Summary of Judgment

1. Introduction

This judgment concerns an application for leave to appeal, coupled with a request for condonation for late filing, brought in the High Court of South Africa, Free State Division, Bloemfontein. The application was determined by Mbhele AJP and was heard on 25 February 2022 and delivered on 28 April 2022.

The party seeking leave to appeal was the third defendant, Islandsite Investments 180 (Pty) Ltd. The opposing party in the leave application was the National Director of Public Prosecutions (NDPP), cited in the main proceedings as the applicant. Although the broader matter involved multiple cited defendants and respondents, the judgment addressed the narrower procedural and authority dispute arising from Islandsite’s attempt to litigate in the main proceedings while it was under business rescue.

The procedural history relevant to this judgment was that Musi JP delivered an earlier judgment on 11 August 2021 making two operative findings: first, that BDK Attorneys lacked authority to act for the third defendant in the proceedings; and second, that the directors and/or shareholders of the third defendant lacked standing to oppose the proceedings without approval of the business rescue practitioners. Islandsite sought leave to appeal against that order, but it did so more than four months after the order, well outside the period prescribed by the Uniform Rules.

The dispute in this leave application thus fell within the general subject-matter of (i) appeal procedure (leave to appeal and condonation) and (ii) company law under business rescue, particularly the allocation of authority between a company’s board of directors and its business rescue practitioners in relation to litigation decisions.

2. Material Facts

It was common cause, and treated by the court as the operative procedural fact, that the judgment sought to be appealed was delivered on 11 August 2021, and that Islandsite only brought its application for leave to appeal in December 2021, more than four months later. The court noted that the precise filing date was unclear on the papers, but it could be gleaned that the leave-to-appeal application was signed on 15 December 2021 and the affidavit in support of condonation was signed on 18 December 2021.

The court proceeded on the basis that Rule 49(1)(b) required an application for leave to appeal to be delivered within 15 court days from the date of the order. Against that procedural benchmark, the court regarded Islandsite’s application as substantially late and therefore dependent on a proper showing for condonation.

As to Islandsite’s explanation for the delay, the court summarised it as resting mainly on two propositions. The first was an asserted uncertainty as to whether the Musi JP order, despite its final effect, was appealable. The second was that it was only after the Constitutional Court decision in Shiva Uranium (Proprietary) Limited and Another v Mahomed Mahier Tayob and Others CC/305/20 [2021] ZACC 40 (delivered on 9 November 2021) that Islandsite believed it became clear that the earlier judgment was “incorrect and wrong in law” and that leave to appeal should be pursued.

The court treated as material the further chronology that, even accepting Islandsite’s reliance on the Constitutional Court decision as the triggering event, Islandsite still lodged its leave and condonation papers more than five weeks after that decision. The court found that the papers did not adequately explain why that additional delay occurred.

On the merits (for purposes of assessing prospects of success), the court accepted as central the context that the third defendant was a company in business rescue and that the earlier order effectively required that opposition and litigation decisions on behalf of the company had to be authorised or approved by the business rescue practitioners, with the implication that attorneys could not act on instructions lacking such authority. The court also considered, as part of its evaluation of the litigation-authority question, that engaging in litigation may carry not only potential legal costs but also reputational risk, brand damage, and diversion of management resources, which the court regarded as relevant to whether such decisions fall within day-to-day management.

3. Legal Issues

The central legal questions the court was required to determine were, first, whether Islandsite had made out a proper case for condonation for the late filing of its leave-to-appeal application in light of the requirements for explaining non-compliance with the rules, including explaining both the delay and any delay in seeking condonation.

Second, the court had to determine whether leave to appeal should be granted under section 17 of the Superior Courts Act 10 of 2013, which required Islandsite to demonstrate that the contemplated appeal would have a reasonable prospect of success (or that another compelling reason justified an appeal), and that the statutory requirements for leave were met.

Third, because the merits were advanced as showing strong prospects, the court had to consider the substantive company-law question raised by Islandsite: whether, during business rescue, the directors/shareholders of the company could litigate on behalf of the company (including opposing proceedings) without the approval or authority of the business rescue practitioners, or whether such actions fall within the authority of the practitioners and are void without approval.

