Pitelli v Everton Gardens Projects CC (191/09) [2010] ZASCA 35; 2010 (5) SA 171 (SCA) ; [2010] 4 All SA 357 (SCA) (29 March 2010)

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[2010] ZASCA 35
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Pitelli v Everton Gardens Projects CC (191/09) [2010] ZASCA 35; 2010 (5) SA 171 (SCA) ; [2010] 4 All SA 357 (SCA) (29 March 2010)

THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
JUDGMENT
Case No: 191/09
In the matter between:
FRANCESCO PITELLI
Appellant
and
EVERTON GARDENS PROJECTS
CC Respondent
Neutral citation:
Pitelli
v Everton Gardens Projects CC
(191/09)
[2010] ZASCA 35
(29 March 2010)
Coram:
NUGENT,
CLOETE, MLAMBO, TSHIQI JJA and MAJIEDT AJA
Heard:
01
MARCH 2010
Delivered:
29
MARCH 2010
Summary:
Appealability
of order taken by default – order capable of being rescinded by
court below – not appealable.
_______________________________________________________________________
ORDER
_______________________________________________________________________
On appeal from: North Gauteng
High Court, Pretoria (Van der Merwe J sitting as court of first
instance)
The appeal is struck from the
roll with costs.
_______________________________________________________________________
JUDGMENT
_______________________________________________________________________
NUGENT JA (CLOETE, MLAMBO, TSHIQI
JJA and MAJIEDT AJA
concurring)
[1] The limited liability that is
afforded to persons who conduct business through the medium of a
company is not there to protect
them against conduct that is reckless
or that takes place with fraudulent intent. Section 424(1) of the
Companies Act 61 of 1973
protects creditors in those circumstances.
It provides that when it appears to a court that ‘any business of
[a] company was or
is being carried on recklessly or with intent to
defraud creditors of the company’ the court may declare that ‘any
person who
was knowingly a party to the carrying on of the business’
in that manner shall be ‘personally responsible ... for all or any
of the debts or other liabilities of the company ....’
[2] In this case the North
Gauteng High Court at Pretoria (Van der Merwe J) made such a
declaration and ordered Mr Pitelli, the appellant,
to pay to Everton
Gardens Projects CC, the respondent, the amounts of R382 500 and
R607 611, together with related relief.
Those orders were made
on 22 June 2007 in proceedings from which Mr Pitelli pertinently
absented himself.
[3] Mr Pitelli now appeals
against the orders with the leave of this court. I deal later in this
judgment with whether the appeal
is competent. First I set out the
facts that gave rise to the application and with the course that the
proceedings took.
[4] The proceedings were brought
on notice of motion. No answering affidavit was filed by Mr Pitelli
for reasons that will emerge
presently. The facts that I relate are
thus drawn from the allegations in the founding affidavit.
[5] The business of the
respondent was the development of housing estates, mainly for the
purpose of the government’s Reconstruction
and Development
Programme. One of its projects was a massive development in an area
known as Everton Gardens. It employed the services
of Eldima
Construction (Pty) Ltd to install the water reticulation and sewerage
infrastructure. At the time that is now relevant
Mr Pitelli was the
sole shareholder and director of the company.
[6] During the course of
executing the project the respondent paid Eldima Construction
R382 500 on 26 February 1999 and R607 611
on 18 March 1999.
Those payments were made in error because the relevant accounts had
already been paid. In June 2003 the respondent
sued Eldima
Construction for the return of the moneys.
[7] In response to an application
for summary judgment Mr Pitelli deposed to an affidavit on 11
September 2003 in which he said that
work had indeed been done for
the respondent for the sum of R990 111 but he denied that any
payment for that work was made before
the payment of R607 611 on
18 March 1999. As for the amount of R382 500 that was paid on 26
February 1999 he denied that
that payment was made at all. He also
alleged that the claim had prescribed. In due course a plea to
similar effect was filed together
with a counterclaim in which Eldima
Construction alleged that it was owed the sum of R195 544 by the
respondent for goods and
services that had been provided. The
pleadings closed in October 2004.
