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[2017] ZAGPJHC 102
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Companies and Intellectual Property Commission v Moola and Others (44337/2012) [2017] ZAGPJHC 102 (30 March 2017)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO:
44337/2012
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
In
the matter between:
The
Companies and Intellectual
Property
Commission
Applicant
and
Moola,
Mahomed
Yacoob
First
Respondent
Moola,
Imran
Yacoob
Second
Respondent
Moola,
Zainul Abedeen
Mahomed
Third
Respondent
Judgment
Van
der Linde, J:
Introduction
[1]
The applicant applies for an order
declaring the first and second respondents as delinquents as
envisaged in s.162(3)(a) of the
Companies Act 71 of 2008 (“the
Act”), read with s.162(5)(c)(iv)(aa) of that Act; and that the
third respondent be so
declared as envisaged in s.162(3)(a), read
with s.162(5)(c)(iv)(bb) of the Act.
[2]
There is a contending application by the
three respondents against the applicant, under the same case number,
and which the parties
were agreed should be heard together with this
application. It is for a review of the decision of the commissioner
of the Companies
and Intellectual Property Commission (CIPC) to
accept a report from two inspectors, the latter two cited as third
and fourth respondents
in that application. The report, amongst
others, recommends that the present application brought by CIPC
against the three respondents.
[3]
What
had happened is that three brothers, Mohamed, Imran and Nazeer, were
ostensibly the sole shareholders in a company, CCE Motor
Holdings
(Pty) Ltd (“CCE”), at least according to them.
[1]
That they were the sole shareholders of CCE is disputed by the father
who says that in truth they were mere nominees for him, he
being the
sole shareholder. The father was the sole director; at least to start
off with, that much is undisputed.
[4]
On 20
September 2010 an event occurred at which there was a serious
disagreement between the father and the first two respondents
about
the way in which the business of CCE was to be run. The third
respondent was not present, nor the third brother, Nazeer.
The latter
in fact did not know of and was not notified in advance that there
would be such a gathering or discussion.
[2]
[5]
The
three respondents contend that that gathering was a lawful meeting of
shareholders at which the father was duly removed as director,
and at
which the three brothers were appointed as directors instead. They
say a resolution to this effect was passed there and
then.
[3]
The father disputes that a proper meeting took place, and that a
resolution removing him as director, and appointing his sons as
directors in his stead, was ever passed. More than a year later he
reported the events to the CIPC and was reinstated as director.
[6]
In turn, CIPC appointed the two inspectors
to investigate the matter, and after enquiries they prepared a report
in which they recommended
that the matter be referred to the National
Prosecuting Authority in terms of s.170()(f) of the Act. They
recommended too that
the applicant consider launching this
application.
[7]
That led to the application by the
respondents to review the report and its acceptance by the applicant,
and for some ancillary
relief. The father brought his own application
under a different case number to secure his own position. This
latter application
is not before me, and has not yet been disposed
of.
Discussion:
the applicant’s case
[8]
It is appropriate to begin considering the
applicant’s case. If the father is in fact the sole
shareholder, as he says he
is, then the purported resolution removing
him as director could not have been passed, because he never agreed
to resign as director.
[9]
But even on the respondents’ version
of the shareholding and the events of 20 September 2010, the
resolution could in any
event not have been passed, for two reasons,
one factual and one legal. At a factual level, on the respondents’
own version,
there was no notice given of a meeting, so that the
third brother, Nazeer, did not know of the so-called meeting. At a
factual
level, the decision purportedly to remove the director, Mr
Moola senior, was taken without Nazeer being present or even knowing
that it would be or was being taken. At a factual level, the presence
of the father at the meeting was entirely fortuitous. He
happened to
overhear the discussion between two of the sons and joined them on
that account.
[10]
And the same goes for the appointment of the three
brothers as directors: at a factual level, Nazeer did not know that
that issue
would be tabled there, or that in fact it was even tabled.