These questions involved a mixture of procedural application of law to fact (condonation and leave thresholds applied to the chronology and explanation provided) and interpretive application of statutory provisions under the Companies Act 71 of 2008 to the functional classification of litigation decisions (governance versus management within the business rescue framework). The characterisation of litigation as implicating day-to-day management also entailed an evaluative judgment by the court, grounded in the statutory scheme and the practical implications of litigation.

4. Court’s Reasoning

The court approached the application by identifying the governing statutory standard for leave to appeal in section 17 of the Superior Courts Act 10 of 2013. It emphasised that the Act has raised the threshold for granting leave to appeal: it is not sufficient that a party has an arguable case or a mere possibility of success, but the applicant must show real prospects that another court would come to a different conclusion. The court relied on authority indicating that the use of “would” in section 17 suggests a more stringent, certainty-oriented standard than the earlier test.

The court further noted that any discretion in a leave-to-appeal inquiry must be exercised consistently with section 17(1), and that the applicant bears a “heavy onus” to demonstrate why another court would differ. The court also referred to prior judicial commentary cautioning that “compelling reasons” for an appeal under section 17(1)(a)(ii) should not be invoked for flimsy reasons, and require careful scrutiny against the facts of the particular case.

Turning to condonation, the court treated it as a significant and independent obstacle to Islandsite’s application given the extensive delay. It invoked established principles that condonation is not granted merely for the asking and requires a full, detailed, and accurate account of the causes of delay. It relied on authority holding that an applicant must explain not only the delay in complying with time periods, but also any delay in seeking condonation once non-compliance is realised, and that prospects of success are an important factor but not necessarily decisive. The court stressed that where there has been flagrant disregard of rules, condonation may be refused irrespective of prospects.

Applying those principles, the court found Islandsite’s explanation inadequate. The deponent did not explain how it was realised that the earlier judgment was appealable and why it was necessary to await the Constitutional Court decision in Shiva Uranium v Tayob before deciding to appeal. The court further found no adequate explanation for why the application was still only brought more than five weeks after the Constitutional Court judgment, despite that judgment being presented as the event that clarified the need to appeal. In the court’s assessment, the application did not sufficiently account for the disregard of time limits prescribed by the rules.

Although the court considered that prospects of success were relevant, it reiterated that they could not be the sole determinant where the applicant had not properly explained its failure to comply with the rules. Nonetheless, the court proceeded to assess the merits to determine whether any reasonable prospect existed that an appeal would succeed.

On the merits, the court considered the statutory structure of company management under business rescue. It referred to section 66(1) of the Companies Act 71 of 2008, which ordinarily vests management authority in a company’s board, but it treated this as operating subject to the business rescue provisions. It relied particularly on section 137(2), which provides that during business rescue each director continues to exercise functions as director subject to the authority of the practitioner, and must exercise management functions in accordance with the practitioner’s directions to the extent reasonable. The court also referred to section 137(4), which renders void any action purportedly taken on behalf of the company that requires practitioner approval unless approved by the practitioner.

Islandsite sought to rely on the Supreme Court of Appeal decision in Tayob v Shiva Uranium (Pty) Ltd [2020] ZASCA 162 (8 December 2020) for the proposition that directors do not always require practitioner approval, particularly where issues fall outside the practitioner’s authority and are more properly characterised as governance matters. The court accepted the core holding from Tayob that section 137(2)(a) must be read in context with Chapter 6, and that only director functions that fall within the ambit of the practitioner’s authority are subject to the practitioner’s approval. The court noted that Tayob treated the practitioner’s “management control” under section 140(1)(a) as relating to being in charge of the company and running it, particularly on a day-to-day basis, and that Tayob distinguished certain governance-type decisions as falling outside that ambit.

