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[2013] ZASCA 136
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CA Focus CC v Village Freezer t/a Ashmel Spar (731/12) [2013] ZASCA 136; 2013 (6) SA 549 (SCA) (27 September 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 731/12
Reportable
In the matter between:
CA FOCUS CC
............................................................................................
APPELLANT
and
VILLAGE FREEZER t/a ASHMEL SPAR
................................................
RESPONDENT
Neutral citation:
CA Focus
CC v Village Freezer t/a Ashmel Spar
(731/12)
[2013] ZASCA 136(27
September 2013)
Coram
: Cachalia, Leach,
Majiedt, Petse and Willis JJA
Heard: 16 September 2013
Delivered: 27 September 2013
Summary: Section 26(7) of the Close
Corporation Act 69 of 1984, which has now been repealed,
retrospectively validates legal proceedings
instituted during the
period of deregistration, and interrupts prescription.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
Eastern Cape
High Court, Grahamstown (Makaula and Griffiths JJ sitting as court of
appeal):
The appeal is upheld with costs. The
order of the high court is set aside and replaced with the following:
‘
The appeal
is dismissed with costs.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
CACHALIA JA (LEACH, MAJIEDT, PETSE
AND WILLIS JJA CONCURRING):
[1] The Close Corporations Act 69 of
1984 (the Act) permits a deregistered close corporation to have its
registration restored.
When that occurs, s 26(7) of the Act says that
the corporation ‘shall continue to exist and be
deemed to
have continued in existence as from the date of deregistration as if
it were not deregistered
’ (emphasis added). The issue in
this appeal concerns whether or not this provision has the effect of
retrospectively validating
an invalid summons issued by a close
corporation after deregistration so as to interrupt the running of
prescription.A magistrate
held that the provision had that effect,
but the high court came to the contrary conclusion. With leave of the
high court the appellant,
a close corporation,now appeals to this
court.
[2] It is convenient at the outset to
quote s 26 in full:
‘
(1)
If a corporation has failed, for a period of more than six months, to
lodge an annual return in compliance with section 15A
or if the
Registrar has reasonable cause to believe that a corporation is not
carrying on business or is not in operation, the
Registrar shall
serve on the corporation as its postal address a letter by registered
post in which the corporation is notified
therefore and informed that
if the Registrar is not within 60 days from the date of the letter
informed in writing that the corporation
is carrying on business or
is in operation, the corporation will, unless good cause is shown to
the contrary, be deregistered.
(2)
After the expiration of the period of 60 days mentioned in a letter
referred to in subsection (1), or upon receipt from the
corporation
of a written statement signed by or on behalf of every member to the
effect that the corporation has ceased to carry
on business and has
no assets or liabilities, the Registrar may, unless good cause to the
contrary has been shown by the corporation,
deregister that
corporation.
(3)
Where a corporation has been deregistered, the Registrar shall give
notice of such deregistration and the date thereof in the
prescribed
manner.
(4)
The deregistration of a corporation shall not affect any liability of
a member of the corporation to the corporation or to any
other
person, and such liability may be enforced as if the corporation were
not deregistered.
(5)
If a corporation is deregistered while having outstanding
liabilities, the persons who are members of such corporation at the
time of deregistration shall be jointly and severally liable for such
liabilities.
(6)
The Registrar may on application by any interested person, if he or
she is satisfied that a corporation was at the time of its
deregistration carrying on business or was in operation, or that it
is otherwise just that the registration of the corporation
be
restored, restore the said registration: Provided that if a
corporation has been deregistered due to its failure to lodge an
annual return in compliance with section 15A, theRegistrar may only
so restore the registration of the corporation after it has
lodged
the outstanding annual return and paid the outstanding prescribed fee
in respect thereof.
(7)
The Registrar shall give notice of the restoration of the
registration of a corporation and the date thereof in the prescribed
manner and as from such date the
corporation
shall continue to exist and be deemed to have continued in existence
as from the date of deregistration as if it were
not deregistered.
'
(Emphasis added.)