[8] The proceedings were set down
for trial on 15 June 2006. Meanwhile, on 30 May 2006 Mr Pitelli, who
was then the sole member of
the company, purported to adopt a
resolution authorizing the voluntary winding up of the company. The
Registrar of Companies declined
to accept the resolution for want of
compliance with the Companies Act and the proposed winding up did not
proceed. I think the inference
is inescapable that Mr Pitelli hoped
to commence the winding up so as to avoid the consequences that would
otherwise follow from
a judgment being entered against the company.
[9] At the proceedings on 15 June
2006 the company was not represented and judgment was granted against
it by default for the amounts
that had been claimed and the
counterclaim was dismissed. Needless to say, a writ of execution
rendered a nulla bona return.
[10] The proceedings with which
we are now concerned – for an order declaring Mr Pitelli to be
personally liable for the debts –
were then commenced. In support
of the application an affidavit deposed to by Mr de Luca was filed.
Mr de Luca and Mr Pitteli were
the sole members of the company, in
equal shares, and were its directors, at the time that the erroneous
payment was made. Mr Pitelli
was in charge of its financial affairs,
and was assisted by his wife who was the bookkeeper. Mr de Luca said
in his affidavit that
he and Mr and Mrs Pitelli were all aware that
the moneys I have referred to were an overpayment. Some three to six
months later Mr
de Luca sold his shares to Mr Pitelli but he remained
with the company as an employee. He said that he did not know what
happened
to the moneys that had been paid in error. On the basis of
that uncontroverted evidence it follows that Mr Pitelli perjured
himself
when he resisted summary judgment and that he filed a
dishonest plea.
[11] The basis of the claim, as
it was stated in the founding affidavit, was that the retention of
the moneys by Mr Pitelli when he
knew full well that the company had
been overpayed constituted conduct that occurred with intent to
defraud the respondent. To that
was added in argument before us that
his conduct in protracting the proceedings that were brought for
recovery of the money, not
least by perjuring himself in resisting
summary judgment, when those proceedings were bound to end in favour
of the respondent, and
by resolving to wind up the company so as to
avoid the consequences of a judgment, constituted a course of
deceitful conduct directed
at preventing the respondent from
recovering what Mr Pitelli knew to be due, which fell within the
provisions of the section.
[12] The proceedings were
launched on 26 March 2007. Mr Pitelli and the company were both cited
but the company has no direct interest
in the matter and I refer
hereafter only to Mr Pitelli. In April 2007 a notice of opposition
was filed. On 8 May 2007 Mr Pitelli’s
attorney was given notice
that the application had been set down for hearing on 22 June 2007.
[13] On 18 May 2007 Mr Pitteli’s
attorney wrote to the respondent’s attorney, saying that he
understood that settlement negotiations
between the parties had taken
place but had come to nothing, and he enclosed a notice under rule
35(12) to produce certain documents.
The respondent’s attorney
replied on the same day, hotly denying that any settlement
negotiations had taken place, and pointing
out that the time within
which the notice should have been filed had long passed.
[14] There was no response for a
month. Four days before the matter was to be heard, on 18 June 2007,
Mr Pitelli’s attorney wrote
to the respondent’s attorney
requesting him to ‘confirm that you will remove the matter from the
roll until such time as you
have complied with our rule 35 notice’,
failing which an application to stay the proceedings would be
launched. The respondent’s
attorney declined to remove the matter
from the roll.
[15] The respondent nonetheless
replied to the rule 35(3) notice, no doubt out of caution, in an
affidavit that was served on Mr Pitelli’s
attorneys on 19 June
2007. In that affidavit the deponent said that he had been unable to
locate one of the documents that had been
called for, and that the
other documents were amongst the founding papers.
