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[2015] ZASCA 112
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Chetty v Hart (20323/2014) [2015] ZASCA 112; 2015 (6) SA 424 (SCA); [2015] 4 All SA 401 (SCA) (4 September 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 20323/2014
In
the matter between:
SHAMLA
CHETTY t/a NATIONWIDE
ELECTRICAL
APPELLANT
and
O
D HART NO
FIRST
RESPONDENT
R
VENGADESAN
NO
SECOND RESPONDENT
Neutral
Citation:
Chetty
v Hart
(20323/14)
[2015] ZASCA 112
(4 September 2015)
Coram
:
Cachalia, Willis,
Saldulker and Mathopo JJA and Gorven AJA
Heard:
24
August 2015
Delivered:
4 September 2015
Summary:
Companies
Act 71 of 2008
– business rescue proceedings – whether
arbitration proceedings fall within the general moratorium on legal
proceedings
against a company under business rescue in
s 133(1)
–
whether proceedings instituted or continued without business
practitioner’s consent a nullity – whether
s 133(1)
enacted for the benefit of the company under business rescue –
interpretation of statute – provision capable of more
than one
meaning – proper approach.
ORDER
On
appeal from:
KwaZulu-Natal
Local Division of the High Court, Durban (Nzimande AJ sitting as
court of first instance):
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Cachalia
JA (Willis, Saldulker and Mathopo JJA and Gorven AJA
concurring)
[1]
The parties to this dispute are Shamla Chetty, trading as Nationwide
Electrical and TBP Building and Civils (Pty) Ltd (TBP).
After
agreeing to refer their contractual dispute to arbitration, the
arbitrator made an award substantially upholding Ms Chetty’s
claims against TBP and also TBP’s counterclaims against her.
The award was made while TBP was under business rescue. In terms
of
the award TBP became liable to Ms Chetty for payment of an amount of
R420 573.93 plus interest. But she in turn was held
liable to
TBP for substantially more, namely, an amount of R4 238 451.95
plus interest and costs. Dissatisfied with this
outcome Ms Chetty, to
whom I shall henceforth refer as the appellant, sought to invalidate
the award in its entirety by seeking
an order reviewing and setting
it aside in the KwaZulu-Natal Local Division, Durban. When the
litigation commenced, TBP was no
longer under business rescue, but in
liquidation. So the liquidator, to whom I shall refer as the
respondent, stepped into TBP’s
shoes to oppose the relief
sought. The arbitrator was also cited as a co-respondent but he has
no interest in these proceedings.
[2]
There were several matters that arose on the papers before the court
a quo. But it was asked to adjudicate only one question
as a point of
law separately: whether the arbitration award made while TBP was
under business rescue was precluded by the general
moratorium on
legal proceedings against companies under business rescue under
s
133(1)
of the Companies Act 71 of 2008 (the Act).
[1]
[3]
Section 133(1)
(a)
,
which lies at the heart of this dispute, provides for a moratorium on
any ‘legal proceedings’ against a company during
business
rescue proceedings except with the written consent of a business
rescue practitioner appointed to oversee the affairs
of a financially
distressed company. The arbitration award was made in circumstances
where the appellant, who is a creditor of
TBP, was not aware of the
business rescue proceedings and therefore did not seek the
practitioner’s consent to pursue the
suit against TBP. The
appellant contended in the court a quo that the arbitration was a
‘legal proceeding’ as envisaged
in the section and that
the moratorium therefore applied to her claim. Her failure to apply
for consent – through no fault
of her own – thus
nullified both that part of the award in her favour as well as the
other part arising from the counterclaim
in favour of TBP. In other
words, she sought to invalidate the award in its entirety. The
respondent’s response was that
the moratorium on legal
proceedings in s 133(1) applied only to court proceedings, not
arbitrations, and that even if it did
apply to arbitrations, the
award was not a nullity.
[4]
The court a quo (Nzimande AJ) rejected the appellant’s
principal contention – that an arbitration proceeding was
a
legal proceeding – holding instead in favour of the respondent
that the ‘ordinary meaning’ of a legal proceeding
was a
‘lawsuit’ or ‘hofsaak’, which excluded
arbitrations from its ambit. Consequently, the court ruled,
the
moratorium on legal proceedings in s 133 did not apply to arbitration
proceedings and the arbitration award could therefore
not be impugned
on this ground. The appeal against that ruling comes before us with
its leave.
[5]
To better understand the genesis of the dispute between the parties
it may be helpful to briefly set out the facts. The dispute
arose
from a domestic sub-contract agreement between the appellant as
sub-contractor and TBP as the main contractor. The contract
was for
an electrical installation at a hospital. The sub-contract was
cancelled on 6 October 2010. The disputed cancellation led
to the
arbitration, which commenced on 11 December 2011 and was adjourned
from time to time. It ran for several days until all
the evidence for
the claim and the counterclaim had been led. The proceedings were
then postponed for argument to 12 October 2012.
