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[2015] ZAGPJHC 3
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Mahlangu v Master of the South Gauteng High Court and Others (2013/37534) [2015] ZAGPJHC 3 (26 January 2015)
REPUBLIC
OF SOUTH AFRICA
IN THE GAUTENG
HIGH COURT
(LOCAL DIVISION
JOHANNESBURG)
CASE
NO: 2013/37534
DATE:
26 JANUARY 2015
In
the matter between
QEDANI
MAHLANGU
...............................................................................
APPLICANT
And
THE
MASTER OF THE SOUTH GAUTENG
.........................
FIRST
RESPONDENT
HIGH
COURT
COMMISSIONER
ADVOCATE CHARLES
.....................
SECOND
RESPONDENT
SCOTT
STEWART
LEIGH
WILLIAM ROERING N.O
........................................
THIRD
RESPONDENT
MABATHO
SHIRLEY MOTIMELE N.O
..........................
FOURTH
RESPONDENT
J
U D G M E N T
MOSIKATSANA
AJ:
Introduction
[1]
This is an application for an order to set aside a summons issued
under s 417(1) of the
Companies Act
, 61 of 1973 as amended
(the Act). The application is opposed by the third and fourth
respondents.
[2]
The third and fourth respondents are the appointed joint liquidators
of 3P Consulting (Pty) Limited (in liquidation), Master’s
reference: G1259/2010 (3P Consulting).
[3]
The applicant was a member of the executive council for the
department of health in the Gauteng province (MEC for Health) at
the
relevant time.
[4]
The first respondent is the Master of the South Gauteng High Court
(the Master) and the second respondent was appointed by the
Master as
Commissioner to conduct the enquiry. He was further authorised to
issue a summons for the attendance at the enquiry of
witnesses for
the proper investigation into the financial affairs of 3P Consulting.
Factual
Background
[5]
The Gauteng health department (the department) had a service level
agreement with 3P Consulting for the implementation of a
turnaround
strategy, for the department. The agreement was extended but due to
allegations of impropriety the agreement was subsequently
cancelled
by the department on allegations of irregularities.
[6]
Before its winding-up, 3P Consulting sued the department for
approximately R99, 096, 157.86 (ninety nine million and ninety
six
thousand one hundred and fifty seven rands eighty six cents)
excluding interest and costs as set out in the notice of motion
dated
13 October 2011 Case No: 38995/2011(the judgment application). The
department opposed the proceedings on the basis that it
received no
value. After pleadings were closed, the dispute was referred to oral
evidence. Before hearing the oral evidence 3P
Consulting was placed
into final winding-up. After investigation, the liquidators have
determined that 3P Consulting has creditors
with claims in excess of
R100, 000 000 (one hundred million rands). 3P Consulting’s
only asset is its claim of
R99, 000 000 (ninety nine
million rands) against the department. 3P Consulting wound up because
the department had not
paid the debt.
[7]
In order to make a decision on whether or not to proceed with the
judgment application, the liquidators obtained the Master’s
authority to convene an inquiry in terms of ss 147 and 148 of the
Act. The enquiry commenced on 29 April 2013. At the request of
the
joint liquidators and having duly applied his mind to the matter, the
Commissioner summoned the applicant to attend the enquiry
on 29 July
2013 in order to testify on matters within her knowledge in respect
of her dealings and association with the business,
trade property and
affairs of 3P Consulting.
[8]
The applicant attended on that date. The applicant undertook to give
evidence. However, she asked for a postponement to the
27 August,
2013 to refresh her memory. The Commissioner granted the
postponement. On 27 August, 2013 the applicant did not attend
the
enquiry as previously undertaken by her. Instead her legal
representatives explained to the enquiry that the applicant was
unable to attend as she was ill. They produced a medical certificate
to support their claim.
[9]
By agreement with the applicant’s legal representative, the
enquiry was postponed to 15 October, 2013. On 9 October, 2013
the
applicant brought an urgent application to excuse her from attending
the enquiry pending the court’s decision on whether
the summons
should be set aside. The urgent application was heard on 15 October,
2013 which coincided with the date to which the
enquiry was
postponed. The court granted the applicant the relief sought pending
the hearing of the application to set aside the
summons to attend the
ss 147 and 148 enquiry. The application to set aside the summons was
set down at the instance of the third
and fourth respondents for 24
March, 2014 before this court.
[10]
On 17 March, 2014 the applicant filed an application for a two week
postponement of the application to set aside the summons
from the 24
March, 2014. The applicant’s reason for seeking a postponement
of the application to set aside was that her counsel
on the matter
was not available on the 24 March 2014. The postponement application
was opposed by the third and fourth respondents.
