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2022
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[2022] ZALMPPHC 43
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Van Rooyen N.O and Another v Mokwena N.O and Another (3797/2022) [2022] ZALMPPHC 43; [2022] 4 All SA 274 (LP) (18 July 2022)
REPUBLIC OF SOUTH
AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(LIMPOPO
DIVISION, POLOKWANE)
CASE
NO: 3797/2022
REPORTABLE:
YES
OF
INTEREST TO THE JUDGES: YES
REVISED
In
the matter between:
ADRIAAN
WILLEM VAN ROOYEN N.O
FIRST
APPLICANT
(In
the capacity
nomine officio
as the duly
appointed
joint liquidators in the insolvent
estate
of Tumi Mokwena Incorporated)
MMABATHO
SHELLY MOTIMELE N.O
SECOND
APPLICANT
(In
the capacity
nomine officio
as the duly
appointed
joint liquidators in the insolvent
estate
of Tumi Mokwena Incoporated)
and
MOKGADI
FRANCINA MOKWENA N.O
FIRST
RESPONDENT
(In
her capacity as trustee of the Dikwenanyana
Trust
IT 255/2017L)
THE
TRUSTEES FROM TIME TO TIME OF THE
SECOND
RESPONDENT
DIKWENANYANA
TRUST (IT 255/2017L)
JUDGMENT
MAKGOBA
JP
[1]
The Applicants launched an urgent application against the Respondents
seeking an order in the
following terms
[1]
:
1.
That the non-compliance with the Rules be
condoned and that the matter be heard as urgent in terms of Rule
6(12)(a);
2.
That the Dikwenanyana Trust (IT 255/2017L)
(“the Trust”) be, and is hereby, provisionally
sequestrated returnable on
a date to be determined by the Registrar
of this Honourable Court, on which date the Respondents, or any
interested party, should
show cause why the Trust should not be
finally sequestrated;
3.
That it be declared that the Trust veneer
of the Trust be pierced and that the assets allegedly vesting in the
Trust, or the trustees
of the Trust, vest in the Trust, the estate of
Morapedi Roy Mokwena and the estate of Tumi Mokwena Incorporated,
jointly, and be
applied to the satisfaction of the debts of the
Trust, Morapedi Roy Mokwena and Tumi Mokwena Incorporated;
4.
That the costs of this application be costs
in the administration of the estate of the Trust;
5.
Further and/or alternative relief.
[2]
In essence the Applicants, in their
capacities as liquidators of the insolvent estate of Tumi Mokwena
Incorporated (“TMI”) of which Morapedi Roy Mokwena (“Mr.
Mokwena”) was the sole director, launched the
present
application for the sequestration of the Dikwenanyana Trust (“the
Trust”) and piercing of the Trust veneer
because the Trust is
the alter ego of Mr. Mokwena and TMI.
It
is alleged that the Trust is indebted to TMI in an amount in excess
of R 7 400 000.00. That TMI is the creditor of the Trust
as the Trust
was funded, entirely, and without any valid
causa
, by TMI.
[3]
The application is opposed by the Trust and
Mr. Mokwena. They contend that the relief sought is incompetent
in
that the entire application is based on a vehemently disputed
indebtedness for an illiquid debt or unliquidated amount of money.
That to exacerbate matters, there was no demand for payment made to
the Trust. The Trust became aware for the first time about
the claim
through the present application.
[4]
Furthermore, the Trust contends that the founding affidavit of the
liquidators is marred with
opinions and conclusions drawn from the
Applicants’ interpretation of the documents obtained from the
Section 417 and 418
enquiry
[2]
sanctioned into the affairs of TMI.
That
these opinions and conclusions constitute irrelevant opinions that
should be disregarded in the adjudication of this matter.
A
further attack on the founding affidavit is that the allegations made
against Mr. Mokwena are based on the excerpts of a transcription
of
the inchoate insolvency proceedings which took place more than a year
ago, from 31 March 2021 to June 2021. It is contended
on behalf of
the Trust that the Applicants or liquidators also rely on
inadmissible hearsay evidence which ought to be disregarded.
