 82(4) and 83(4) both form part of chapter 2, part G, of
the Act which appears under the heading ‘Winding-up
of solvent
companies and deregistering companies’. Sections 79 to 81 are
exclusively concerned with the winding-up of solvent
companies (while
the winding-up of insolvent companies, as I have said, are still
governed by chapter XIV of the 1973 Act). Sections
82 and 83 thus
constitute the main focus of our enquiry. For this reason a full
quotation of the sections cannot be avoided. They
provide:
’
82
Dissolution of companies and removal from register
(1) The Master must
file a certificate of winding up of a company in the prescribed form
when the affairs of the company have been
completely wound up.
(2) Upon receiving a
certificate in terms of subsection (1), the Commission [defined as
the CIPC] must-
(
a
) record
the dissolution of the company in the prescribed manner; and
(
b
) remove
the company's name from the companies register.
(3) In addition to
the duty to deregister a company contemplated in subsection (2) (
b
),
the Commission may otherwise remove a company from the companies
register only if-
(
a
) the
company has transferred its registration to a foreign jurisdiction in
terms of subsection (5), or-
(i) has failed to
file an annual return in terms of section 33 for two or more years in
succession; and
(ii) on demand by
the Commission, has failed to-
(
aa
) give
satisfactory reasons for the failure to file the required annual
returns; or
(
bb
) show
satisfactory cause for the company to remain registered; or
(
b
) the
Commission-
(i) has determined
in the prescribed manner that the company appears to have been
inactive for at least seven years, and no person
has demonstrated a
reasonable interest in, or reason for, its continued existence; or
(ii) has received a
request in the prescribed manner and form and has determined that the
company-
(
aa
) has
ceased to carry on business; and
(
bb
) has no
assets or, because of the inadequacy of its assets, there is no
reasonable probability of the company being liquidated.
(4) If the
Commission deregisters a company as contemplated in subsection (3),
any interested person may apply in the prescribed
manner and form to
the Commission, to reinstate the registration of the company.
(5) A company may
apply to be deregistered upon the transfer of its registration to a
foreign jurisdiction, . . . ;
(6)
The Minister may prescribe criteria and procedural requirements that
must be satisfied by a company before it may be deregistered
in terms
of subsection (5).
83
Effect of removal of company from register
(1) A company is
dissolved as of the date its name is removed from the companies
register unless the reason for the removal is that
the company's
registration has been transferred to a foreign jurisdiction, as
contemplated in section 82 (5).
(2) The removal of a
company's name from the companies register does not affect the
liability of any former director or shareholder
of the company or any
other person in respect of any act or omission that took place before
the company was removed from the register.
(3) Any liability
contemplated in subsection (2) continues and may be enforced as if
the company had not been removed from the register.
(4) At any time
after a company has been dissolved-
(
a
) the
liquidator of the company, or other person with an interest in the
company, may apply to a court for an order declaring the
dissolution
to have been void, or any other order that is just and equitable in
the circumstances; and
(
b
)
if the court declares the dissolution to have been void, any
proceedings may be taken against the company as might have been taken
if the company had not been dissolved ‘
Decisions
of different divisions of the high court
[22]
The question as to the retrospective effect of reinstatement under
s 82(4) has resulted in conflicting decisions in different
divisions of the high court. In fact, interpretations given to the
section in the various decisions cover the whole spectrum from
no
retrospectivity on the one hand, to complete retrospectivity on the
other, with the concept of partial retrospectivity in between.
An
example of the first kind is to be found in
Bright
Bay Property Service (Pty) Ltd v Moravian Church in South Africa
2013
(3) SA 78
(WCC). Complete retrospectivity, on the other hand, appears
to be supported by
Amarel Africa
Distributors (Pty) Ltd v Padayache
(236/2011)
[2013] ZAGPPHC 87 and the effect of the judgment of this court in
Fintech (Pty) Ltd v Awake Solutions
(Pty) Ltd & others
[2014] 3 All SA
664
; (218/13)
[2014] ZASCA 63
(SCA). But neither in
Amarel
nor in
Fintech
was the issue of retrospectivity fully considered. In the result, the
construction that a reinstatement under s 82(4) has
complete
retrospectivity is not borne out by any fully reasoned authority. The
concept of partial retrospectivity, on the other
hand, is supported
by the court a quo in this matter, as will presently appear from the
more detailed discussion of its judgment
that is to follow. But what
this thesis amounts to in short is that, while reinstatement brings
in its wake retrospectivity to
the extent of revesting the company
with its former assets, it does not validate corporate activity
purportedly conducted on behalf
of the company during its period of
deregistration. This approach also appears to be supported by
Missouri Trading CC & another v Absa
Bank Ltd & others
2014 (4) SA 55
(KZD) paras 37 and 42.