However, the court held that litigation decisions on behalf of a company are not merely technical legal steps but involve substantial risk and practical consequences, including financial exposure, reputational effects, brand harm, and management distraction. On that basis, the court characterised the decision to litigate as a matter that implicates the company’s day-to-day management and its rescue trajectory, rather than a governance decision reserved exclusively to directors. The court further observed that, given that the practitioners bear responsibility for rescuing the company, litigation decisions with such implications should not be undertaken without the practitioners’ knowledge and authorisation.

In light of that classification, the court concluded that the earlier Musi JP order—requiring practitioner approval for opposition to be mounted and for attorneys to act—was not shown to be wrong, and that Islandsite had not established reasonable prospects that an appeal would succeed. The court therefore was not persuaded that any of the asserted grounds of appeal, whether singly or cumulatively, met the section 17 threshold.

5. Outcome and Relief

The court dismissed the third defendant’s application for leave to appeal. In doing so, it effectively refused the attempt to obtain condonation for late filing because the leave application could not succeed in the absence of an acceptable explanation for delay and because the merits did not disclose reasonable prospects of success.

The court ordered that the application for leave to appeal was dismissed with costs.

Cases Cited

Mothuloe Incorporated Attorneys v The Law Society of the Northern Province 2017 JDR 533 (SCA); The Mont Chevaux Trust v Tina Goosen and 18 Others (Land Claims Court of South Africa Case No LCC 14R/2014, judgment delivered 3 November 2014) (unreported); Van Heerden v Cronwright & Others 1985 (2) SA 342 (T); The School Governing Body Grey College, Bloemfontein v Deon Scheepers and Others (Bloemfontein High Court Case No 2612/2018, judgment delivered 17 January 2019) (unreported); Shiva Uranium (Proprietary) Limited and Another v Mahomed Mahier Tayob and Others CC/305/20 [2021] ZACC 40; Darries v Sheriff Magistrate’s Court, Wynberg and Another [1998] ZASCA 18; 1998 (3) SA 34 (SCA); Uitenhage Transitional Local Council v South African Revenue Service 2004 (1) SA 292 (SCA); Tayob v Shiva Uranium (Pty) Ltd [2020] ZASCA 162 (8 December 2020); Tayob v Shiva Uranium (Pty) Limited 2020 JDR 2672 (SCA).

Legislation Cited

Superior Courts Act 10 of 2013, section 17; Companies Act 71 of 2008, sections 66(1), 137(2), 137(4), and 140(1)(a).

Rules of Court Cited

Uniform Rules of Court, Rule 49(1)(b).

Held

The court held that Islandsite failed to provide a full and satisfactory explanation for the extensive delay in bringing its application for leave to appeal, including failing to explain why it was necessary to wait for the Constitutional Court decision in Shiva Uranium v Tayob and failing to explain the additional delay after that decision.

The court further held that, even considering the merits, Islandsite did not demonstrate reasonable prospects of success as required by section 17 of the Superior Courts Act 10 of 2013. In particular, the court accepted that, in business rescue, directors’ powers are exercised subject to the authority of the business rescue practitioner in matters falling within the practitioner’s day-to-day management control, and that deciding to litigate on behalf of the company is a management decision with significant practical implications requiring practitioner authorisation.

LEGAL PRINCIPLES

Section 17 of the Superior Courts Act 10 of 2013 imposes an elevated threshold for leave to appeal: an applicant must show that an appeal would have reasonable prospects of success (or that another compelling reason justifies the appeal), not merely that the case is arguable or that success is possible.

Condonation for non-compliance with procedural time limits is discretionary and is not granted as a formality. An applicant must provide a full, detailed, and accurate explanation for the delay and any further delay in seeking condonation. Prospects of success are an important factor in condonation, but they are not necessarily decisive, particularly where there has been substantial or unexplained non-compliance.

Under Chapter 6 of the Companies Act 71 of 2008, directors continue to perform their functions during business rescue, but subject to the authority of the business rescue practitioner in relation to matters that fall within the practitioner’s management control. Actions taken on behalf of the company that require practitioner approval are void unless approved. In determining whether practitioner approval is required, the relevant inquiry is whether the decision falls within the practitioner’s ambit of management authority, understood as control of running the company, particularly on a day-to-day basis.