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[2015] ZASCA 114
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Minnaar v Van Rooyen N.O (20407/2014) [2015] ZASCA 114; 2016 (1) SA 117 (SCA) (10 September 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 20407/2014
DATE:
10 SEPTEMBER 2015
Reportable
In the matter
between:
CASPER HENDRIK
MINNAAR
.....................................................................................
APPELLANT
And
A W VAN ROOYEN
NO
................................................................................................
RESPONDENT
Neutral Citation:
Minnaar v Van Rooyen NO (20407/2014)
[2015] ZASCA 114
(10
September 2015)
Coram: Lewis,
Tshiqi, Majiedt, and Dambuza JJA and Baartman AJA
Heard: 24 August
2015
Delivered: 10
September 2015
Summary:
The
grant by default of an order under s 424(1) of the Companies Act 61
of 1973, where no evidence has been adduced, is erroneous
within the
meaning of Rule 42(1)(a) of the Uniform Rules of Court: order set
aside on appeal.
ORDER
On appeal from:
Gauteng Division of the High Court, Pretoria (Keightley AJ sitting as
court of first instance).
1 The appeal is
upheld with costs.
2 The order of the
court a quo is set aside and replaced with:
‘The default
judgment granted against the applicant on 23 February 2012 is set
aside. The costs of the application shall be
costs in the cause.’
JUDGMENT
Lewis JA (Tshiqi,
Majiedt, and Dambuza JJA and Baartman AJA concurring)
[1] Mr Casper
Minnaar, the appellant, appeals against the refusal to grant the
rescission of an order made against him by default.
The order was
made by Van der Merwe DJP (in the North Gauteng High Court) in terms
of s 424(1) of the Companies Act 61 of 1973,
applicable at the time
when the default judgment was sought. It read:
‘When it
appears, whether it be in a winding-up, judicial management or
otherwise, that any business of the company was or
is being carried
on recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
Court may, on the application of the Master, the liquidator, the
judicial manager, any creditor or member or contributory
of the
company, declare that any person who was knowingly a party to the
carrying on of the business in the manner aforesaid, shall
be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the company
as the Court
may direct.’ (My emphasis.)
[2] Default
judgment, under s 424(1), was sought against Minnaar on 22 February
2012 by the then liquidator of a company, Askari
Mining and Equipment
Ltd (Askari), who had instituted action against Minnaar and four
other former directors, on the basis that
they had acted recklessly
in the conduct of the affairs of the company and should thus be
liable for all the debts of the company.
The respondent, Mr A W van
Rooyen, is the current liquidator of the company.
[3] The order sought
by the liquidator, and granted by the court, read:
‘After reading
the papers filed and hearing counsel for the Plaintiff, the Court
makes the following order: (BY DEFAULT)
1. It is declared,
pursuant to the provisions of Section 424(1) of the Companies Act . .
. that the 1st Defendant [Minnaar] is personally
liable without any
limitation of liability, for all the debts of the company, Askari
Mining and Equipment Ltd (in Liquidation)
2. The 1st Defendant
shall pay the costs, including the costs occasioned by the employment
of two counsel.’
[4] Some ten months
later, Minnaar sought the rescission of the default judgment in the
Gauteng Division, Pretoria, in terms of
rule 42(1)(a) of the Uniform
Rules of Court, and under the common law. Keightley AJ refused relief
under the rule because she held
that the order had not been
erroneously sought, and refused relief under the common law on the
basis that Minnaar was in wilful
default.
[5] Minnaar, a
chartered accountant, was appointed as a consultant to Askari in
1999, and then as its financial director in 2000.
He resigned as a
director in November 2001. Askari was provisionally liquidated in
June 2003, and finally liquidated in July 2008.
In March 2004, Eloff
JP, then retired, was appointed by the Master of the High Court to
conduct an enquiry into the affairs of
Askari in terms of s 417 of
the 1973 Companies Act. Eloff JP advised that the enquiry ‘achieved
the purpose of identifying
and establishing conduct on the part of
the erstwhile directors of the company which could found an action
under section 424’.
But, he pointed out, ‘Experience
tells one that actions of that sort are often difficult to process to
success, but at least
enough was brought to light to enable the legal
advisors of the creditors to advise whether such an action should be
instituted.’
[6] The only passage
in the report of the enquiry that is in the record, and which deals
with Minnaar’s role, stated that
he had testified about the
‘main financial transactions of the company while he was its
financial director. He contributed
significantly to the establishment
of the facts on the strength of which the main creditors of the
company may be able to establish
that the affairs of the company were
conducted recklessly.’ In May 2008, the liquidators indeed
instituted action against
the five directors claiming an order that
they be held personally liable for the debts of Askari.