[16] On 21 June 2007 Mr Pitelli
filed an application for an order postponing the proceedings that had
been set down for the following
day. The postponement was required,
according to Mr Pitelli, to enable him to secure the documents before
proceeding. In support
of that application Mr Pitelli referred to the
alleged settlement negotiations and said that ‘the exchange of
affidavits was suspended
pending the outcome of the settlement
talks’. He said that he was thus entitled to require the production
of documents before he
filed his affidavit and that an application to
compel production was ‘pending’. No reference was made to the
affidavit that had
been served on his attorneys on 19 June 2007.
Neither was an explanation given for why the ‘settlement talks’
suspended the time
for filing affidavits, because no agreement to
that effect was alleged. Nor was it said why the documents were
necessary to resist
the claim.
[17] I have little doubt that the
filing of the notice under rule 35 was no more than a ploy to provide
a basis for avoiding the impending
hearing. The documents that were
sought had been mentioned in the founding affidavit to sketch the
background to the application
but they were otherwise irrelevant to
the relief that was claimed. In any event, as the deponent to the
affidavit explained, all
but one of the documents were already
amongst the papers.
[18] The following day the matter
came before Van der Merwe J who refused to postpone the matter. Mr
Pitelli’s counsel thereupon
withdrew on the basis that he had no
instructions to pursue the matter. The learned judge then granted the
orders that had been sought.
While he gave full reasons for refusing
the postponement he gave no reasoned judgment for granting the relief
but that is not surprising.
[19] What then occurred was
rather unusual. An application for leave to appeal was filed on
behalf of Mr Pitelli on the same day (which
naturally had the effect
of suspending the operation of the order). Then on 27 July 2007 Mr
Pitelli filed an application to rescind
the order. It took some time
for the filing of affidavits in that application to be completed and
the record of those proceedings
is not before us.
[20] The filing of both an
application for leave to appeal and an application to rescind the
orders was contradictory. Because for
an order to be appealable it
must have as one of its features that the order is final in its
effect, by which I mean that it is not
susceptible to being revisited
by the court that granted it (
Zweni
v Minister of Law and Order
).
1
The fact alone that it was thought fit to file an application for
rescission immediately raises the question whether the orders are
appealable.
[21] Nonetheless, Van der Merwe J
heard the application for leave to appeal, and the application for
rescission, simultaneously, and
refused both. Precisely when that
took place does not appear from the record, but the learned judge
signed a reasoned judgment on
8 September 2008. Upon petition this
court granted Mr Pitelli leave to appeal against the orders that were
made on 22 June 2007.
[22] The terms in which the order
was made by this court naturally focused the attention of the parties
and of this court on the underlying
merits of those orders. Yet the
very consideration of the appeal has brought some oddities to the
fore. All the submissions that
were presented in this case turned
around the allegation that Mr Pitelli knew full well that the moneys
had been overpaid. When asked
whether we are to accept that as an
established fact counsel for Mr Pitelli was constrained to concede,
though he did so with considerable
discomfort, that we must indeed
accept that as an established fact because the allegation has not
been answered. But of course the
allegation has not been answered, in
either direction, only because Mr Pitelli walked out of the case
without filing answering affidavits.
Which raises the question why
this court is hearing an appeal when the proceedings were abruptly
ended before they had reached their
ordinary conclusion.
[23] That invites the further
question what would have happened had the proceedings been brought by
way of summons and Mr Pitelli
had walked out before any evidence had
been presented. A court could not possibly have considered an appeal
against orders that might
then have been made by default because
there would then have been nothing to form the basis for the appeal
(unless, perhaps, if it
had been contended that the summons was
excipiable, or that the court had no jurisdiction).
[24] What also strikes one as odd
is that submissions on behalf of Mr Pitelli should be made for the
first time in this court, when
they could have been made to the court
below before it made its orders, but were deliberately withheld. This
is not a court of first
instance. It seems to me that it would be
most unfortunate for a court of first instance to find its orders
reversed only because
the litigant chose not to tell that court why
the orders should not be made, and thought it better to make those
submissions to a
court of appeal only after that had occurred.