[23]
Before us both parties, each for reasons of its own, contended that
the court a quo was right in not subscribing to the proposition
that
reinstatement in terms of s 82(4) has no retrospective effect at
all. In consequence we did not have the benefit of any
argument to
support this extreme. Nonetheless, I am quite confident to endorse
the approach of the court a quo in this regard.
It seems that the
only decision that lends support to no retrospectivity is
Bright
Bay Property Services
. That decision
relies on one argument only, namely that the deeming provisions to
the effect that the company had ‘. . .
continued in existence
as if it had not been deregistered’ at all, which was found by
the courts to indicate retrospectivity
in s 73(6) and 73(6A) of
the 1973 Act, was not repeated in s 82(4). I agree that, on the
face of it, the omission of
the deeming provision may be regarded as
a pointer to a change of intent on the part of the legislature. But I
believe it is not
more than just an indication, which is outweighed
by counter-indications.
[24]
First of all, the indication of a different intent that usually
follows from a change of wording in amending legislation, is
diluted
by the fact that the new Act is not merely an amendment to the 1973
Act. It is a complete reinvention of our corporate
law. The
organisation and arrangement of its provisions are completely
different, particularly with regard to deregistration and
reinstatement. In this light, different wording used in a completely
new scheme can hardly be construed, in itself, as indicative
of a
complete reversal of intent. Secondly, the concept of reinstatement
of the company’s registration, as opposed to re-registration,
appears to support the notion of placing the company in its former
position. But most significant of all, I think, is the consideration
underscored by the court a quo (para 44) namely that reinstatement
would hardly serve any practical purpose if it did not at least
have
the effect of retrospectively revesting the company with title to its
property. Even after reinstatement, a company will still
be deprived
of its property and the whole reason for its continued existence. Its
formerly secured creditors would remain unsecured.
It will become no
more than a name on the company register.
[25]
Once it is accepted that in principle revestment under s 82(4)
operates retrospectively, the question arises – is
there any
basis for going only halfway? In other words, is there any basis for
the interpretation of s 82(4) which found favour
with the court
a quo, that reinstatement of a company serves to revest it with its
property but does not validate its corporate
activity? The
justification for the limitation found by the court a quo appears
from the following statements in its judgment:
(para 48):
‘
.
. . [T]he potentially prejudicial effect on third parties of a
necessary or inevitable validation of purported corporate activity
inherent in the indiscriminately automatic retrospective
reinstatement of companies is a consideration weighing against the
ready
acceptance of giving reinstatement in terms of s 82(4)
unqualified retrospective effect of the nature provided in terms of
the materially differently worded s 73(6A) of the 1973 Act and
s 26(7)
of the
Close Corporations Act
. . . . As a matter of
general principle consequences with a potentially prejudicial effect
on third parties should not be allowed
to occur administratively
without an opportunity for such parties first to be heard.’
And
(para 49):
‘
An
administrative process is not as well suited as a judicial process to
determine and afford appropriate remedies applying justness
and
equity to address the prejudicial consequences to third parties that
can arise as a consequence of the restoration of deregistered
companies to the register.’
And
(para 50):
‘
The
ambit of
s 83(4)
is wide enough to empower a court to deal not
only with the validation, conditionally or otherwise, of corporate
activity purportedly
conducted on behalf of the company during its
period of deregistration, but also, if it is just and equitable to do
so, with any
prejudicial consequences of the ordinarily retrospective
effects of reinstatement, viz the re-establishment of corporate
personality,
the reinvestment of ownership of property and the
reconstitution of the company's board of directors and general body
of members.’