Fortuitously, this
matter was heard on 27 March, 2014 at which stage, the postponement
application was abandoned and the matter
proceeded on the merits.
Dispute
on the merits
Applicants’
submissions
[11]
The applicant concedes that the provisions of ss 417 and 418 of the
Act are constitutional
[1]
and
that they are aimed at assisting liquidators determine the best
course to adopt in the liquidation of a company, to properly
assess
and determine the company’s assets and liabilities, to recover
the assets and to pay liabilities and to discharge
this obligation in
a manner that is in the best interests of the creditors.
[12]
The applicant launches a two-pronged approach to its arguments. First
she alleges that the summons is an abuse of process.
Secondly, she
contends that the summons is vague.
Arguments
on Abuse
[13]
The applicant concedes that it is not incumbent upon the third and
fourth respondents to demonstrate the need for an inquiry,
but that
she carries the obligation as the party wishing to stop the enquiry,
to demonstrate a clear abuse.
[2]
[14]
The applicant also acknowledges a general right or entitlement on the
part of liquidators to obtain information in order to
make an
informed decision whether to institute proceedings on behalf of a
company in liquidation. However, the applicant argues
through counsel
that in this instance, the summons is an abuse because a decision has
already been made to press a claim in Case
No: 38995/2011 against the
department for R99, 096, 157 .86 excluding interest. The applicant
states that all the information that
the third and fourth respondents
require may be gleaned from the documents filed in Case No:
38995/2011. The applicant contends
that the summons in this instance
will not serve its intended purposes of pre-litigation information
gathering, but that it will
be used as a trial run or ‘pre-hearing’
of the evidence to be led in the civil litigation under Case No:
38995/2011.
[15]
Applicant’s counsel relies on the following dicta in
Cloverbay
Limited (Joint Administrators) v Bank of Credit and Commerce
International
[3]
which
outlines the criteria to be applied by a court in exercising its
discretion whether or not to allow an examination:
‘
It
is clear that in exercising the discretion, the court has to balance
the requirements of the liquidator against any possible
oppression to
the person to be examined. Such balancing depends on the relationship
between the importance to the liquidator of
obtaining the information
on the one hand and the degree of oppression to the person sought to
be examined on the other. If the
information required is fundamental
to any assessment of whether or not there is a cause of action and
the degree of oppression
is small (for example, in the case of
ordering the premature discovery of documents), the balance will
manifestly come down in
favour of making the order. Conversely, if
the liquidator is seeking merely to dot the i’s and cross the
t’s of a fairly
clear claim by examining the proposed defendant
to discover his defence, the balance would come down against making
the order.
Of course, a few cases will be so clear: it will be for
the judge in each case to reach his own conclusion.’
[16]
Applicant’s counsel further states that the applicant cannot
state definitively, whether the work allegedly rendered
by 3P
Consulting had been actually performed or not. Nor can she advance
the department’s case that there was double billing
or other
forms of irregularities. Counsel also states that the applicant is no
longer the MEC for health and has no possession
or control of any
documents from the department. Applicant’s counsel further
states that the applicant is not a former officer
of 3P Consulting
and owes no fiduciary duty to 3P Consulting and if anything she is an
employee of the other party to the pending
civil litigation.
Applicant’s counsel submits respectfully that it cannot be
suggested that the commissioner applied his
mind in making the
decision to summon the applicant to be examined. He also states that
there is no reasonable basis for suspecting
that the applicant has
any document in her possession or control. Applicant’s counsel
further states that applicant attended
the enquiry and pleaded for an
opportunity to consider the matter properly before attending further.
He states that the applicant
was overwhelmed by the prospect of being
examined in the enquiry and that this has no bearing on whether
objectively viewed, the
summons constitutes an abuse.
Respondent’s
submissions
[17]
The joint liquidators state that they have no direct or personal
knowledge of 3P Consulting’s trade, dealings and affairs,
and
in particular those with the department. For this reason, they state
that they cannot make an informed decision whether or
not to continue
with the civil litigation initiated by 3P Consulting against the
department. They argue that the applicant can
provide useful
information to them in the winding-up of the estate and in deciding
whether they should continue with the litigation
that 3P Consulting
instituted against the department prior to its winding-up.
[18]
The liquidators also state that in order to set aside the summons,
the applicant must make out a clear case of abuse. They
argue that
the applicant has not made a proper case for setting aside the
summons.
[19]
The liquidators refer to the decision of the Constitutional Court in
Bernstein
[4]
where
the provisions of ss 417 and 418 were found to be constitutional. In
particular, they refer to paragraphs [15] and [16] of
the
Bernstein
decision for listing of the duties of the liquidator in any
winding-up.