[25] Those oddities arise because
once the orders were made by the court below the proceedings in that
court were not complete, notwithstanding
that the orders took full
effect. They were not complete because the orders were still
susceptible to being revisited and rescinded
by the court that
granted them. Had the court rescinded the orders the proceedings
would then have proceeded to their ordinary completion
by a final
judgment.
[26] On the other hand, had the
court below refused to rescind its orders, as it did, that would
clearly have been appealable,
2
because it would have brought the proceedings to completion in the
court of first instance. And had this court then upheld the appeal
the matter would have been remitted to that court to bring the
proceedings to completeness in the manner I have described.
[27] An order is not final, for
the purposes of an appeal, merely because it takes effect unless it
is set aside. It is final when
the proceedings of the court of first
instance are complete and that court is not capable of revisiting the
order. That leads one
ineluctably to the conclusion that an order
that is taken in the absence of a party is ordinarily not appealable
(perhaps there might
be cases in which it is appealable but for the
moment I cannot think of one). It is not appealable because such an
order is capable
of being rescinded by the court that granted it and
it is thus not final in its effect. In some cases an order that is
granted in
the absence of a party might be rescindable under rule
42(1)(a), and if it is not covered by that rule,
3
as Van der Merwe J correctly found, it is in any event capable of
being rescinded under the common law.
[28] That an order granted in the
absence of a party is not appealable was held as early as 1877 in
Ross v Dramat
,
4
when De Villiers CJ said, in respect of such an order that
‘
the defendant is
premature in applying to this Court [to appeal against the order]
until the Magistrate has been asked and has refused
to re-open the
case’.
[29] An order that was
susceptible to being rescinded was also held not to be appealable in
Sparks v David Polliack
& Co. (Pty) Ltd.
5
In that case the
defendant applied for the postponement of a trial, and when the
postponement was refused his attorney withdrew, and
judgment was
entered against him under rule 55(2) of the Magistrates’
Courts rules.
[30] In the course of his
judgment, though it was not necessary for the decision in that case,
6
Trollip J said that such an order will become appealable when it is
‘no longer rescindable’, which could occur ‘either through
lapse of time … or by the defendant’s waiving or perempting his
right to rescind, or both.’ He went on to say:
‘
In practice, if
the defendant considered that, because of the particular
circumstances, it would be preferable to appeal instead of
trying to
have the judgment rescinded by the same magistrate or court that
granted it, he could, in noting his appeal, expressly
waive or
perempt his right of rescission, and that would, in my view, render
the default judgment final for appellate purposes.’
7
[31] Reluctant as I am to
question the view of so eminent a judge
8
I must respectfully do so in this case. I do not see how the question
whether an order is appealable can be dependant upon the choosing
of
the litigant concerned, whether by action or inaction. It seems to me
that the appealability of an order must be dependant on
the nature of
the order and not upon what the litigant chooses to make of it. An
order made by default is by its nature not final
in its effect
because it is capable of being revisited, albeit that condonation
might be required for the delay. It is true that
once rescission has
been refused, and an appeal against that order has been dismissed,
the order is then not capable of being revisited.
But that order of
the court of appeal brings the proceedings as a whole to an end and
it is not then open to a litigant to return
to an order that was made
midway in the proceedings.
[32] The learned judge based his
contrary view on analogy with orders that are considered to be final
for the purpose of founding
a plea of res judicata but I do not think
that the questions that arise in that regard are comparable.
Nonetheless it is not strictly
necessary in this case to pronounce
finally upon the view that was expressed in that case.
[33]
Sparks
was followed in
De
Freitas v Addisionele Landdros, Heidelberg
,
9
and in
Trustees for the
time being of Ramvali Trust v UDC Ltd.