[6]
However, on 5 October 2012, TBP began business rescue proceedings by
filing a resolution to place itself under business rescue.
The
business rescue was registered on 11 October 2012, and a business
rescue practitioner duly appointed to oversee the affairs
of the
company. Once the business rescue proceedings began, the moratorium
on legal proceedings in s 133 of the Act applied to
claims against
the company. This means that no legal proceedings against the company
could commence or proceed except in the circumstances
specified in ss
133(1)
(a)
to (e)
.
As mentioned earlier, s 133(1)
(a)
– the provision requiring the written consent of the
practitioner for legal proceedings – is central to this
dispute.
[7]
On 12 October 2012, unaware that TBP was under business rescue, the
arbitrator heard argument and on 23 October 2012, still
unaware,
delivered his award. The appellant was also not informed of TBP’s
changed legal status. So she neither sought, nor
was given, the
practitioner’s written consent to continue the arbitration
proceedings begun in December 2011 and which by
then had almost run
its course. The practitioner did nothing to bring the business rescue
proceedings to the appellant’s
attention either. He says in his
answering affidavit that he would have given his consent had he been
asked, though I do not think
anything turns on this.
[8]
I turn to the first issue in this appeal, which concerns the
interpretation of the phrase ‘legal proceeding’ as
it is
used in s 133 of the Act. It is helpful to reiterate that the method
of attributing meaning to the words used in legislation
involves, as
a point of departure, examining the language of the provision at
issue, the language and design of the statute as
a whole and its
statutory purpose. So when the lawmaker uses particular words to
achieve its purpose they must be given effect.
In so doing a court
will apply ordinary rules of grammar and syntax. It is not
permissible to ignore or distort the meaning of
the words to achieve
its purpose. For in so doing a court will be substituting its own
words for those of Parliament. But if the
words used are reasonably
capable of bearing more than one meaning, the consequences of the
divergent interpretations must be examined
so that a meaning that is
likely to further rather than hinder its purpose is adopted.
[2]
In this regard a meaning that is more sensible and business like is
to be preferred over one that has a contrary effect.
[3]
[9]
It may be apposite to begin this interpretive exercise by reiterating
how the courts and standard textbooks have distinguished
arbitration
from the process of the courts. Arbitration involves a practice
whereby parties voluntarily resolve disputes over their
rights
privately, outside of the public process of the courts. It involves
the appointment of an independent arbitrator, often
chosen by the
parties, to rule on their dispute according to terms of reference and
procedures they give him. The terms of reference
confer the mandate
or jurisdiction on the arbitrator to decide the dispute by making an
award, which is final and binding upon
them. By adopting this route
the parties remove the dispute from the jurisdiction of the courts.
In short, they agree on a private,
non-State process.
[4]
[10]
Although there is a distinction between the nature of proceedings to
resolve disputes over rights in the courts and those through
arbitration, the courts nevertheless exercise a supervisory function
over arbitration. A court will therefore intervene at the
behest of
the parties where an arbitrator exceeds his jurisdiction, misconducts
himself or commits a gross irregularity. A court
will also exercise
its jurisdiction over a dispute concerning an award that is alleged
to have been improperly obtained. Arbitration
awards are also only
enforceable by the process of the
courts.
[11]
But the distinguishing features between court and arbitration
proceedings do not answer the question posed in this case, whether
both or only court proceedings are legal proceedings for purposes of
s 133 of the Act. The relevant parts of the section read as
follows:
‘
133
General moratorium on legal proceedings against company
(1)
During business rescue proceedings, no legal proceeding, including
enforcement action,
against the company, or in relation to any
property belonging to the company, or lawfully in its possession, may
be commenced or
proceeded with in any forum, except-
(a)
with the written
consent of the practitioner;
(b)
with
the leave of the court and in accordance with any terms the court
considers suitable;
(c)
as
a set-off against any claim made by the company in any legal
proceedings, irrespective of whether those proceedings commenced
before or after the business rescue proceedings began;
(d)
. . .
(e)
. . .
(f)
. . .
(2)
. . .
(3)
If any right to commence proceedings or otherwise assert a claim
against a company
is subject to a time limit, the measurement of that
time must be suspended during the company's business rescue
proceedings.’
[12]
The phrase ‘legal proceeding’ is not defined in most
standard dictionaries or in the Act. But it has been defined
in
Black’s Law Dictionary as:
‘
Any
proceeding authorized by law and instituted in a court or tribunal to
acquire a right or to enforce a remedy.’
[5]
And
in
International
Arbitration Law
[6]
the author notes that ‘arbitration constitutes legal
proceedings’. The internet also reveals that ‘arbitration
is a legal proceeding that results in an award that is generally
binding’.
[7]
In England,
for example, reference to ‘no other proceedings’ in a
statute was found to mean that the proceedings were
legal proceedings
or quasi-legal proceedings such as arbitration.