[5]
At the core of this application are the allegations by the
Applicants/liquidators that the Trust
improperly benefited from
unlawful funds originating from TMI. As indicated above, the alleged
indebtedness is disputed and has
not been determined by any Court of
law.
[6]
In the expansion of this narrative, the liquidators allege that TMI
Trust funds were irregularly
transferred to the Trust and as such the
Trust’s property is tainted rendering the Trust invalid and
liable to sequestration.
The
Trust contends that the alleged indebtedness of the Trust is based on
innuendos of an abandoned inquiry in terms of section
417 which was
left incomplete and that no report has been issued by the
Commissioner, retired Justice Bertelsman. The transcribed
record
relied upon by the Applicants in the present proceedings is that of
an incomplete inquiry.
[7]
At the end of the day the issue for determination is that the
Applicants, as liquidators of TMI,
have to establish the necessary
locus
standi
to apply for the sequestration of the Trust as a creditor. They need
to prove that TMI is a creditor who has a liquidated and undisputed
claim for not less than one hundred rands.
[3]
Factual
Background
[8]
Tumi Mokwena Incorporated (“TMI”) was registered during
2005 and traded as an attorneys
practice focusing on a variety of
litigation matters. Mr. Morapedi Roy Mokwena (“Mr. Mokwena”)
was the sole director
of the law firm and was the controlling mind
behind it.
[9]
During December 2019 TMI was liquidated as a result of its alleged
inability to pay money deposited
by a client, namely Majola Trust.
This alleged inability to refund Majola Trust funds was regarded as a
trust shortfall on TMI’s
trust account.
The
Applicants in this matter were duly appointed as liquidators of the
insolvent estate of TMI on 12 December 2019.
The
Respondents deny that the alleged inability of TMI to refund Majola
Trust’s money should be regarded as a trust shortfall
on TMI’s
trust account and state that even during the liquidation proceedings
the Court has not pronounced on such indebtedness.
The
Respondents state that the deposit of funds by Majola Trust into TMI
related to a separate business deal concerning a separate
entity
known as Tumi Mokwena Productions (“TMP”) and not as a
client of TMI. That the said deposit never found its
way into the TMI
trust account.
[10]
Furthermore, the Respondents state that the liquidation proceedings
themselves were founded on a settlement
agreement concluded by TMI
pertaining to its business funds and unrelated to trust funds.
If
the said indebtedness was related to TMI trust funds, any shortfall
on trust funds would result in a claimant being entitled
to claim
from the Attorneys Fidelity Fund, which the Majola Trust never
attempted to do and never claimed that the funds constituted
trust
funds claimable under the Fidelity Fund.
[11]
In an effort to establish the indebtedness of the Trust to TMI, the
Applicants alleged in the founding affidavit
that from the financial
investigations of TMI it appears that most of the TMI trust funds
were irregularly transferred
sine causa
either directly from
the trust account to Mr. Mokwena and the Trust, or from the trust
account to the business account and from
there to the Trust and Mr.
Mokwena.
These
allegations are denied by the Respondents as being without factual or
legal basis.
The
Respondents state that such investigations are incomplete and no
report has been issued by the Commissioner, retired Justice
Bertelsman in the section 417 enquiry. That the transcribed record
attached to the present proceedings is that of an incomplete
enquiry.
[12]
The Applicants allege that they have, since their appointment,
discovered that there is a trust shortfall
in TMI, and that most of
the funds were paid to Dikwenanyana Trust. They further allege that
according to the auditors of the Legal
Practice Council, the
shortfall in the TMI trust account is at least R 16 000 000.00 and
that this amount is likely to increase
as the investigations into TMI
progress.
These
allegations are refuted by the Respondents as being an attempt to
insinuate that the Trust received the shortfall funds from
the trust
account of TMI and that they are simply disingenuous.
The
Dikwenanyana Trust was only formed in 2017 as is apparent from the
Trust Deed Annexure “FA4”. The Legal Practice
Council
(“LPC”) investigations referred to herein related to the
trust account of TMI as at 2016, before the Trust
was formed.
The
suggestion that the LPC investigation has any bearing on payments
made to the Trust by TMI is, according to the Respondents,
therefore
unfounded as the two are unrelated.