[7] All the
directors appointed the same attorney to represent them. And they
issued a joint plea to the claim denying the allegations
against
them. The matter was set down for trial on 22 February 2012. Before
then, however, the directors and then liquidators had
started
discussing a settlement. Early in 2011 settlement proposals were
discussed, on Minnaar’s own version. In October
of that year
Minnaar was advised that he was required to attend a pre-trial
conference scheduled for 30 November 2011. He wrote
to the attorney
for the directors, on that day, by email, saying that he knew about
the pre-trial conference and that settlement
proposals would be made.
He said that he was placing it on record that he would not be part of
any settlement. His colleagues,
he said, were free to settle the
claims against them, but he was convinced that he had done no wrong,
and in any event could not
afford to pay what the liquidators were
asking.
[8] In the same
email Minnaar also advised that he would handle his own defence and
would appoint a new attorney as soon as possible.
Indeed, he said in
the founding affidavit, he approached an attorney whom he knew from
church, a Mr Oosthuizen, on an informal
basis, and Oosthuizen had
approached the liquidators’ attorney, attempting to persuade
him to withdraw the claim against
Minnaar. Oosthuizen was
unsuccessful. Despite this, Minnaar failed to take any steps to
appoint an attorney to represent him at
trial. He did not heed
Oosthuizen’s advice to attend the pretrial conference and to
retain his former attorney. And when
his former attorney spoke to him
on 17 February 2012 to confirm that he was withdrawing as Minnaar’s
representative, Minnaar
made no enquiries as to the status of the
action against him.
[9] Yet despite
knowing of the trial date, he did not attend court on 22 February
2012. When the trial was called by Van der Merwe
DJP, the liquidators
asked for default judgment in terms of rule 39(1) of the Uniform
Rules of Court. That rule provides:
‘If, when a
trial is called, the plaintiff appears and the defendant does not
appear, the plaintiff may prove his claim so
far as the burden of
proof lies upon him and judgment shall be given accordingly, in so
far as he has discharged such burden. Provided
that where the claim
is for a debt or liquidated demand no evidence shall be necessary
unless the court otherwise orders.’
Whether the order
was competent is a matter to which I shall turn shortly.
[10] Minnaar alleged
that he had learned about the order only when a warrant of execution
was issued and served on him on 30 July
2012. He had then instructed
Oosthuizen to discuss settlement with the liquidators. Discussions
took place until the end of October
2012. They did not reach
agreement. In December 2012 Minnaar applied for the rescission of the
default judgment. Keightley AJ refused
the application on the basis
that the order had not been erroneously sought or granted, and that
the common law, which requires
sufficient cause to be shown to obtain
rescission, did not avail Minnaar because he had been supine in the
face of the action against
him: he was in wilful default. She gave
leave to appeal to this court on the basis that the question whether
an order in terms
of s 424(1) of the Companies Act could be granted
by default was a novel one and should receive the attention of this
court.
[11] Rule 41(1)(a),
on which Minnaar relied both in the court a quo and on appeal,
provides:
‘The court
may, in addition to any other powers it may have, mero motu or upon
the application of any party affected, rescind
or vary –
(a) An order or
judgment erroneously sought or erroneously granted in the absence of
any party affected thereby;
. . . ’
Keightley AJ found
that the proviso to rule 39(1) allowed for a default judgment
declaring liability under s 424(1) of the Companies
Act to be
granted. She held that the words ‘debt or liquidated demand’
were not limited to claims for the repayment
of money, but would
include a declaration of rights, claims for the transfer of property,
cancellation and ejectment, amongst other
relief permissible, without
the adducing of evidence.
[12] The learned
judge pointed out that cases dealing with liability under s 424(1)
required proof on a balance of probabilities,
but said that cases
such as Joh-Air (Pty) Ltd v Rudman
1980 (2) SA 420
(T) and Philotex
(Pty) Ltd & others v Snyman & others1998 (2) SA 138 (SCA)
dealt with the requisite standard of proof in
s 424(1) applications
and not with the prima facie nature of the evidence before the court.
Where there is prima
facie proof of recklessness or fraud, which is not countered, she
said, it becomes proof on a balance of probabilities.
In this regard
she relied on the dictum of Stratford JA in Ex parte the Minister of
Justice: in re Rex v VV Jacobson and Levy
1931 AD 466
AD at 478-9:
‘”Prima
facie” evidence in its more usual sense, is used to mean prima
facie proof of an issue the burden of proving
which is upon the party
giving that evidence. In the absence of further evidence from the
other side, the prima facie proof becomes
conclusive proof and the
party giving it discharges his onus.’
She thus rejected
Minnaar’s argument that relief under s 424(1) cannot be granted
by default. She referred also to Abraham
v City of Cape Town
1995 (2)
SA 319
(C), where judgment by default was granted in a delictual
claim for damages, despite the fact that no evidence was adduced
orally.
In that case, however, there was an affidavit before the
court on which it relied in determining damages.