[8]
[13]
So, depending on the context within which the phrase is used, it is
fairly capable of covering proceedings before the courts
as well as
other tribunals, such as arbitration tribunals, to resolve legal
disputes over rights and remedies.
[9]
In ordinary parlance therefore it would be incongruous not to
construe proceedings in which legal disputes are resolved privately
through arbitration as legal proceedings simply because they take
place outside of the formalities of the court system.
[14]
Of course, the courts have on occasion ascribed a meaning to the
phrase as being a court proceeding. Thus, recently, in
Cloete
Murray & another NNO v Firstrand Bank Ltd t/a Wesbank
[10]
in interpreting s 133(1) in a dispute over whether the cancellation
of a contract constituted ‘enforcement action’
as
envisaged in the section, this court observed – without
deciding – that the phrase ‘legal proceedings’
usually bears the meaning of a ‘lawsuit’ or ‘hofsaak’
and that ‘enforcement action’ was a species
of or has its
origin in such legal proceedings. This conclusion, it said, was
supported by the fact that the proceedings could
only begin or
continue in a ‘forum’, which usually refers to a court or
tribunal. And therefore the ‘forum’
relates to ‘formal
proceedings’ ancillary
[11]
to legal proceedings, such as the enforcement or execution of court
orders by means of writs of execution or attachment orders,
which the
cancellation of a contract was not.
[12]
[15]
The respondent relies heavily on this judgment to support its
contention that the phrase legal proceedings in s 133(1) relates
to
formal court proceedings. And at first blush the reference in the
judgment to a ‘lawsuit’ or ‘hofsaak’
that
relates to formal proceedings may suggest it does, particularly
because the court referred to
Van
Zyl v Euodia Trust (Edms) Bpk
,
[13]
which was followed in
Lister
Garment Corporation (Pty) Ltd v Wallace NO
[14]
to demonstrate that this was the ‘usual meaning’ of the
phrase.
[15]
The court a quo also cited the two cases as authority for the
conclusion to which it came.
[16]
But none of these cases support the respondent’s interpretation
of the section.
Cloete
Murray
was
concerned not with the meaning of legal proceedings, but of
‘enforcement action’, which it said had its origin in
‘legal proceedings’.
[16]
In both
Van
Zyl
and
Lister
Garment
the
issue was whether s 13 of the 1973
Companies Act permits
a court to
order a company that proceeds as the plaintiff in reconvention to
furnish security for costs.
[17]
It was held that the section applied only to the plaintiff in
convention, and not to the plaintiff in reconvention. In coming to
this conclusion the court said that the history of the provision was
to be traced to the common law rule that
incolae
must
have free access to the courts and cannot be compelled to furnish
security for costs. And to the extent that
s 13
made inroads into the
common law the provision ought to be restrictively interpreted so as
not to include the plaintiff in reconvention.
The two cases were
therefore concerned with access to the courts and do not apply to the
issue before us.
[17]
However, in a recent unreported case involving the interpretation
s
133
,
Merchant
West Working Capital Solutions (Pty) Limited v Advanced Technologies
and Engineering Company Limited & another
,
[18]
which the respondent drew to our attention, the court cited the same
cases (
Van
Zyl and Lister Garment
)
in holding that the phrase ‘legal proceeding’ is ‘not
. . . susceptible to any other meaning than (its) ordinary
every-day
literal one’.
[19]
But here too the issue was not germane to the question before us. The
court was confronted with a contention that legal proceedings
as
envisaged in
s 133(1)
were concerned only with disputes over claims,
not applications to court for the perfection of security. The court’s
conclusion
was that the application fell within the moratorium on
legal proceedings, and therefore required the consent of the
practitioner
before it could be instituted. So what the judge said
about legal proceedings in that case also has no bearing on the
current issue.
[18]
I return to
Cloete
Murray
.
There the court observed that a ‘forum’, as the term is
used in the section, usually refers to a court or
a
tribunal
(emphasis added). So the ‘forum’ clearly does not bear a
single meaning ie formal court proceeding, and I do not think
that
the judgment can be construed in this way either.
[19]
This is why the respondent was driven to contend that the reference
to a forum in
s 133
(1) means a
public
forum, that is, a court of law rather than a forum that includes
tribunals of all kind, public and private. But this interpretation
impermissibly requires the word
public
to be added before the word ‘forum’ in the section,
[20]
when the statute is perfectly capable of being interpreted
intelligibly as it stands. Had the aim of the drafters been to
confine
the proceedings to court proceedings, it would simply have
used the word ‘court’ instead of ‘forum’.
[20]
Notwithstanding this difficulty, which was put to counsel for the
respondent during the hearing, he pressed the point. In this
regard
he relied heavily on the judgment of the Constitutional Court in
Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews &
another
as authority for the proposition that a ‘forum’
as referred to in
s 133(1)
means a ‘public’ forum.