[20]
The liquidators refer to paragraph [33] of the
Bernstein
decision where Ackermann J remarked that in Australia a liquidator is
entitled to obtain information not only to ascertain whether
she or
he has a cause of action but also to evaluate whether she or he has a
sufficiently strong case to justify spending the creditors’
money in pursuing it, or whether there is an adequate defence to a
claim against the company.
[21]
The liquidators also quote the following extract from the decision in
Cloverbay
[5]
where in holding that the liquidator is entitled to obtain as much
information as possible before deciding whether or not to institute
legal proceedings the Court of Appeal held:
‘
The
more information there is as to the facts and possible defences to a
claim the better informed will be any decision and the
greater the
likelihood of such decision being correct. It is the function of the
liquidator or the administrator to do his best
for the creditors.
True he is an officer of the court and must not act in any improper
way but, like a judge,
I can see nothing
improper in a liquidator or administrator seeking to obtain as much
information as possible before committing
himself to proceedings…
’
[22]
The liquidators further referred to
Ferreira
v Levin NO and Others; Vryenhoek and Others v Powell NO and Others
[6]
for the proposition that the purpose of an enquiry is ultimately to
minimise loss to creditors and to give full information to
creditors.
They also referred to
Kebble
[7]
to highlight the fact that the determination as to whether an enquiry
is an abuse is a factual determination.
[23]
Flowing from the above legal authorities, the liquidators argue that:
[23.1]
they have a duty to enquire into the affairs of 3P Consulting;
[23.2]
they are entitled to gather as much information as possible, to
assess whether to proceed with the judgment application against
the
department;
[23.3]
the applicant’s contention, that the enquiry, is aimed at
bolstering the civil case against the department, and that
this
constitutes abuse is not true;
[23.4]
they did not institute the case, it is not their case and they have
not yet decided to pursue it and cannot be said to be
attempting to
bolster it;
[23.5]
the applicant is not a party to the judgment application and cannot
rely on it to make out a case of abuse;
[23.6]
the applicant has failed to adduce any evidence in support of her
contention of abuse;
[23.7]
contrarily, her founding affidavit demonstrates the need for an
enquiry as she alleges improprieties and irregularities in
the award
as well as the extension of the contract;
[23.8]
as in
Kebble
allegations of fraud, impropriety and
irregularity strengthen rather than undermine the need for an
enquiry;
[23.9]
the fact that a witness summoned to testify at an enquiry may be a
witness at or a defendant in subsequent proceedings related
or
unrelated to the liquidated company on its own does not constitute a
basis for setting aside the summons. The liquidators cite
Levin v
Ensor NO and Others
1975 920 SA 118
(D) at 121 -122 and
Pretorius
v Marais
1981 (1) SA 1051
(A) at 1062J-1065A for the latter
proposition.
[24]
The liquidators also argue that the commissioner filed a report
confirming that the applicant is able to provide information
concerning the trade, dealings, affairs and property of 3P Consulting
and that the postponements were granted based on assurances
that the
applicant could assist the commissioner. The liquidators further
argue that the applicant never disputed the validity
of the summons
or that she is able to assist the enquiry. They contend that the
applicant was apparently misleading the commissioner.
The liquidators
conclude that a proper case has not been made for setting aside the
summons and that the application should be
dismissed with a punitive
costs order on the attorney and client scale.
Issue
for determination
[25]
The issue to be determined is whether the applicant has made out a
clear case of abuse for the setting aside of the ss 147
and 148
summons.
Legal
determination of the issues
[26]
3P Consulting instituted civil litigation against the department
which has been referred to oral evidence. The joint liquidators
state
in their heads that the enquiry will assist them in making a decision
whether or not to proceed with the case initiated by
3P Consulting
against the department. The liquidators argue that the purposes of ss
417 and 418 of the Act include the gathering
of information for
purposes of assessing whether or not to proceed with the judgment
application. To support this proposition the
liquidators refer to
para [33] in
Bernstein
where Ackermann J alluded, without setting out any principle for our
courts to follow, to the Australian judicial practice of allowing
the
holding of an enquiry to gather information to determine prospects of
success at trial
[8]
. It is trite
that in our law as in English law, the holding of an enquiry in order
to ‘dot the i’s and cross the t’s’
or in
other words, to weigh the prospects of success in ongoing civil
litigation is impermissible, an abuse of process and unfair.