[13]
The Trust, so the Applicants allege, was established for the sole
purpose of being a conduit vehicle through
which Mr. Mokwena could
syphon TMI trust funds to purchase properties and other assets for
his personal benefit and to conceal
assets from his personal
creditors and that of TMI.
The
Respondents deny these allegations as baseless and unsubstantiated.
The
Insolvency Inquiry of TMI
[14]
On or about 2 February 2021 the Applicants obtained the necessary
authority to convene an insolvency enquiry
(“the enquiry”)
into the affairs of TMI as contemplated in sections 417 and 418 of
the Companies Act 61 of 1973.
The
Commissioner of the enquiry, retired Judge Bertelsmann as well as the
Master of the High Court have consented to the publication
of the
transcription of the enquiry for purposes of the current application.
However, the Commissioner did not finalise the enquiry
in the sense
that no final report on its findings was prepared and issued by
retired Judge Bertelsmann.
[15]
Ms. Mokgadi Francina Mokwena (“First Respondent”), Mr.
Floyd Legodi (“Legodi”) and
Ms. Diseree Chuene (“Chuene”)
were subpoenaed to testify at the enquiry. The First Respondent and
Legodi completed
their testimony at the enquiry whilst Chuene
testified on 31 March 2021 but could not return to complete her
testimony on the scheduled
date of 24 June 2021. Mr. Mokwena was
subpoenaed to testify on 24 June 2021 but the proceedings never took
place since then.
For
all intends and purpose the enquiry is inchoate in the sense that
other subpoenaed parties did not complete their evidence and
the
Commissioner did not prepare and issue a final report of the enquiry.
[16]
The First Respondent testified that:
16.1. Mr. Mokwena made
all decisions relating to the day-to-day management of the Trust;
16.2. Mr. Mokwena was the
controlling mind of the Trust;
16.3. She has no
explanation as to how the Trust obtained the vast amount of funds to
purchase the properties;
16.4. Any funds that were
received into the Trust was collected by Mr. Mokwena;
16.5. Mr. Mokwena was in
control of the banking and financial affairs of the Trust;
16.6. There were no
proper meetings of trustees nor was there any proper corporate
governance to record the decisions of the Trust
nor resolutions
adopted;
16.7. The Trust never
conducted any business nor issued any invoices to TMI for services
rendered; and
16.8. She merely signed
the documentation presented to her by Mr. Mokwena in good faith.
[17]
Furthermore, Chuene testified that:
17.1. She was a trustee
since inception of the Trust in 2017;
17.2. The sole purpose of
the Trust was to establish an inheritance for the children of Mr.
Mokwena;
17.3. She resigned from
the Trust late 2020 or early in 2021;
17.4. She delivered all
the financial documents of the Trust upon her resignation to Mr.
Mokwena;
17.5. The Trust did not
have regular trustee meetings as required nor was there proper
corporate governance of the Trust;
17.6. There was no
relationship between TMI and the Trust which would justify the
payments from TMI to the Trust;
17.7. She does not know
where the Trust obtained the funds to purchase the properties, but
knows that Mr. Mokwena provided some
funds the origin of which is
unknown to her;
17.8. There were no
financial statements of the Trust presented to the trustees;
17.9. Mr. Mokwena
personally dealt with all the financial aspects of the Trust himself
and also attended to all applications for
credit facilities in
respect of the Trust;
17.10. Mr. Mokwena
personally arranged the property acquisitions;
17.11. Certain properties
in the Trust were purchased in “cash” or paid-off swiftly
without the need for a mortgage
bond, the origin of the funds whereof
remain unknown to her;
17.12. The Ten on Lane
properties were all purchased more or less at the same time;
17.13. She does not
understand the role of a trustee in the management of a trust and the
duty of care required of a trustee;
17.14. Mr. Mokwena had
free reign in the Trust to do as he pleases and would withdraw funds
from the Trust’s bank accounts
on his own volition without
consulting the other trustees;
17.15. Mr. Mokwena
therefore regarded the trust property as his own;
[18]
Legodi testified that:
18.1. He was requested to
serve as a trustee at the behest of Mr. Mokwena;
18.2. Several of the Ten
on Lane properties were bought with cash;
18.3. Once the cash was
all spent, the remainder of the properties were purchased with
mortgage bonds;
18.4. Mr. Mokwena dealt
with all finance applications on behalf of the Trust and never
consulted Legodi in this regard;
18.5. Mr. Mokwena then
bought trucks with cash for a company of his known as Tshepang
Vervoer (Pty) Ltd;
18.6. TMI did not render
services to the Trust nor delivered invoices for payment;
18.7. The Trust did not
conduct any business during his tenure as trustee;
18.8. There were no
resolutions for the Trust to conduct business nor were there trustee
meetings to discuss certain decisions before
they were put into
action;
18.9. There is no minute
book for the meetings and decisions of the Trust;
18.10. There were no
financial statements compiled for the Trust during his tenure as
trustee;
18.11. Mr. Mokwena and
Chuene controlled the bank accounts of the Trust.