There the court was concerned with whether s 34 of the Constitution
applied to private arbitrations.
It provides that:
‘
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court,
or where appropriate, another independent and impartial tribunal or
forum.’
[21]
The court had to decide whether an arbitrator was ‘another
independent and impartial tribunal or forum’ as contemplated
in
the section.
[21]
In a majority
judgment the court held that s 34 did not apply to private
arbitrations. In coming to this conclusion, it said that
the language
used in the section did not apply directly to private
arbitrations.
[22]
In other
words, it applied to public tribunals and public forums, not private
ones.
[22]
A crucial reason for why it arrived at this conclusion was that the
words ‘fair
public
hearing’
(emphasis added) in s 34 were held to apply to the tribunals and
forums.
[23]
By contrast, there
is no suggestion in the language employed in s 133 that the ‘forums’
referred to are only public
forums and not private ones. So the
respondent’s invocation of
Lufuno
Mphaphuli
to
buttress its interpretation must also founder.
[23]
I have thus far attempted to give meaning to the phrase ‘legal
proceeding’ by examining it in its immediate context
ie by
reading it with the other words and phrases in the section so as to
give it ‘colour and content’.
[24]
But reading words in their context often requires one to have regard
to the wider context including other provisions in the same
statute.
One such provision that is relevant in this contextual analysis is s
142(3)
(b)
,
which paradoxically both parties seek to rely upon. This section
obliges directors of a company in business rescue to assist the
practitioner by providing details of:
‘
any
court, arbitration or administrative proceedings, including pending
enforcement proceedings, involving the company.’
[24]
The appellant submits, with some persuasive force, that the specific
mention of arbitration proceedings in the section instead
of the
general reference to legal proceedings in s 133(1), indicates that
the latter is intended to encompass all those proceedings
and not
simply court proceedings. Section 133(1), it is submitted, therefore
refers to the legal proceedings in general terms and
s 142(3)
(b)
particularises the proceedings of which the practitioner must be
apprised. This is fortified, so the submission continues, by the
use
of the words ‘in any forum’ as it appears in s 133(1),
which is broad enough to cover courts, arbitration and administrative
tribunals.
[25]
The respondent counters this submission by contending that the two
sections are not inconsistent. And that by specifically
mentioning
arbitration proceedings in s 142(3)
(b)
,
but not in s 133(1), the drafters intended to exclude arbitrations
from the ambit of legal proceedings in the latter.
[26]
But the question the respondent is unable to answer is why the
lawmaker would want the company to provide details of all
proceedings,
including arbitration proceedings, to a practitioner,
but exclude arbitrations from the ambit of the moratorium and the
obligation
to obtain a practitioner’s consent in s 133(1)
(a)
.
After all the outcome of an arbitration by way of award is usually
that the losing party has to pay a sum of money, which is the
outcome
of most court actions involving commercial disputes. In my view the
answer lies in properly understanding the purpose of
these provisions
as they apply to business rescue proceedings and the consequences
that flow from the parties’ contending
interpretations.
[27]
Section 5(1) of the Act directs that its interpretation and
application must give effect to the purposes stated in s 7. Section
7
(k)
is relevant here. It says that one of these purposes is
to:
‘
.
. . provide for the efficient rescue and recovery of financially
distressed companies, in a manner that balances the rights and
interests of all relevant stakeholders . . .’
[28]
Section 128(1)
(b)
of the Act defines business rescue to mean proceedings that
facilitate the rehabilitation of a financially distressed company by
providing, amongst other things, for the temporary supervision and
moratorium on the rights of claimants, and the development and
implementation of a plan to rescue the company. The obvious purpose
of placing a company under business rescue is to give it breathing
space so that its affairs may be assessed and restructured in a
manner that allows its return to financial viability. The requirement
for the practitioner’s consent to be obtained is to give him
the opportunity, after his appointment, to consider the nature
and
validity of any existing or pending claim and how it is to be dealt
with, for example by settling it or continuing with the
litigation.
In particular, the practitioner’s concern is directed at
assessing how the claim will impact on the well-being
of the company
and its ability to regain its financial health.
[25]
A general moratorium on the rights of creditors enforcing their
rights against the company is therefore crucial to achieving this
objective. And given the ubiquitous use of arbitrations to resolve
commercial disputes,
[26]
an
interpretation of s 133(1) that excludes them from the moratorium on
legal proceedings against financially distressed companies
would
significantly hinder its attainment.
[29]
In my view once this purpose of business rescue – to give the
practitioner breathing space – is properly understood,
it
becomes apparent that only an interpretation that includes
arbitrations within, instead of excluding them from, the meaning
of
legal proceedings in s 133(1), allows this provision to be read
harmoniously with s 142(3)
(b)
.