[3] The parties agreed that the matter
was to be adjudicated on the basis of the following bare statement of
facts: The appellant,
a close corporation, had a claim for the
recovery of monies due for services rendered to the respondent during
the period April
2006 to September 2006. The ‘debt’ upon
which the cause of action was founded therefore became due and
payable in September
2006. The appellant was deregistered on 8
November 2007. On 12 March 2008 – after deregistration –
the appellant issued
summons claiming an amount of R60 000 from
the respondent. If the summons did not interrupt prescription, the
debt would have
prescribed at the end of September 2009. The
appellant applied for reregistrationto the registrar of close
corporations, who restored
the appellant’s registration on 11
March 2011.
[4] There is no dispute that because
the appellant had not been registered when it commenced litigation
the summons was a nullity
and had no legal effect.In its special
plea,the respondenttherefore pleaded that since the debt was due in
September 2006 and that
the issue of summons in March 2008 had had no
legal effect, the summons did not interrupt prescription. So the
claim became prescribed
in September 2009.
[5] The magistrate dismissed the
special plea, holding that the deeming provision in s 26(7) had the
effect of reviving the appellant’s
claim against the respondent
retrospectively, and the summons had thus interrupted prescription.
The high court, however, upheld
the respondent’s appeal. It
held that the provision was not intended to revive a debt that had
prescribed during the deregistration-period.
In coming to this
conclusion the court applied the approach of this court in
Mouton
v Boland Bank Ltd
,
1
which also had to consider the ambit
of s 26(7). There, the court said that because the deeming provision
created a statutory fiction
that a corporation had never ceased to
exist when it in fact had, the provision had to be interpreted
restrictively so as to achieve
only its limited legislative purpose –
to restore the deregistered corporation’s assets and
liabilities to it so that
it may continue with its business –
but no more.
2
[6] The court in
Mouton
thus
held that where a member who procures the corporation’s
deregistration becomes personally liable for the corporation’s
liabilities under s 26(5) of the Act, the restoration of the
registration did not relieve him from liability to a creditor.
Section
26(7) should therefore not be interpreted, the court
concluded, to extend the bounds of the statutory fiction to relieve
the member
of his liability following the corporation’s
deregistration.
3
Applying
this reasoning to the instant case, the high court held that the
section could not be interpreted in a mannerthat interfered
with the
existing rights of third parties, including the right by a defendant
to raise prescription as a defence to a claim for
payment of a debt.
The court therefore upheld the respondent’s appeal against the
magistrate’s decision.
[7] Before us counsel for the
appellant submitted that the language of the deeming provision in s
26(7) is unambiguous, which means
that there is no room to interpret
it so as not to affect the existing rights of third parties, as the
high court had found. The
provision therefore had to be given a
literal meaning. In his written submission he contended that the
judgment of this court in
Insamcor
(Pty) Ltd v Dorbyl Light & General Engineering
,
4
which analysed the retrospective
effect of a similar provision in the Companies Act 61 of 1973,
supported his interpretation. In
that matter Brand JA said in an
obiter dictum, and somewhat tentatively, that the relevant provision
– s 73(6) – ‘seems
to validate, retrospectively,
all acts done since deregistration – including, for example,
the institution of legal proceedings
– on behalf of a company
that did not exist’.
[8] In the view I take of the matter
it is not necessary to deal with
Insamcor
for
the simple reason that that case concerned the legal proceedings
instituted by a company after reregistration, the effect of
which
appeared to reinstate the rights and obligations the parties had lost
pursuant to deregistration. The statement of Brand
JA must be
considered against the background of those facts. Here we are
concerned with proceedings instituted by a close corporation
after
deregistration.
[9] It is useful to begin by
considering the general effect of a deeming provision such as in the
instant case. The use of the word
‘deemed’, said Innes J
many years ago, is . . . ‘not a very happy one, because that
term may be employed to denote
merely that the persons or things to
which it relates are to be considered to be what really they are not
. . . .’
5
But usually it is a species of
retrospective legislation which ‘changes the law only for the
future, but it looks to the past
and attaches new
prejudicial
consequences to a completed transaction
.