[13] On appeal
Minnaar argues that evidence must be led in order to determine
liability under s 424(1): the court must determine
whether a
director’s conduct is reckless or whether the business of the
company was carried on with the intention to defraud
creditors of the
company. The plaintiff must prove this on a balance of probabilities,
and the court must assess the evidence.
In this matter, no evidence
at all was led. The court had before it only the particulars of
claim, in which the liquidators made
allegations about the conduct of
the directors of Askari, which were denied in the joint plea. I have
referred to the report of
Eloff JP: we do not know if that was before
the court, but it was in any event not sufficient to prove reckless
conduct. The Commissioner
did no more than raise the prospect of
action against the directors.
[14] Mr van Rooyen,
the liquidator, argues, however, that Van der Merwe DJP exercised a
discretion in granting default judgment.
He declined to make an order
sounding in money, and would grant only a declaration that Minnaar
was liable for the debts of the
company. While it is correct that a
court exercises a discretion in granting judgment by default, it
cannot make a finding of recklessness
on a balance of probabilities
when there is no evidence before it.
[15] As Howie JA
said in Philotex (at 142H-J) recklessness is not lightly found.
‘The remedy is
a punitive one; a director can be held personally liable for
liabilities of the company without proof of any
causal link between
his conduct and those liabilities . . . . The onus is upon the party
alleging recklessness to prove it and,
these being civil proceedings,
to establish the necessary facts according to the required standard,
which is on a balance of probabilities.’
[16] None of the
allegations against Minnaar were supported by evidence. None was led.
There was thus no proof at all, let alone
prima facie proof, of
whether his conduct had been fraudulent or reckless. Default judgment
should, therefore, not have been granted.
The question that then
arises is whether it was erroneouly sought and erroneously granted
within the meaning of rule 42(1)(a).
[17] This, as the
court a quo said, is not an issue that has been previously been
traversed by any court. That is not surprising.
It is inconceivable
that an order would be made declaring a director liable for the debts
of a company on the basis of reckless
or fraudulent conduct where no
evidence is led to support the allegations made.
[18] Minnaar submits
that the order was not legally competent. Authorities that deal with
rule 42(1)(a) tend to suggest that a default
judgment will be
rescinded where there has been a procedural irregularity, such as no
notice of set down having been given to a
party. A comprehensive list
of such cases is set out in Erasmus Superior Court Practice by D E
van Loggerenberg and P B J Farlam
Volume 1 (Revision Service 45,
2014) B1-308ff. In Lodhi 2 Properties Investments CC & another v
Bondev Developments (Pty) Ltd
[2007] ZASCA 85
;
2007 (6) SA 87
(SCA)
Streicher JA stated (para 25) that ‘a judgment to which a party
is procedurally entitled cannot be considered to have
been granted
erroneously by reason of facts of which the Judge who granted the
judgment, as he was entitled to do, was unaware
. . . . See in
this regard Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills
(Cape)
2003 (6) SA 1
(SCA) in paras 9-10’. In Colyn a notice
had been lost in the defendant’s attorney’s office, and
the defendant
accordingly did not appear when the plaintiff applied
for summary judgment. Jones AJA held that no procedural irregularity
had
occurred and that summary judgment had not been erroneously
granted.
[19] In this matter,
in my view, the liquidators were not entitled procedurally to default
judgment against Minnaar without leading
evidence. By its very
nature, the right to the relief sought under s 424(1) of the
Companies Act had to be proved on a balance
of probabilities. The
liquidators were not entitled to rely on allegations made in the
particulars of claim and denied in the defendants’
joint plea.
At the very least they should have lead witnesses to show that the
directors had acted recklessly or with intent to
defraud creditors.
The order in terms of s 424(1) was thus erroneously sought, and, as a
result, erroneously granted. It must accordingly
be rescinded in
terms of rule 42(10(a).
[20] There is thus
no need to consider whether Minnaar’s default was deliberate
such that he would not be entitled to relief
under the common law.
Van Rooyen argued, however, that when the application for rescission
was brought, Minnaar was seeking the
court’s indulgence and
that he should not be entitled to the costs of the application.
Moreover, his account of why he had
not appeared in court on the
trial date was not entirely credible or consistent. I agree, and
consider that the costs of the application
should be costs in the
cause.
[21] I order that:
1 The appeal is
upheld with costs.
2 The order of the
court a quo is set aside and replaced with:
‘The default
judgment granted against the applicant on 23 February 2012 is set
aside. The costs of the application shall be
costs in the cause.’
C H Lewis
Judge of Appeal
APPEARANCES
For Appellant: N
Davis SC (with him C L H Harms)
Instructed by:
Theron Jordaan & Smit Inc,
c/o Stopforth
Swanepoel & Brewis Inc Pretoria
Symington &
De Kock, Bloemfontein
For Respondent: S
G Gouws
Instructed by:
Vezi & De Beer Attorneys, Pretoria
Azar &
Havenga Inc, Bloemfontein