And
(para 51):
‘
Construing
the provisions of
s 82(3)
and
s 82(4)
to the effect that
administrative reinstatement of a company's registration
retrospectively re-establishes its corporate personality
and title to
its property, but does not validate its corporate activity during the
period that it was deregistered, seems to me
to give the preferred
result given the choice of meanings available.’
[26]
There can be no doubt that retrospective validation of the corporate
activities of a company during its period of deregistration
as a
matter of course holds the inherent risk of prejudice to third
parties. That much had been recognised and discussed in cases
like
Insamcor
,
CA Focus
and
Kadoma Trading.
What the court a quo’s reasoning seems to lose sight of,
however, is that, as pointed out in
Insamcor
,
revesting the company with its property can have the same detrimental
effect on third parties who have in the meantime acquired
rights to
that property. But, more significantly in my view, is the
consideration that refusal to validate the corporate activities
of a
company during its period of demise can be equally devastating to the
interests of bona fide third parties who were unaware
of the
deregistration. That much is well-illustrated by the facts of this
case and by
Absa Bank Ltd v Companies
and Intellectual Property Commission & others
2013
(4) SA 194
(WCC). The truth is that deregistration of a company bears
that inherent risk. It results from the fact that a comparison
between
the deregistration of a company, on the one hand, and the
death of a person, on the other, is not entirely correct. Unlike a
deceased
person, a deregistered company often, as in this case,
carries on with its business as if the deregistration never occurred
and
with third parties having no knowledge of its disability.
Indiscriminate validation of corporate activities, on the one hand,
and
the indiscriminate refusal to validate these activities, on the
other, therefore cut both ways. Potential prejudice to third parties
therefore affords no reason to interpret
s 82(4)
so as to
exclude retrospective validation in principle.
[27]
Closely linked to its views on prejudice to third parties caused by
complete retrospectivity, is the further consideration
which weighed
with the court a quo, namely, that in the light of the potential
prejudice to third parties, reinstatement through
an administrative
process could not have been intended by the legislature to result in
the automatic retrospective validation of
corporate activities. It
follows, so the court’s reasoning went, that the legislature
must have intended to reserve the power
of retrospective validation
to the courts to be exercised on the basis of what is just and
equitable in terms of
s 83(4).
This means, of course, that those
who seek retrospective validation are compelled to resort to the
costly exercise of an application
to court. That raises the
rhetorical question – assuming that
s 83(4)
is available
after administrative reinstatement under
s 82(4)
– why
could the legislature not have intended it to be the other way
around? Once it is recognised that validation and non-validation
cut
both ways, why could it not have been intended that the party who
seeks to
prevent
validation of a particular transaction be afforded the opportunity to
approach the court?
[28]
In addition, the consequence which the court a quo found unlikely,
namely that in the circumstances the legislature would have
intended
complete retrospectivity to result from an administrative process,
was in fact the position that prevailed under previous
legislation.
The consequence of automatic retrospective validation of corporate
activities did not only follow from reinstatement
by the court in
terms of
s 73(6).
It also resulted from the administrative
process in terms of
s 73(6A)
and in terms of
s 26(7)
of the
Close Corporations Act. Another
more peripheral consideration that
seems to have swayed the court a quo was that no provision is made
for notice of the application
for reinstatement to potentially
interested third parties (see also
Missouri
Trading
para 33). That, however, is
fortunately not so. Although
s 82(4)
itself
does not provide for notice of the application to third parties,
regulation 40(7) of the Companies Regulations, GN R351 of
2011,
GG
34239, 26 April 2011, promulgated under
the Act, read with the practice note issued by the CIPC pursuant to
the regulations, published
as GenN 204,
GG
36225, 15 March 2013, inter alia, requires for an application under
s 82(4), an ‘[a]dvertisement in a local newspaper
giving
21 days’ notice of proposed application for reinstatement’.
Third parties are thus given the opportunity to
prevent
reinstatement.