10
In both those cases the order that was taken by default was held not
to be appealable. Both cases appear to have adopted the view
that I
have referred to but that was not necessary for the decisions in
those cases. There are also cases that appear to go in the
other
direction. I express no view on the correctness of those decisions
because they are distinguishable on their particular facts.
11
[34] I am mindful of the
considerable hurdle that would need to be overcome by a litigant who
seeks to have an order rescinded when
he or she deliberately allowed
it to be taken by default, bearing in mind that in order to succeed
the litigant will need to provide
a ‘reasonable and convincing
explanation’ for the default.
12
But the appealability of the order is dependant upon whether it is
capable of being revisited and not upon whether such an application
will succeed. And if a litigant deliberately chooses to permit an
order to go by default then he or she can hardly complain if a
court
refuses to allow the matter to be re-opened. A litigant cannot expect
to blow hot and cold depending upon which is most advantageous
at the
time.
[35] The terms in which this
court made its order naturally diverted attention from the
appealability of the order and the submissions
that were made by
counsel were not directed to that question. We have considered
inviting the parties to make further submissions
but we do not think
we should tempt the respondent to incur more costs than it has
already been put to. We have had the advantage
of full argument on
the merits and we would in any event have dismissed the appeal. In
view of the conclusion to which I have come
I do not think it is
necessary or appropriate to explain why we would have done so.
[36] The orders that were made in
this case were clearly susceptible to rescission. In those
circumstances they are not appealable,
notwithstanding that the
application for rescission failed, and this court ought not to have
allowed the appeal. No doubt the refusal
of rescission was
appealable, with the necessary leave, but that is another matter.
[37] Although the order refusing
rescission is not before us I think I would be remiss if I did not
say something about it now that
we have heard all there is to say in
this matter, in view of the course that the proceedings against Mr
Pitelli and his company have
taken, which in my view has clearly been
dilatory from beginning to end. The court below cannot be faulted for
having refused to
rescind its order on any basis and I consider there
to be no prospect that it might be reversed on appeal. Needless to
say, that
view is not binding on this court should Mr Pitelli
nonetheless choose to seek leave to appeal against that order, albeit
only with
condonation. But in that event he should not be surprised
if he is found to have acted vexatiously and he is penalised
accordingly.
[38] The appeal is struck from
the roll with costs.
___________________
R W NUGENT
JUDGE OF APPEAL
APPEARANCES:
For appellant: R Stockwell SC
J F Pretorius
Instructed by Zwiegers C/o Sanet
de Lange Attorneys, Pretoria
Symington & De Kok,
Bloemfontein
For respondent: M C Erasmus SC
Instructed by Coetzee Attorneys,
Pretoria
McIntyre & Van der Post,
Bloemfontein
1
1993 (1) SA 523
(A) at 532J.
2
De Wet v Western Bank Ltd
1979 (2) SA 1031
(A);
Chetty v
Law Society, Transvaal
1985 (2) SA 756
(A).
3
See in that regard
Marais v Standard Credit Corporation Ltd
2002 (4) SA 892
(W) and
Lodhi 2 Properties Investments CC v
Bondev Developments (Pty) Ltd
2007 (6) SA 87
(SCA).
4
1877 Buch. 132 at 133.
5
1963 (2) SA 491
(T).
6
At 496C-D.
7
At 496E-F.
8
A similar view was expressed in
Dawood v C. & A. Friedlander
1913 CPD 291.
9
[1998] JOL 3645
(T).
10
[1998] JOL 2803
(ZS).
11
In
Chimanzi v Mukange
1966 (2) SA 347
(RAD) the court found
that the order was appealable because, although it had granted in
the absence of the defendant, it was nonetheless
not susceptible to
rescission. In
Van Graan v Smith’s Mills (Pty) Ltd
1962 (3)
SA 170
(T) it was held that the order was made in consequence of an
irregularly in the proceedings.
12
See
Chetty
, above, at 765A-D.