. . . A retrospective statute operates as of a past time in a sense
that
it opens up a closed
transaction and changes its consequences,
although
the change is effective only for the future’. (Emphasis
added.)
6
This
means that it will almost always have the effect of changing the
consequences of the transaction – also for third parties
–
unless there is some limitation in the statue itself.
[10] In
Ex parte Sengol Investments
(Pty) Ltd
,
7
which
was quoted with approval in
Mouton
, Van Dijkhorst J described
the general effect of the reregistration of a company, which would
also apply to a close corporation,
as follows:
‘
The
effect of restoration to the register is that the company is deemed
not to have been deregistered at all. This entails that
all parties
who have by deregistration of the company or thereafter acquired
rights to assets which the company had upon deregistration
will lose
those rights as the assets will revert to the company. This includes
assets which have become
bona
vacantia
and
as such accrued to the State.
Likewise
debtors and creditors of the company at time of deregistration may
upon restoration find their obligations or rights resuscitated
.’
(Emphasis added.)
Thus, the effect of reregistration is
that a company or close corporation is to be regarded as having never
been deregistered at
all.
8
[11] There is no limitation or
qualification to s 26(7), and on the face of it, therefore, itwould
appear to place all parties,
including third parties, in the same
position as if there was no deregistration. But in
Mouton
, the
court was not prepared to go that far, and rejected an assertion by a
member of a close corporation that the operation of
the section
released him from his former liability to a creditor by reinstating
the corporation’s liability.
[12]
Mouton
,as here,also
concerned the institution of legal proceedings during the period of
deregistration, but importantly by a creditor
of the close
corporation,and not by the close corporation itself. Mr Mouton was a
member of a close corporation that owed money
to a bank. The close
corporation was deregistered with the money still owing. The bank
sued Mouton personally in terms of s 26(5).
After pleadings had
closed, Mouton reregistered the close corporation. He then delivered
an amended plea in which he asserted that
he had been released from
his former liability because of the operation of s 26(7). The court
dismissed the plea holding that the
deeming provision did not have
the effect of extinguishing Mr Mouton’s personal liability that
arose as a result of deregistration.
Simply put, the court held that
the consequences flowing from the institution of legal proceedings
while the close corporation
was deregistered could not be undone by
simply reregistering it.
[13] During the course of his judgment
Schutz JA said:
‘
The
broad purpose of s 26(7) is that a corporation which has been
dissolved because of a misrepresentation by its members shall
have
its assets and liabilities restored to it, so that they may be
applied to the endsordained by law, whether in the course of
continued carrying on of business, or in the course of liquidation.
Nowhere is there any indication of a purpose to relieve from
liability a member responsible for presenting creditors with a vacuum
in place of a corporation. Accordingly there is no need to
extend the
bounds of an imaginary state of affairs, nor any justification for
doing so.’
9
[14] In coming to this conclusion he
also said, with reference to the section, that:
‘
The
Legislature has created a statutory fiction that a corporation never
ceased to exist, when it in fact did. But I do not think
that we
should attribute to the Legislature a belief that it can actually
recall time passed.’
And he continued, quoting
Bennion
Statutory
Interpretation
3ed at 706,
with approval:
‘
The
intention of the deeming provision, in laying down a hypothesis, is
that the hypothesis shall be carried as far as necessary
to achieve
the legislative purpose but no further.’
[15] At first blush these passages
seem to indicate that the court considered reregistration to have the
consequence only of restoring
assets and liabilities so that the
entity could continue as before, but no more. Put another way it did
not have the effect of
validating acts performed after
deregistration. This is the respondent’s contention, which the
high court upheld.
[16] But it is apparent that in
Mouton
the court was dealing with
a member who was attempting to avoid personal liability arising as a
consequence of s 26(5) of the Act,
which makes a member personally
liable for a deregistered close corporation’s outstanding
liabilities. And,the court concluded,
s 26(7) did not have the effect
of extinguishing the member’s liability upon reregistration. I
do not think that these statements
go any further, or suggest that
the provision was not intended to affect the rights of third parties.