According to the respondents, the so-called meeting was over and
done,
and the resolution removing Mr Moola senior passed and the
three brothers appointed instead, without Nazeer knowing anything
about
it. On the respondents’ own facts, in my view, calling
that event a legal meeting of shareholders is being over-ambitious.
[11]
At a legal
level, at that time the removal of a director was governed by s.220
of the Companies Act 61 of 1973 (“the old Act”).
S.220
(2) required that “
special
notice”
[4]
be given to the company of any proposed resolution “
to
remove a director under this section or to appoint any person in the
stead of the director so removed at the meeting at which
he is
removed…”.
Notice as statutorily required was not given.
[5]
[12]
Consequently, on the respondents’ own
version of the events of 20 September 2010, there was no meeting, in
fact or in law,
at which Mr Moola senior was removed as a director,
and at which the Moola brothers were appointed as directors of the
company
in his stead.
[13]
The applicant’s founding affidavit raises, from the outset,
serious suspicion concerning the respondents’
ex
post facto
gloss of the alleged meeting of 20 September 2010. It explains how Mr
Moola senior’s signature was likely forged on what
purported to
be minutes of that meeting;
[6]
and that when the inspectors drilled down on this issue, the
respondents could not provide a satisfactory explanation.
[14]
Instead, the respondents produced what purported to be minutes of a
meeting of 2 March 2012 in terms of which the father and
the three
sons would “
remain”
as directors of CCE, and recording that Taahir Moola, appointed by
the father as his alternative, had now resigned. The inspectors,
not
satisfied with this response, then pursued the issue of the
legitimacy of the meeting of 20 September 2010.
[7]
They never received a satisfactory response, and this fact led them
to complete their report and to make the recommendations in
it.
[15]
The point of all this is that the sting of the applicant’s
attack on the respondents is the alleged dishonesty surrounding
the
events of 20 September 2010. That alleged meeting is the very
foundation of the applicant’s case that the respondents
represented dishonestly that they were properly appointed as
directors – and should therefore be declared delinquent. The
respondents’ allegation of a proper meeting having taken place
then, and the documents they subsequently produced to shore
up that
contention, is at the same time the very foundation of the
respondents’ case of their due appointment as directors.
[16]
The applicant’s very case is therefore that the purported
removal of Mr Moola senior as director was unlawful; that is
why the
applicant in fact reinstated him and his alternate as directors.
[8]
In its heads of argument, the applicant submits (emphasis
supplied):
[9]
“
The
effect of the aforegoing is that even on the Respondents’
version,
they
were not directors ever of the company
as the resolution which brought them into office had lapsed and the
only director of the company would then be the father.”
[10]
[17]
The respondents’ version that at the so-called meeting of 20
September 2010 Mr Moola senior voluntarily resigned
[11]
can, in my view, be rejected on the papers. The unsatisfactory
explanation surrounding the clear discrepancy in Mr Moola senior’s
signature;
[12]
the putting up of the documents concerning the 2 March 2012 meeting
as an attempted panacea to the suspicions about 20 September
2010;
and ultimately the failure to respond to the inspectors’ letter
of 9 March 2012, amongst other things, all give the
lie to that
aspect of their version.
[18]
So it seems to be plain then that the 20 September 2010 resolution
did not, as a matter of fact or law, happen.
[13]
Accepting then that the Moola brothers did not then become directors
of CCE,
[14]
the substrate of the CIPC application against the first and second
respondents must fall to the ground.
[19]
The case against the third respondent, who is not a brother, is based
on him allegedly having been a party to and having acquiesced
in the
actions of the first two respondents.
[15]
In a sense, the case is therefore that he acted, as it were, as an
accessory or accomplice. He too was not a director of the company;
he
was merely acting as the company secretary.
[20]
The relief sought against the third respondent is for a declaration
of delinquency on the basis of s.162(3)(a) of the Act,
read with
s.162(5)(c)(iv)(bb) of the Act.
[16]
This latter paragraph refers back to s.77(3)(a), (b), and (c). These
three paragraphs impose liability on a director for loss,
damages or
costs sustained by the company of which s/he is a director, if this
was sustained directly or indirectly in consequence
of specified
objectionable conduct in relation to the very company concerned.