Such a reading is in line with the well-known canon of statutory
construction, which is that if by any reasonable construction
the two
can be made to be compatible, not contradictory, that is the
interpretation that should be given. There can be no reason
why s
142(3)
(b)
obliges the company to provide details of arbitrations to the
practitioner other than because they are also legal proceedings –
as contemplated in s 133(1) – that may have a bearing on its
financial viability and of which the business rescue practitioner
must be cognisant.
[30]
It may sometimes assist in ascertaining the meaning of a statutory
provision to examine similar language in other statutes
for guidance.
But travelling beyond the borders of a statute to examine other
statues is an exercise that must be undertaken cautiously
as their
contexts and purposes differ. The parties refer to the
Arbitration
Act 42 of 1965
to bolster their contentions regarding the meaning of
legal proceedings.
[31]
The appellant points to the treatment of judicial management in the
1973
Companies Act, which
, like business rescue, was also a mechanism
to attempt to save financially distressed companies. The
Arbitration
Act provides
that arbitration proceedings are to be treated as legal
proceedings in winding up and ancillary proceedings of judicial
management.
[27]
It follows, so
it is submitted, that since business rescue replaced judicial
management as a process for providing a moratorium
to allow ailing
companies to be restored, it should be treated in the same way.
[32]
While this submission is not without merit it does not explain why
the drafters did not amend the
Arbitration Act – as
they did
several other statutes
[28]
–
by replacing the concept of judicial management, with business
rescue. This would have been the obvious course to adopt.
It may be
that this omission was as a result of inattentiveness or carelessness
on the part of the drafters, but a court must be
slow to reach this
conclusion. As I emphasised earlier, it is the language used in
statute that must be examined to determine its
meaning and not
extraneous factors.
[33]
On the other hand, the respondent contends that because the
Arbitration Act expressly
draws a distinction between legal
proceedings and arbitration proceedings in several sections it is
apposite to distinguish them
in the Act.
[29]
Examples given where this distinction appears are s 6 – stay of
legal proceedings when there is an arbitration agreement;
s 20 –
delivery of an opinion by a court; s 31 – the making of an
award into an order of court and s 36, the awarding
of costs for
legal proceedings.
[34]
It is unnecessary to analyse these provisions in any detail. What is
clear though is that the distinction between legal proceedings
(court
proceedings) and arbitrations in the
Arbitration Act is
merely a
factual recognition that both are methods for enforcing legal rights.
The respondent omits to mention the important provision
relied upon
by the appellant –
s 5
– which treats arbitration
proceedings as legal proceedings for the purposes of sequestration,
liquidations and judicial
management. To conclude this point,
therefore, I do not think that either party’s reliance on the
treatment of legal proceedings
and arbitrations in the
Arbitration
Act, which
has a different statutory purpose, definitively answers
the question in this case.
[35]
To conclude this analysis, the phrase legal proceeding may, depending
on the context within which it is used, be interpreted
restrictively,
to mean court proceedings or more broadly, to include proceedings
before other tribunals including arbitral tribunals.
The language
employed in
s 133(1)
itself suggests that a broader interpretation
commends itself, an approach with which academic commentators
concur.
[30]
Contextual
indications in
s 142(3)
(b)
,
and the importance of reading these provisions consistently, also
support this interpretation. And finally, the purpose of the
provision, which is to give breathing space to the practitioner to
get the company’s financial affairs in order, also requires
it
to be construed widely because arbitrations, like court proceedings
also involve diversion of resources – both time and
money –
that may hinder the effectiveness of business rescue proceedings. To
construe it narrowly, as the court a quo did,
and as the respondent
contends we should, would be at odds with its language, defeat its
purpose and lead to insensible and impractical
consequences.
[36]
This brings me to the second leg of this case, which is whether the
failure by the appellant – the respondent’s
creditor –
to seek and obtain the practitioner’s consent before continuing
with the arbitration was fatal to its outcome
and should for this
reason be invalidated. As I have mentioned there is no suggestion
that the appellant was aware of the business
rescue proceedings and
is trying to profit from her own failure to have sought the
practitioner’s consent.
[37]
The appellant’s primary contention is that the practitioner’s
written consent under
s 133(1)
(a)
is to be characterised as a jurisdictional fact or, put differently,
a condition precedent for the arbitral proceedings to proceed
or
continue.
[31]
The absence of
such a jurisdictional fact, it is submitted, carries with it the
implication that a court or tribunal has no power
or competence to
determine an issue between the parties. And if it nevertheless
proceeds to determine the matter notwithstanding
the absence of
jurisdiction the consequence is that the proceedings are void.
[38]
The appellant mischaracterises the consent requirement in
s 133(1)
(a)
as a jurisdictional condition. The arbitrator’s jurisdiction is
derived from the arbitration agreement, not from any provision
in the
Act. Section 133(1)
(a)
is more properly described as a statutory moratorium
[32]
or procedural bar to the initiation or continuation of legal
proceedings. The important question is whether, in requiring this
condition to be satisfied, the lawmaker sought to invalidate the
proceedings brought without the condition having been met or simply
to give certain procedural rights to a creditor without nullifying
the proceedings when this drastic consequence is not warranted.