[29]
But what finally renders the position of partial retrospectivity held
by the court a quo, in my view, untenable is that the
wording of
s 82(4) simply leaves no room for this construction. Once
‘reinstatement’ in s 82(4) is construed
as
indicating retrospective operation, there is no justification for
construing it to mean that retrospective operation must stop
halfway,
in the sense that it pertains to revestment of the company’s
property only. As appears from the court a quo’s
judgment (para
51) it clearly held the view that its interpretation of s 82(4)
read with 83(4) of the Act has ‘the preferred
result given the
choice of meanings available’. Although the preference of
outcome may be debatable, my real problem is that
I do not think the
wording of the section renders the meaning preferred by the court a
quo available. As I see it, the wording
of the section leaves no room
for the pragmatic approach adopted by the court a quo. The only
meaning available on that wording,
as I see it, is that s 82(4)
has automatic retrospective effect, not only in revesting the company
with its property but also
in validating its corporate activities
during the period of its deregistration. In short, there is no
textual basis to distinguish
between revesting of property and
revesting the company with the capacity to continue operating. It
follows that, in my view, the
arbitration proceedings and related
court proceedings during the period of deregistration, together with
the awards and orders
made in those proceedings, were automatically
validated by the reinstatement of Newlands under s 82(4). Unlike
the court a
quo, I therefore do not think there was any need for a
special declaratory order to that effect. To that extent, the order
of the
court a quo requires amendment, but as far as the dispute
between the parties in this case is concerned, that seems to be the
end
of the matter.
[30]
Yet, with regard to the interpretation of s 82(4), read in
juxtaposition with s 83(4), something more should be said,
particularly since the matter was fully argued in this court. As a
starting point I agree with the view expressed by the court
a quo
(para 52) that s 83(4) is available even where the company has
already been administratively reinstated in terms of
s 82(4) (cf
Absa Bank Ltd v CIPC
above paras 43-44). And like the court a quo, I do not believe that
there is any support in the wording of s 83(4) for the
contrary
interpretation contended for by Newlands. Section 83(4)(
a
)
allows any ‘person with an interest in the company’ to
apply for relief connected with the dissolution of the company.
Upon
such application the court is afforded authority to make ‘any .
. . order that is just and equitable in the circumstances’.
Moreover, s 83(4) expressly provides that this application can
be brought ‘[a]t any time after the company had been
dissolved’. In the light of this wide wording at every level, I
find no justification to restrict this wide meaning so as
to exclude
a company, which had subsequent to dissolution been reinstated by
administrative action, from the ambit of the section.
Thus
understood, the legislature had, in my view, intended to alleviate
the prejudicial effect on third parties or even the company
which may
be brought about by the retrospective effect of reinstatement under
s 82(4). Any party who is prejudiced by this
automatic
retrospective action, is afforded the opportunity to seek
amelioration under s 83(4) of the Act, in which event
the court
is authorised to grant any relief it considers just and equitable.
[31]
It follows that, in my view, the appeal should be dismissed with
costs and the judgment of the court a quo confirmed, save
for such
amendments to its order (in para 64) that are necessitated by our
different reasoning, albeit that this difference in
reasoning leads
to an outcome which is essentially the same. In the result it is
ordered that:
1 Paragraphs (a) and
(b) of the order of the court a quo are set aside and replaced by the
following:
‘
(a)
It is declared that the reinstatement of the first respondent as a
company in terms of
s 82(4)
of the
Companies Act 71 of 2008
had
retrospective effect from the date of its deregistration which
included the retrospective validation of its corporate activities
during that period.’
2 Paragraphs (c) and
(d) of the order of the court a quo are renumbered to (b) and (c)
respectively.
3
Save for the aforegoing amendment, the order of the court a quo is
confirmed and the appeal is dismissed with costs including
the costs
of two counsel.
F
D J Brand
Judge
of Appeal
Appearances
For
the Appellant: M A Albertus SC (with him G M Quixley)
Instructed by:
J Ramages Attorneys,
Cape Town
Honey
Attorneys, Bloemfontein
For
the Respondent: J Butler SC (with him M Ioannou)
Instructed by:
Clyde & Co, Cape
Town
Lovius
Block Attorneys, Bloemfontein