[9]
[27]
Tritely, the court has discretion to prevent abuse of process by
setting aside a summons. However, the applicant has the duty
to
satisfy this court that this is a proper case for the setting aside
of the summons. In support of her claim the applicant has
argued
inter alia that the summons is an abuse of process as she has no
information regarding the business activities of 3P Consulting,
that
any information that the liquidators require in order to determine
whether to proceed with the civil case against the department
may be
gleaned from the court records in that case. Applicant’s
counsel also argues that she is not an office bearer of 3P
Consulting
and therefore owes no fiduciary duty to the shareholders and
creditors of 3P Consulting. Applicant’s counsel further
argues
that at the relevant time, the applicant was an employee of the
department which is involved in civil litigation with 3P.
[28]
In my view ss 417 and 418 of the Act have to be invoked and applied
with circumspection, particularly as against the applicant
who is not
the controlling mind or officer of 3P Consulting and who owes no
fiduciary duty to the shareholders of 3P Consulting.
The applicant
was at the relevant time an executive officer of the department. The
applicant’s relationship with 3P Consulting
is at arm’s
length and inherently adversarial. The applicant, in my view,
hardly qualifies as a person who can shed
light on the operations of
3P Consulting.
[29]
The joint liquidators argued in their heads that the applicant having
initially undertaken to testify at the enquiry, subsequently
reneged.
They conclude that the applicant misled the enquiry when she
undertook to testify and after she had been given opportunity
to
refresh her memory. It is worth considering that even though ss 147
and 148 are constitutional, they have variously been described
as
inquisitorial and draconian
[10]
with an expansive reach that is sometimes not justified by the
purposes for which they were legislated
[11]
.
For this reason, it is plausible as applicant’s counsel has
argued that the applicant, daunted by the prospect of testifying
at
the enquiry, became irresolute and prevaricated. However, the
applicant’s subjective reaction to being summoned
to testify is
not the subject of my enquiry and has no significant bearing on my
findings into the fairness or otherwise of the
process.
[30]
A further concern I have with the issuance of a summons for the
applicant to testify under these circumstances where proceedings
have
already been instituted, is that the enquiry may be abused to gain
pre-trial forensic advantages not permitted by rules of
court to
elicit information that may be used to uncover the inherent strengths
and weaknesses in 3P Consulting’s civil lawsuit
against the
department. The abuse of the inquiry by going on a fishing expedition
in the manner suggested above, is exacerbated
by the fact that unlike
in a trial, a ss 417 and 418 enquiry is relatively fluid and
open-ended, lacking the structural protections
of a trial, such
as chief-examination, cross-examination, re-examination, relevance
and admissibility.
[31]
The joint liquidators argued that they did not institute the judgment
application, that it is not their case, that they have
not yet
decided to pursue it and that they cannot be said to be attempting to
bolster it. Even if the liquidators didn’t
initiate the
judgment application, it does not alter the fact that if the enquiry
proceeds, it will provide them with a pre-trial
forensic tool not
provided by the rules of court such as discovery and inspection to
weight their chances of success at trial.
For
the above reasons, the summons is in my view an abuse of process,
oppressive and unfair.
ORDER:
[33]
I Make the following order:-
[33.1]
The application to set aside the summons is granted with costs.
T
L MOSIKATSANA
ACTING
JUDGE OF THE HIGH COURT
APPEARANCES:
COUNSEL
FOR APPLICANTS N CASSIM SC
INSTRUCTED
BY NGCEBETSHA MADLANGA ATTORNEYS
COUNSEL
FOR RESPONDENTS GD WICKINS
INSTRUCTED
BY BROOKS BRAND INC ATTORNEYS
DATE
OF HEARING 27 MARCH 2014
DATE
OF JUDGMENT 26 JANUARY 2015
[1]
Bernstein
& Others v Bester & Others NNO
[1996] ZACC 2
;
1996
(2) SA 751
CC.
[2]
Kebble
Gainsford & Others NNO
2010 91) SA 561
[71].
[3]
SA
[1991] Ch 90 (CA) [1991] 1 ALL ER 894.
[4]
Supra
note 1.
[5]
Supra
note 3.
[6]
1996
(1) SA 984
CC par [261].
[7]
Supra
note 2
[8]
See
Re
Spedley Securities Ltd: Ex Parte Potts & Gardiner
(1990) 2 ACSR 152
(Supreme Court of New South Wales) at 155-6.
[9]
See
Cloverbay
supra note 3.
[10]
See
Botha
v Strydom
1992 (2) SA 155
(N) 159 G-I;
Jeeva
v Receiver of Revenue, Port Elizabeth
1995 (2) SA 433
(SE) A-B.
[11]
Y
Joubert and J Calitz ‘To be or not to be? The Role of Private
Enquiries in the South African Insolvency Law’ PER/PELJ
2014
(17) 3