[19]
In the current application the Applicants did not obtain confirmatory
affidavits of First Respondent, Legodi
and Chuene and attach same to
their founding affidavit. The Applicants attached copies of the
transcription of the enquiry to their
founding affidavit and also set
out a summary thereof in the founding affidavit.
On
the basis of the evidence of the three parties (First Respondent,
Legodi and Chuene) at the enquiry the Applicants contend that
the
Trust improperly received TMI trust funds that must be repaid to the
estate of TMI, and that the Trust – as a matter
of law-
incurred liability towards the TMI trust creditors in this regard.
[20]
The Respondents deny that the Trust is the alter ego of Mr. Mokwena.
Furthermore, the Respondents contend
that the evidence based on the
extracts of transcripts of the insolvency enquiry cannot be
competently relied upon in the present
proceedings for reasons, that
it constitutes hearsay evidence and that same was obtained in clear
breach of the confidentiality
rule applicable between attorney and
own client as indicated later in this judgment.
It
is the Respondents’ further contention that Mr. Mokwena is the
founder of the Trust and that the overly criticisms of his
active
role in the Trust and securing contributions on behalf of the Trust
are unjustified and flawed.
Admissibility
of evidence given at the Insolvency enquiry
[21]
At the hearing of this matter on 30 May 2022 I raised with Counsel
the issue of the admissibility of evidence
given at the insolvency
enquiry into the present proceedings.
The
parties were invited to provide the Court with additional or
supplementary heads of argument on the admissibility of the
transcribed
record of evidence of the First Respondent (as trustee of
the Trust) Chuene (also as trustee of the Trust at some times) Legodi
(also as trustee of the Trust at some times) given at the enquiry
into the affairs of TMI, which enquiry was convened in terms
of the
provisions of sections 417 and 418 of the Companies Act 61 of 1973.
I
am indebted to both Counsel for having obliged and submitted helpful
heads of argument in this regard.
[22]
The opposing Respondents contended that the application should fail
because most of the evidence upon which
the Applicants had purported
to rely was inadmissible, being derived from the transcript of
proceedings at the TMI enquiry. The
ground of inadmissibility is that
such evidence constitutes hearsay evidence.
The
Applicants contend that the evidence is not hearsay and that same
should be admitted in the present proceedings. Furthermore
the
Applicants sought to meet the challenge by applying for the admission
of the evidence in terms of
section 3
(1)(c) of the
Law of Evidence
Amendment Act 45 of 1988
.
Section 3
(1)(c) permits the Court to admit
otherwise inadmissible hearsay evidence if, having regard to the
factors set out in subparagraphs
(i) - (vii) of the provision, it is
of the opinion that such evidence should be admitted in the interest
of justice.
Section
3 (2) of the Act restricts the effect of section 3 (1) by making it
clear that the provisions of subsection (1) “shall
not render
admissible any evidence which is inadmissible on any ground other
than that such evidence is hearsay evidence”.
[23]
I proceed hereunder to deal with the appropriate authorities relating
to the admissibility of the evidence
given at the insolvency enquiry.
[24]
It is trite law since time immemorial that the evidence of a witness
at an insolvency enquiry is admissible
only against such witness.
This is evident from the case of
Simmons
NO v Gilbert Hamer & Co Ltd
[4]
where the Court held that:
“
That
evidence given by an examinee at an examination is not admissible
against any person other than the examinee himself”.