[21]
I accordingly fail to see how that case and that relief can be
maintained against the third respondent if the third respondent
was
not also a director of the very company in which the objectionable
conduct occurred.
[22]
It follows that in my view the applicant’s case for
declarations of delinquency in respect of all three respondents must
fail.
Discussion:
the respondents’ case
[23]
If that happens, the question arises as to whether the application by
the respondents succeeds. I do not think so, for the
reasons that now
follow. That application is to set aside the inspectors’ report
as well as the applicant’s decision
to adopt it, to make
recommendations following on it, and to institute the present
proceedings pursuant to it.
[24]
The respondents’ application is brought squarely under the
Promotion of Administrative Justice Act 3 of 2000 (PAJA).
Reviewable
“
administrative action”
under PAJA is required to fall within the definition of that concept.
And that definition, in relevant part, provides (emphasis
supplied):
“…
means any decision taken,
or any failure to take a decision, … which
adversely
affects the rights of any person
and
which has a
direct
,
external legal
effect, …”.
[25]
The substance of the review relief claimed by the respondents is to
set aside the report of the two inspectors, and to set
aside the
acceptance by commissioner of that report. The report recommended
that the applicant refer the matter to the National
Prosecuting
Authority, and that the applicant consider applying to court for a
delinquency order.
[26]
Before dealing with the submissions on behalf of the respondents, two
propositions
[17]
are apposite. The first is perhaps self-evident: not all conduct,
including decisions, of the administration is reviewable under
s.6 of
PAJA. The administration in action is not to be conflated with
administrative action; the latter is potentially reviewable,
the
former not.
[27]
The second is that the time when an applicant seeks to invoke PAJA
may be determining of the relief to which it is entitled.
Take the
present matter: assume in favour of the respondents that inspectors
appointed under s.169(2) of the Act, or the commission
itself after
receiving a report from inspectors so appointed, have the power under
the Act to arrive at a decision “
which
adversely affects the rights of any person and which has a direct,
external legal effect”
, and
assume such a decision had as a fact not yet been taken; then
the respondents might have been entitled to approach
a court for a
declaration that they are entitled to the rights identified in s.3 of
PAJA.
[28]
They would then argue that although a decision as envisaged in the
definition of “
administrative
action”
had not yet been taken,
the particular statute under which the inspectors were functioning
gave them the power potentially to arrive
at such a decision. A court
may then grant an order invoking s.3 of PAJA on the basis that
although the future decision had not
yet been taken, and so one did
not yet know whether it would qualify under the definition of
“
administrative action”
,
the decision could conceivably so qualify. And so PAJA would be
applicable.
[29]
But if in fullness of time the decision proves in fact not to have
the qualities that make the grade under “
administrative
action”
, and the respondents were
then to approach a court for a review under s.6, the application will
be unsuccessful; PAJA would not
be applicable. The point is, the mere
fact that an applicant is entitled to fair process under PAJA along
the way to a decision
being taken, does not mean that the decision
ultimately and actually taken is reviewable under PAJA; it would not
avail the respondents
to argue that although in fact the decision
might not qualify as “
administrative
action”
, at some earlier stage it
potentially did.
[30]
The respondents have submitted here that the recommendations of the
inspectors and the decisions of the commission following
on them are
both reviewable under PAJA, on the basis that those decisions
adversely affect their rights and have direct, external
legal effect.
In the course of their submissions the respondents referred amongst
others to Cora Hoexter, Administrative Law in
South Africa, 2
nd
ed, Juta & Co, 2012; and especially to Oosthuizen’s
Transport (Pty) Ltd and Others v MEC, Road Traffic Matters,
Mpumalanga,
and Others.
[18]
[31]
Their proposition was that, accepting that the report here is
interim, in the sense that before the respondents might be prosecuted
the NPA first has to take the decision to do so; and before they
might be declared delinquent a court of law must first decide
that
they should so be declared; nonetheless the report has a direct
external legal effect because they are, in effect, defamed
in it.