This
answer to this question calls for a closer examination of the
provision.
[39]
Section 133(1) was enacted to protect a company under business rescue
against claims from creditors. Its object is to prevent
the
practitioner being inundated with legal proceedings without
sufficient time within which to consider whether or not the company
should resist them and to prevent the company that is financially
distressed from being dragged through litigation while it tries
to
recover from its financial woes. Its effect is to stay legal
proceedings except in those circumstances mentioned in s 133(1)
(a)
to
(e)
.
The creditor may initiate or continue the proceedings in terms of s
133(1)
(a)
with the written consent of the practitioner.
[40]
But s 133(1)
(a)
is
not a shield behind which a company not needing the protection may
take refuge to fend off legitimate claims. Thus s 133(1)
(b)
,
which is to be read disjunctively with s 133(1)
(a)
because of the use of the word ‘or’ in exceptions
(a)
to
(e)
,
permits a creditor to seek the court’s imprimatur to initiate
or continue legal proceedings against the company in the event
of a
practitioner’s refusal to give consent, or directly, even
without the permission of the practitioner having been sought.
So s
133(1)
(a)
is not an absolute bar to legal proceedings being instituted or
continued against a company under business rescue. This is a strong
indication that non-compliance with the section is not to be visited
with the sanction of a nullity.
[41]
Moreover, there is no other indication in the section that
non-compliance carries with it the implication that the proceedings
are a nullity. In this regard it is of some relevance that this court
recently said of s 134(1)
(c)
,
which prohibits the exercise of any right over the property in
possession of the company during business rescue proceedings without
the practitioner’s written consent, that it was directory
rather than peremptory. So, non-compliance with the condition in
this
section does not necessarily lead to nullity.
[33]
Although this was said in an
obiter
dictum
it
was not contended before us that it was wrong and I consider it
persuasive.
[42]
One would therefore have expected the section to say that
non-compliance with s 133(1)
(a)
renders the proceedings void – or use similar language –
if that is what it sought to achieve.
[34]
Significantly it says so specifically in s 129(5). That section,
which is also in the chapter dealing with business rescue, says
in
terms that any non-compliance with ss 129(3) or (4) pertaining to the
publication of a company resolution to begin business
rescue
proceedings and appointment of a practitioner means that the
resolution ‘lapses and is a nullity’. But even
where this
consequence seemed clear this court considered that when this
provision (s 129(5)) was read with s 130(1), ‘lapsing
and
nullity arising from such non-compliance may be less than
absolute’.
[35]
So in the
treatment of two provisions in the Chapter
[36]
dealing with business rescue proceedings this court seems to have set
itself against nullifying actions taken under business rescue
proceedings in the face of non-compliance with its provisions. And,
properly construed, I think that non-compliance with s 133(1)
(a)
does not in and of itself invalidate legal proceedings
either.
[43]
But there is more a fundamental obstacle in the way of the
respondent’s bid to invalidate the arbitration proceedings.
Section 133(1) in general and s 133(1)
(a)
in particular, appears to have been enacted exclusively for the
benefit of the company and the practitioner appointed to oversee
its
affairs. In this respect the practitioner’s position is akin to
that of a liquidator in s 359 of the 1973
Companies Act.
[37
]
In a similar vein, the Western Cape High Court (Rogers AJ) in
Investec
Bank Ltd v Bruyns
[38]
characterised the defence afforded to the company by the statutory
moratorium as a defence in personam – ‘a personal
privilege or benefit in favour of the company’.
[39]
Once this is accepted a creditor – a claimant against the
company as described in
s 128(1)
– has no locus standi to rely
on non-compliance with the section. Put another way, the defence is
not available to the creditor.
Only the practitioner may seek its
protection. And only he may waive or consent to dispense with
compliance therewith.
[40]
[44]
The appellant accepts that the moratorium operates for the
practitioner’s benefit. But she submits that it does not do
so
exclusively, to the detriment of the creditor’s rights. The
formal requirement in
s 133(1)
(a)
for a creditor to obtain the practitioner’s written consent for
legal proceedings, it is submitted, balances the rights of
the
company with that of the creditor, in a manner that is mandated by
s
7(k)
.
[41]
This is because, so the submission goes, the creditor has a right to
be informed that the company is in business rescue so that
it may
apply for consent and receive a formal written communication on the
outcome of the application. In this case the practitioner’s
failure to inform the appellant of the business rescue proceedings
infringed her right to receive the information. The appellant,
it is
submitted, thus has a legal interest in the potential consequences
that flow from the practitioner’s failure to convey
this
information to her, which include the proceedings being rendered a
nullity in the event of non-compliance with the section.