The
Court therein went on to state that this is in accordance with the
general principle that evidence given by one person cannot
be used
against another unless it is given before a tribunal at which the
person against whom it is sought to be used had the opportunity
of
cross-examining the deponent.
The
above position was also confirmed in the matter of
Cordiant
Trading CC v Daimler Chrysler Financial Services
[5]
,
where the Court held that the record of the evidence may be produced
in any such proceedings against the witness who actually
gave the
relevant testimony. It was further held that the Court has a
discretion to allow sections 417 and 418 evidence at subsequent
civil
proceedings (at 397 G – D).
[25]
At the hearing of this matter Counsel for the Applicants handed up a
copy of the judgment in the matter of
A Melamed Finance (Pty)
Ltd (in liquidation) v Jeffrey Harris
[2017] ZAGPJHC 188
,
an appeal judgment of the full Court of the Gauteng Local Division,
Johannesburg, under case number 2016/A5028. The following
was,
inter
alia
, held in that case regarding the transcript of evidence of
witnesses before an insolvency enquiry:
“
there
is no controversy that testimony of a witness in section 417
proceedings can be used against
that
witness
in the subsequent proceedings”.
[6]
[26]
In the matter of
O’Shea
NO v Van Zyl and Others
[7]
(“O’Shea case”) the Supreme Court of Appeal
confirmed its earlier judgment in
James
Brown & Hamer (Pty) Ltd v Simmons NO
1963 (4) SA 656
(A) at 661H – 662A
where it was held that “The evidence given by an examinee at a
private examination
is
not admissible against any person other than the examinee himself
(at 918 B-E)”.
In
the context of the present case it means that the evidence given by
the First Respondent, Chuene and Legodi at the section 417
enquiry is
only admissible against the trio personally and not against the
Trust.
[27]
The
O’Shea
case
, which is on all fours
with the present case, sets out the law clearly on this aspect and as
such I find it appropriate to relate
the facts of the case hereunder.
[28]
The facts of the case are as follows:
The
liquidators of a company organized an enquiry under section 417 of
the Companies Act 61 of 1973. They questioned O, a trustee
of a
trust. O stated the company had made a loan to the trust. The
liquidators later applied to sequestrate the trust. Their evidence
that they were a creditor was O’s statement at the enquiry.
The
issue on appeal was whether the statement made at the enquiry was
admissible at the later sequestration proceedings. The SCA
held that
it was not. It was held further that there was no evidence the
co-trustees had authorized O to speak for them at the
enquiry. That
authority was against the later admission of the statement of O. That
the speaker on oath spoke for himself, and
not on behalf of another;
and gave evidence because he was summoned to, and not for another;
and that the party against whom the
statement was made had no right
to be present at the enquiry and to cross-examine the deponent.
[29]
Bringing the above facts into the context of the present case, it is
clear that the testimony of the three
witnesses who testified before
the insolvency enquiry is only admissible against such witnesses and
cannot be used against the
Trust. The Trust was not the subject of
the enquiry and the testimony, including that of the First Respondent
cannot be construed
to bind the Trust. There is no evidence that the
First Respondent was duly authorized by her co-trustees to testify on
behalf of
the Trust.
It
is noteworthy that at the time of examination before the enquiry
Chuene and Legodi were no longer trustees of the Trust and as
such
could not be said to be acting on behalf of the Trust or purport to
bind it. Even if they were still trustees at that time,
they still
need the authority or mandate of their co-trustees to bind the Trust.
[30]
Of importance the following was said by the Court in the O’Shea
matter:
“
[18]
Mr O’Shea testified under subpoena. There is no suggestion that
in doing so he was authorized to represent the Trust
nor was there
any need for him to do so since the purpose of the enquiry was purely
to establish facts that the liquidators could
use to establish the
position of the company and recover assets to which it was entitled.
The liquidators also did not lead any
evidence which directly proved
his authority to speak on its behalf.
[19] In
any event the evidence given by Mr O’ Shea was inadmissible
against the trust.”