[32]
The starting point of this discussion seems to me the important
caution by Mogoeng, J (as he then was) in Viking Pony Africa
Pumps
(Pty) Ltd t/a Tricom Africa v Hidro-Tech Systems (Pty) Ltd and
Another (emphasis supplied):
[19]
“
Whether
or not administrative action, which would make PAJA applicable, has
been taken
cannot be determined
in the abstract. Regard must always be had to the facts of each case.
[38]
Detecting a reasonable possibility of a fraudulent misrepresentation
of facts, as in this case, could hardly be said to constitute
an
administrative action.
It is what
the organ of State decides to do and actually does with the
information it has become aware of which could potentially
trigger
the applicability of PAJA
. It is
unlikely that a decision to investigate and the process of
investigation, which excludes a determination of culpability,
could
itself adversely affect the rights of any person, in a manner that
has a direct and external legal effect.”
[33]
So one starts with the facts. Here the recommendations of the
inspectors were that the applicant “
refer
the matter to the National Prosecuting Authority, as provided for in
section 170(1)(f) of the Act for the contravention of
section
215(2)(e) of the Act…”
;
[20]
and that the applicant “
consider
applying to court for an order declaring
… (the respondents) …
delinquent…”
.
[21]
[34]
Certainly these decisions do not have
final
effect, because in the former instance, the NPA may yet decide not to
act on the reference; and so too the applicant in the latter
instance. And in both instances, even if both referees decided to act
positively on the references, the relevant court may yet
dismiss the
cases against the respondents.
[35]
The value of Oosthuizen’s case for the present matter, with
respect, is that it lays down that finality of the decision
is not
the threshold for PAJA invocation.
[22]
But it must be appreciated that Oosthuizen’s case is a decision
given in the context of multi-staged decision-making by an
administrator, an organ of state, on the way to a final decision by a
different organ of state, perhaps elevated in the administrative
hierarchy. In other words, the interim decision pends the final
decision by either the same or another organ of state, whose final
decision is still by definition “
administrative
action”
as defined.
[36]
It is suggested however that in the present matter the
final
decision can axiomatically not aspire to “
administrative
action;”
first
because a decision to institute a prosecution is of itself not a
reviewable decision,
[23]
and second because, fundamental to our constitutional order, a court
is not an organ of state.
[24]
[37]
What about
the interim decisions here? Do they have “
direct
external legal effect”
?
It is popular to refer in this context to the dicta of Lord Denning
in Re Pergamon Press Ltd,
[25]
but two points are relevant. First, one is not dealing in this case
with an application to secure fairness requirements in terms
of PAJA
on the way to a decision that might in the future qualify as
“
administrative
action”
;
and second, one must bear in mind that Lord Denning’s
dicta
were approved locally by the then Appellate Division in pre-PAJA
days.
[26]
[38]
In the post-PAJA era, the Supreme Court of Appeal has said, of the
reference by the Competition Commissioner of a contravention
of the
Competition Act 89 of 1998
to the Competition Tribunal, the following
(emphasis supplied):
“
Care
must be taken here not to conflate two different aspects of the
definition of administrative action in PAJA, namely, the requirement
that the decision be one of an administrative nature and the separate
requirement that it must have the capacity to affect legal
rights. I
consider that Telkom has failed to establish both requirements. As to
the second of these
although
the complaint referral indeed affects Telkom in the sense that it
may be obliged to give evidence under oath, be subject to a hearing
before the Tribunal, and
be
required to submit its business affairs and documentation to public
scrutiny it cannot be said that its rights have been affected
or that the action complained of had that capacity.”
[27]
It
seems to me that this judgment is in point in the context of the
question whether a decision of a recommendatory nature has direct
external legal effect, and could adversely affect rights.
[39]
The applicant, in opposing the respondents’ submission that the
recommendations did have a direct and external legal
effect, referred
to the Supreme Court of Appeal judgment in Corpclo 2290 CC t/a U-Care
v Registrar of Banks.