The dicta in
Sengol
to
which Schutz JA referred with approval makes that clear.
10
[17] Recently in
Kadoma Trading 15
(Pty) Ltd v Noble Crest CC
11
this court was again called upon to consider the effect of s 26(7) on
a sale and franchise agreement concluded between the parties
during
the period of a close corporation’s deregistration. Maya JA
concluded the section had the effect that restoration
retrospectively
validated the agreement. The respondent however contends that in that
case the close corporation’s member
was unaware of
deregistration when the agreement was concluded, whereas here there
is no such suggestion.
[18] But even if I assume in favour of
the respondent that the appellant’s member was aware of the
deregistration, the submission
must founder because statutory
interpretation is an objective process by which the words of the
statute are given a meaning by
having regard to their language, the
context in which they are used and the purpose to which they are
directed.The subjective views
of the parties, their state of mind, or
the facts of a particular case have no bearing on this analysis.
12
[19] Moreover the respondent has no
cause to complain in this case. Proceedings were instituted against
it within the three year
period allowed for prescription. It
therefore became aware of the claim in good time, pleaded on the
merits and has also brought
a counter-claim against the appellant. It
can hardly assert that its rights have been adversely affected by the
appellant’s
reregistration.
[20] I accept though that some
apparent anomalies may arise in applying the provision literally.
There is no time limit, for example,for
reregistration of a close
corporation; it could notionally be restored a decade after it has
been deregistered.Can it then seriously
be suggested that all that
has happened during this period can be undone. And what of
proceedings that commence and are concluded
before reregistration;
can these be reversed?
[21] But these anomalies arise
inevitably as an incident of the purpose of the section. And I don’t
think that we can decline
to give effect to this purpose only because
it appears to gives rise to anomalies. In the absence of any
ambiguity, and I do not
think there is, the appellant is correct in
its submission that there is no room to give the provision a meaning
that does not
accord with its plain language.
[22] In conclusion it is interesting
to note that ss 26(7) of the Act and 73(6) of the 1973 Companies Act
were repealed by
s 224
of the
Companies Act 71 of 2008
, which came
into operation on 1 May 2011. Section 82(4) of the 2008 Act now
allows the registration of deregistered company or
close corporation
to be reinstated, but the provision permitting the restoration to
operate retrospectively was omitted, perhaps
because the lawmaker is
now aware of potential anomalies.
[23] The following order is made:
The appeal is upheld with costs. The
order of the high court is set aside and replaced with the following:
‘
The appeal
is dismissed with costs.’
_________________
A CACHALIA
JUDGE OF APPEAL
APPEARANCES
For Appellant: T J M Paterson SC
Instructed by:
Drake Flemmer&OrsmondInc, East
London
Webbers, Bloemfontein
For Respondent: K L Watt
Instructed by:
Cooper Conroy Bell & Richards Inc,
East London
PhatshoaneHenneyInc, Bloemfontein
1
Mouton
v Boland Bank
2001 (3) SA 877
(SCA). The section was amended
twice after
Mouton
was decided, by s 1 of Act 25 of 2005 and
by s 62
(c)
of Act 24 of 2006. The amendments have no bearing
on this case.
2
Ibid
paras 12-14.
3
Ibid
para 14.
4
2007
(4) SA 467
(SCA) para 23.
5
Chotabhai
v Union Government & another
1911 AD at p 33.
6
Driedger,
Construction of Statutes
(1983) at 185-6 referred to in
Devenish op cit at 188.
7
Ex
parte Sengol Investments (Pty) Ltd
1982 (3) SA 474(T)
at 477C-D.
8
Meskin
Henochsberg
on the
Companies Act
5edvol 1
at 144(1).
9
Mouton
fn
1 para 14.
10
See
above para 10.
11
2013
(3) SA 388
(SCA) para 14.
12
Natal
Joint Municipality Pension Fund v Endumeni Municipality
2012 (4)
SA 593
(SCA) para 18.