Therefore, the Court
concluded in the O’Shea matter that:
“
[25]
For all these reasons it is clear that the statements made by Mr
O’Shea before the commissioner were inadmissible against
the
Trust in the sequestration proceedings in the absence of their
confirmation under oath by him in those proceedings. The result
is
that the liquidators were, in the application to sequestrate the
Trust, entirely without evidence of their alleged status as
a
creditor of the Trust.”
[31]
It is apparent from the judgments referred to earlier, that the
effect of allowing the use of sections 417
and 418 enquiry evidence
at subsequent civil proceedings has thus far been that the evidence
has been permitted to be used only
against the examinee as a party or
a witness in such subsequent proceedings. The effect of those
judgments is to make it clear
that the evidence given at the section
417 enquiry, which the Applicants have sought to employ in the
current proceedings, is inadmissible
against the Respondents or the
Trust.
That
much is impliedly conceded by the Applicants, hence their application
in terms of
section 3
of the
Law of Evidence Amendment Act 45 of
1988
.
[32]
The First Respondent, Chuene and Legodi testified at the enquiry
under subpoena. There is no suggestion that
in doing so they were
authorised to represent the Trust nor was there any need for them to
do so since the purpose of the enquiry
was purely to establish facts
that the liquidators could use to establish the position of TMI and
recover assets to which TMI was
entitled. The liquidators also did
not lead any evidence which directly proved the authority of First
Respondent, Chuene and Legodi
to speak on behalf of the Trust.
[33]
For the above reasons, the evidence given by the First Respondent,
Chuene and Legodi at the insolvency enquiry
is inadmissible against
the Trust.
In
Simmons NO v
Gilbert Hamer & Co Ltd
1963 (1) SA 897
(N)
the
Court ruled as inadmissible similar statements or evidence given at a
section 417
and
418
enquiry. The basic considerations that Harcourt J
in his judgment pinpoints are these:
1.
The persons against whom statements are
made in such proceedings do not generally have a right to be present
during such testimony
nor are they afforded the right to
cross-examine the deponent. To allow a liquidator to rely on such
statements without calling
the witness would be inimical to the law
of evidence (at 916G – 918B).
2.
The evidence given by an examinee at a
private examination is not admissible against any person other than
the examinee himself
(at 918B – E).
[34]
It is trite that trustees must act jointly unless the trust deed
provides otherwise (
Nieuwoudt and Another NNO v Vrystaat
Mielies (Edms) Bpk
2004 (3) SA 486
(SCA)
). In the
present case the deed of trust does not.
There
is no reason to believe that the trustees of Dikwenanyana Trust
delegated to First Respondent or Chuene or Legodi authority
to speak
on their behalf at the
section 417
enquiry before the Justice
Bertelsman. When the trio gave evidence at the hearing no
investigation was conducted into whether they
spoke as the authorized
representatives of the Trust rather than in their personal capacity.
Whether
the evidence adduced at the
sections 417
and
418
enquiry should be
admissible in terms of
section 3
of the
Law of Evidence Amendment Act
45 of 1988
[35]
Counsel for the Applicants submitted that considering the provisions
of
section 3
(1)(c) of the
Law of Evidence Amendment Act, and
in the
event of this Court finding that the transcript of evidence before
the
sections 417
and
418
enquiry is not admissible in terms of the
principle laid down in the
O’Shea
case
, it
should be admitted on the basis that it would be in the interest of
justice to do so.
[36]
Counsel relied heavily on the case of
Van
Zyl and Another NNO v Kaye NO and Others
[8]
.
It is appropriate to set out the facts of that case in order to put
Counsel’s argument in context.
[37]
The factual matrix and the decision of the Court in the
Van Zyl
matter are as follows:
The
applicants applied to a Court for the piercing of a trust veneer in
order to give effect to what they said was the true situation.
They
alleged that the trust was the alter ego of one K. They contended
that following from this, that the assets of the trust ought
to be
regarded as those of K. The applicants relied in their papers on the
evidence given by K at an enquiry under section 417
of the Companies
Act 61 of 1973.
The
respondents objected to its admissibility on the ground of it being
hearsay. The applicants responded by applying for its admission
in
terms of
section 3
of the
Law of Evidence Amendment Act. The
Court
held that
section 3
allowed the use of evidence in a subsequent civil
proceeding provided that the requirements of
section 3
were
satisfied. Here, though, those requirements had not been met and the
evidence was thus inadmissible.