[28]
There Southwood, AJA said, in the context of whether an investigation
by the Registrar of Banks constituted “
administrative
action”
(emphasis supplied):
“
[26]
Even if the argument could be found to relate in some way to the
interpretation of the sections, the appellants’ reasoning
is
seriously flawed. First, it will be remembered that the Registrar’s
cause of action in the court a quo was simply the
contravention of s
11 of the Act read with the Notice and s 81 of the Act. The
Registrar’s decision to investigate the appellants’
business was of no relevance whatsoever. Secondly, the Registrar’s
decisions to investigate the appellants’ business
and institute
proceedings against the appellants for an interdict in terms of s 81
of the Act were not administrative actions for
the purposes of PAJA
as they did not (as required by the definition of ‘administrative
action’ in s 1 of PAJA) adversely
affect the rights of the
appellants or have a direct, external legal effect or have that
capacity.
Whether or
not administrative action, which would make PAJA applicable, has been
taken, cannot be determined in the abstract. Regard
must always be
had to the facts of the case.
A
decision to investigate and the process of investigation, which
exclude a determination of culpability, could not adversely affect
the rights of the appellants in a manner that has a direct and
external legal effect.
So
too a decision to institute proceedings in the high court for an
interdict does not affect the rights of the appellants or have
that
capacity.
It
is the high court which decides that the Act is being contravened
and decides to grant the interdict.”
[40]
I suggest that this judgment is also in point; and that it is
authority for the central proposition made here, which is that
a
recommendation that a matter be referred to a court for determination
would ordinarily imply that no direct external legal effect
could yet
have resulted, nor could rights have been adversely affected.
[41]
Likewise in this case, concerning the recommendation by the
inspectors to the applicant to “
consider
applying to court”
for a delinquency order, it seems to me that it cannot be said that
the effect of that recommendation is “
direct”
or “
external”
,
nor that it “
adversely
affects”
their rights. Since the very recommendation is that a court be
engaged, it follows that before a court will actually have
made an
order of delinquency against the respondents, the effect of the
recommendation will not have had any of these qualities.
[29]
[42]
These considerations apply equally to the decision of the applicant
to accept the report of the inspectors. That acceptance
of
itself has no quality of being “
direct”
or “
external,”
or of “
adversely”
affecting their rights, again because no binding decision has
followed.
[43]
The proposition in Grey’s Marine,
[30]
that administrative action is reviewable if it has the mere
“
capacity”
to affect legal rights of the subject, does not avail the Moolas
either. The recommendation here has no capacity to affect legal
rights, because it is not the interim decision of an organ of state
on the way to another, final decision by another organ of state,
both
decisions being potentially “
administrative
action”
as defined. Both the recommendation and the acceptance of the
report envisage in terms engaging not an organ of state, but
legal
proceedings before a court of law, where their rights will be
definitively determined by the judicial authority.
[44]
Courts are vested with the judicial authority, and so charged with
the very duty to define the lawful boundaries of parties’
legal
rights. The Moolas have the right to defend the action(s), and as it
happens in this matter they will have done so successfully.
[45]
Similarly, it would be a foreign notion if a potential accused in a
potential criminal trial were entitled to exact that the
very
recommendation to the NPA that s/he be prosecuted, first passes PAJA
review muster.
[46]
Accordingly, in my view both applications must inevitably fail, in
each instance with costs, including the costs consequent
upon the
employment of two counsel, and such an order issues.
WHG van der Linde
Judge, High Court
Johannesburg
For
the applicant: Adv. B. Neukircher, SC
Adv.
J. Janse van Rensburg
Instructed
by: Rudman Attorneys
257
Haakdoornbult Street
Erasmusrand
Tel:
012 751 4613
Ref:
PRTR/LS/S7/604
(c/o
Couzyns Incorporated)
1
st
floor, Rosebank Corner
191
Jan Smuts Avenue
Rosebank
For
the respondents: Adv. P. Pauw, SC
Adv.