[45]
While not lacking in ingenuity, this submission is entirely without
merit. It is therefore hardly surprising that counsel for
the
appellant was not able to provide any authority to support his
contention. The statutory moratorium is crafted in a manner
that
balances the rights and interests of the company and claimants
against the company. So, as I have pointed out earlier, during
the
moratorium there is no absolute bar against legal proceedings. A
creditor may ask for the practitioner’s written consent
and if
refused, approach the court under
s 133(1)
(b)
.
In addition a creditor may approach the court directly under this
provision for leave to institute legal proceedings, without
having
asked for the practitioner’s consent. The creditor is also
entitled, under
s 133(1)
(c)
to set-off a claim by the company in legal proceedings commenced
before or during the moratorium. Finally,
s 133(3)
suspends the time
limits for a creditor’s right to commence proceedings or
otherwise assert a claim against the company during
the moratorium.
The exercise of a creditor’s rights are therefore suspended
during the moratorium, but this is balanced by
the other protections
afforded it in the section itself.
[46]
The formal requirement for consent to be sought from the practitioner
and given in writing was obviously inserted to promote
legal
certainty and avoid later disputes.
[42]
But it confers no rights on a creditor other than those specifically
provided for in
s 133.
The appellant thus has no legal interest to
challenge the award on the ground she has advanced.
[47]
It bears mentioning that the moratorium only suspends legal
proceedings
against
a
company under business rescue and not
by
the company. This means that the appellant’s claim against the
company would be subject to the moratorium, but the counterclaim,
which is an independent claim, would not.
[43]
So if the appellant’s main contention – that the legal
proceedings are void – were upheld, nullity would in principle
and logic apply only to the appellant’s claim against the
company, but not to the counterclaim. If that occurred, the appellant
would have come to court seeking to invalidate the award so that she
could escape the unintended consequences of having initiated
a claim
against a company only to have a counterclaim whose monetary value
exceeded her own claim upheld against her. And having
gone to court
with the hope of nullifying the award in its entirety, she would have
succeeded only in nullifying her own claim,
thereby making her
potential loss even greater. She would have thus proverbially been
hoist by her own petard.
[48]
To conclude, the appellant was successful in contending that
arbitration proceedings are legal proceedings for the purposes
of
s
133(1).
But she has not been able to persuade us that non-compliance
with its provisions in and of itself nullifies the legal proceedings.
More fundamentally she has not shown that she has standing to invoke
its provisions in order to invalidate an arbitration award
on the
ground that she was not informed of the business rescue proceedings
and therefore deprived of a right to request and to
receive written
permission to continue the proceedings.
[49]
In the result the following order is made:
‘
The
appeal is dismissed with costs, including the costs of two counsel.’
_________________
A
CACHALIA
JUDGE
OF APPEAL
APPEARANCES
For
Appellant:
M Pillemer SC
Instructed
by:
Pearce,
du Toit & Moodie, Durban
Phatshoane
Henney Attorneys, Bloemfontein
For
Second Respondent: A K Kissoon Singh SC (with him M W
Collins SC)
Instructed
by:
V
Chetty Inc, La Lucia
Lovius
Block Attorneys, Bloemfontein
[1]
Section 133(1)
is
set out fully below at para 11.
[2]
Stephen Breyer
Making
our Democracy Work: A Judge’s View
(2010)
at 92.
[3]
See generally
Natal
Joint Municipal Pension Fund v Endumeni Municipality
(920/2010)
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) para 18;
Bristol
Airport plc & another v Powdrill & others
[1990]
2 All ER 493
at 501.
[4]
See generally
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews & another
(CCT
97/07)
[2009] ZACC 6
;
2009 (4) SA 529
(CC) paras 195-198.
[5]
Bryan A Garner
Black’s
Law Dictionary
9
ed.
[6]
Mauro
Rubino-Sammartano
International
Arbitration Law
p
42.
[7]
An
Internet search of the phrase ‘arbitration is a legal
proceeding . . .’ produces many hits from sites which explain
the nature of arbitration: see for example the American Arbitration
Association
https://www.google.co.za/url?url=https://www.adr.org/cs/idcplg%3FIdcService%3DGET_FILE%26dDocName%3DADRSTG_005023%26RevisionSelectionMethod%3DLatestReleased&rct=j&frm=1&q=&esrc=s&sa=U&ved=0CCkQFjACahUKEwi8rcyKmdHHAhVHtBQKHaAqCrw&usg=AFQjCNFJ6XXWsnfVHlKd3A3OW0W7pPLwZQ
‘
arbitration
is a legal proceeding that results in an award that is generally
final and binding’.
[8]
Bristol Airport
plc & another v Powdrill & others
[1990]
2 All ER 493
at 506.
[9]
Section 1
of the
Arbitration Act 42 of 1965
defines ‘arbitration proceedings’
as proceedings conducted by an arbitration tribunal.
[10]
Cloete Murray &
another NNO v Firstrand Bank Ltd t/a Wesbank
(20104/2014)
[2015] ZASCA 39; 2015 (3) SA 438 (SCA).