S.S. Cohen
Instructed
by: Zaf Khan Attorneys
(c/o
Chiba Jivan Attorneys)
53
Church Street
Mayfair
Johannesburg
Tel:
011 362 6523
Ref:
Mr Khan/C202
Date
argued: Monday, 27 March, 2017
Date
judgment: Thursday, 30 March 2017
[1]
Nazeer is
not to be confused with the third respondent, Zainul, who is a
cousin.
[2]
The papers
include a purported notice that such a meeting would be held; see
annexure AC6, p254. But it is common cause that this
is a fraud,
although it is disputed by whom precisely. The respondents say it
was a fraud by a Mr Kalla that had been employed
by the third
respondent at the time to undertake secretarial functions, but that
he has since passed on. See also p206 of the
review application,
para 38, read with the replying affidavit, p292, para 58.
[3]
Founding
affidavit in review application, p17, para 29 to p18, para32.
Although the forms later submitted to CIPC suggested that
the
appointment of the three respondents as directors occurred on 20
July 2011, as to which see pp145 to 147 of the founding
affidavit in
the review application, no-one suggested that there was any meeting
other than that supposedly held on 20 September
2010 at which the
three brothers were appointed as directors.
[4]
See
s.186(3) of the old Act.
[5]
Answering
affidavit, p269 para 28.17.
[6]
Founding
affidavit p21 para 17 ff.
[7]
Founding
affidavit, p24 para 19 ff.
[8]
Founding
affidavit, p17 para 8.5.
[9]
Para 32.
[10]
This
submission relies on the supposed obligation in terms of the old
s.220 to register a special resolution within one month
of the
resolution having been taken. The old Act does not actually require
a special resolution, but rather a resolution at a
meeting of which
special notice will have been given. But since it is common cause
that such special notice was in fact not given,
and so the legal
effect is the same.
[11]
See
annexure FA 4 to the founding affidavit in the review application,
p148: “
Nature
of change: Resigned as director.”
[12]
Compare p63
with p214.
[13]
As the
applicant itself actually submits; heads of argument, para 49.
[14]
As under
the old Act, a “
director”
is defined under the new Act as including a person who occupies the
position of a director. But there is no case made out in
the
founding affidavit that by dint of appropriate facts, the
respondents occupied the positions of directors, even albeit that
they were never legally appointed as such. They may have managed the
company, but that makes them managers, not directors.
[15]
Founding
affidavit in the delinquency application, p29, para 26.2.
[16]
See notice
of motion in the delinquency application, prayer 1.
[17]
They may
conceptually be only one, but for the sake of at least purported
clarity, they are articulated as two.
[18]
2008(2) SA
570 (TPD).
[19]
2011(1)(SA
327 (CC) at [37].
[20]
Review
application, p72, para 6.1.1. S.215(2)(e) of the Act refers to
knowingly providing false information to the commission
or an
inspector.
[21]
Review
application, p72, para 6.1.2.
[22]
See Hoexter
op cit, pp441, 442.
[23]
See para
(ff) of the definition of “
administrative
action”
.
[24]
See s.239
of the Constitution, “
organ
of state.”
[25]
[1970] 3
All ER 535
(CA) at 539 d – f; also referred to by Prof Hoexter
op cit at p437 in the context of “
multi-staged
decision-making”
.
[26]
Du Preez v
TRC, 1997 (3) SA 204 (A).
[27]
Competition
Commission of SA v Telkom Ltd and another
[2010]
2 All SA 433
(SCA), at [10], per Malan, JA.
[28]
[2013] 1
All SA 127 (SCA).
[29]
Compare
Podlas v Cohen and Bryden NNO and others,
1994 (4) SA 662
(TPD) at
675 D – H; Eastern Metropolitan Substructure v Peter Klein
Investments (Pty) Ltd, 2001 (4) SA 661 (W).
[30]
Grey’s
Marine Hout Bay and Others v Minister of Public Works and Others,
[2005] ZASCA 43
;
2005 (6) SA 313
(SCA).