[11]
Ibid paras 31 and
32.
[12]
Ibid para 33.
[13]
1983 (3) SA 394
(T) at 399B-D.
[14]
1992 (2) SA 772
(D) at 723 H.
[15]
Above fn 10.
[16]
Cloete Murray &
another NNO v Firstrand Bank Ltd t/a Wesbank
2015
(3) SA 438
(SCA) para 32.
[17]
Security
for costs in legal proceedings by companies and bodies corporate.
—
‘
Where
a company or other body corporate is plaintiff or applicant in any
legal proceedings, the Court may at any stage, if it
appears by
credible testimony that there is reason to believe that the company
or body corporate or, if it is being wound up,
the liquidator
thereof, will be unable to pay the costs of the defendant or
respondent if successful in his defence, require
sufficient security
to be given for those costs and may stay all proceedings till the
security is given.’
[18]
Merchant West
Working Capital Solutions (Pty) Ltd v Advanced Technologies and
Engineering Company (Pty) Ltd & another
(13/12406) [2013] ZAGPJHC 109.
[19]
Ibid para 63.
[20]
Kalil NO &
others v Mangaung Municipality & others
2014 (5) SA 123
(SCA) para 20.
[21]
Ibid para 201.
[22]
Ibid para 218.
[23]
Ibid paras 201 and
213.
[24]
The phrase ‘colour
and content’ was first used by Lord Simonds said in
A
G v H R H Prince Augustus
[1957]
1 All ER 49
at 53.
[25]
Compare
Umbogintwini
Land & Investment Co (Pty) Ltd (In Liquidation) v Barclays
National Bank Ltd & another
(205/86)
[1987] ZASCA 86
;
1987 (4) SA 894
(A) at 910G-I.
[26]
Peter Ramsden
The
Law of Arbitration: South African & International Arbitration
2009
p 15.
[27]
Section 5
of the
Arbitration Act 42 of 1965
.
[28]
Schedule 3 and 4
of the Act.
[29]
See subsec 6.
[30]
F H Cassim et al
Contemporary
Company Law
2
ed p 881 fn 99; Henochsberg
On
the
Companies Act 71 of 2008
Vol
1 p 478(12).
[31]
A similar
characterisation was adopted in
Re
Taylor (a bankrupt); Davenham Trust plc (t/a Booker Montagu Leasing
v CV Distribution (UK) Ltd & another
[2006] EWHC 3029
;
[2007]
3 All ER 638
where a Chancery Division in England was asked to
decide whether a claimant’s failure to obtain the leave of the
court
in accordance with a statutory requirement before instituting
proceedings against a bankrupt debtor rendered the proceedings a
nullity. In finding that it did the court said, at para 56, that
such a provision controls the jurisdiction of a court or arbitrator.
So that leave is not merely permission to the would-be litigant; it
is a condition precedent to the jurisdiction of the court
in which
proceedings are then to be started or of an arbitrator. However, in
the instant case the issue before us concerns
s 133(1)
(a)
– the permission provision – not the failure to obtain
the leave of the court in accordance with
s 133(1)
(b)
.
It is in any event doubtful whether
s 133(1)
(b)
can be construed as a jurisdictional requirement.
[32]
Investec Bank
Ltd v Bruyns
(19449/11)
[2011] ZAWCHC 423
;
2012 (5) SA 430
(WCC) para 17.
[33]
Cloete Murray &
another NNO v Firstrand Bank Ltd t/a Wesbank
2015
(3) SA 438
(SCA) para 24.
[34]
Compare Section
359 of the 1973
Companies Act.
[35
]
Panamo
Properties
(Pty) Ltd & another v Nel NO & others
(35/2014)
[2015] ZASCA 76
(27 May 2015) para 14.
[36]
Chapter 6.
[37]
Compare s 359 of
the 1973
Companies Act.
[38
]
Investec Bank
Ltd v Bruyns
2012
(5) SA 430 (WCC).
[39]
Ibid para 18.
[40]
Compare s 359(2)
of the 1973
Companies Act;
Barlows
Tractor Company (Pty) Ltd v Townsend
(727/93)
[1996] ZASCA 3
;
1996 (2) SA 869
(A) at 884F-G; Henochsberg’s
Commentary on the
Companies Act Vol
1 p 760(3).
[41]
One of the
purposes of business rescue proceedings, according to s
7(k)
is to ‘. . . provide for the efficient rescue and recovery of
financially distressed companies, in a manner that balances
the
rights and interests of all relevant stakeholders . . . .’
[42]
Compare
Spring
Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash & another
(725/13)
[2014] ZASCA 178
;
Spring
Forest Trading CC v Wilberry (Pty) Ltd t/a Ecowash & another
2015 (2) SA 118
(SCA) para 13.
[43]
Marshall
Timbers Ltd v Hauser & Battaglia (Pty) Ltd & another
1976
(3) SA 437
(D) at 439D.