[38]
It is significant to note that in the
Van Zyl
case
the evidence was sought to be used against the examinee himself,
that is K. This case should therefore be distinguished from the
present case where the evidence is sought to be used against a third
party, being the Dikwenanyana Trust and Mr. Mokwena.
I
am therefore of the view that the provisions of
section 3
(1)(c) of
the
Law of Evidence Amendment Act cannot
be applied in the present
case. The rule against hearsay evidence should therefore be
maintained.
[39]
The broad principles laid down in the
Van
Zyl
case
appear to be the following
[9]
:
39.1. that there is
nothing in the provisions of
section 417
(save as expressly provided
in
section 417
(2)), that militates, in principle, against the use of
evidence as adduced at such enquiry in other proceedings to the
extent that
ordinary rules of evidence would allow;
39.2. that evidence given
by an examinee is admissible as evidence against
that examinee
and would not contravene that hearsay rule;
39.3. that the exclusion
of the wider use of the evidence (therefore the use against persons
other than the examinee) appears to
have been founded on the
mentioned hearsay rule;
39.4. that evidence
adduced at the enquiry may be introduced against any person in terms
of
section 3
(1)(c) of the
Law of Evidence Amendment Act 45 of 1988
,
subject, of course, to the requirement of that provision being
satisfied.
Whether
the provisions of
section 3
(1)(c) of the
Law of Evidence Amendment
Act have
been satisfied
[40]
Despite what I stated in paragraph [38] hereinabove that the
provisions of
section 3
(1)(c) are not applicable in the present
case, I still find it appropriate to make a finding as to whether the
Applicants, in any
event, have satisfied the requirements of
section
3
(1)(c).
[41]
Section 3
(1)(c) of the
Law of Evidence Amendment Act 45 of 1988
provides:
“
(1)
Subject to the provisions of any other law, hearsay evidence shall
not be admitted as evidence at criminal or civil proceedings,
unless
–
(a)
each party against whom the evidence
is to adduced agrees to the admission thereof as evidence at such
proceedings;
(b)
the person upon whose credibility
the probative value of such evidence depends, himself testifies at
such proceedings; or
(c)
the Court, having regard to:
(i)
the nature of the proceedings;
(ii)
the nature of the evidence;
(iii)
the purpose for which the evidence
is tendered;
(iv)
the probative value of the evidence;
(v)
the reason why the evidence is not
given by the person upon whose credibility the probative value of
such evidence depends;
(vi)
any prejudice to a party which the
admission of such evidence might entail; and
(vii)
any other factor which should in the
opinion of the Court be taken into account,
is of the opinion that
such evidence should be admitted in the interest of justice.”
Section
3
of the
Law of Evidence Amendment Act created
an alternative highly
flexible, avenue for admission of hearsay evidence on the basis that
it is in the interests of justice to
do so, even if it might be
inadmissible under other law or common law.
[42]
Section 3
requires a Court to consider the seven factors listed in
paragraph (c) so that a failure to take into account all of those
factors
is improper.
See
Zeffertt
et al
: The South African Law of
Evidence, at page 369
.
For
reasons that follow, I am of the view that the Applicants have failed
to satisfy some of the seven factors that the Court is
enjoined to
consider.
[43]
It is apparent from the transcripts of the enquiry presented to this
Court that the nature of the evidence
sought to be relied upon by the
Applicants comprises of incomplete and untested testimony of the
three witnesses and Mr. Mokwena
who was subpoenaed to appear before
the enquiry has not been provided with an opportunity to present his
testimony and also cross-examine
such witnesses’ averments. As
regards the testimony of Chuene, it has not been concluded
[10]
.
Mr.
Mokwena has not been afforded the opportunity to test and refute the
testimony of Legodi, which in any event breached the principle
of
attorney and client privilege. More about this aspect later in this
judgment.
It
is noteworthy that at the time of examination before the enquiry
Chuene and Legodi were no longer trustees of the Trust and as
such
could not be said to be acting on behalf of the Trust or purport to
bind it. Their testimony does not even prove that the
Trust is
indebted to TMI or that the Trust is unable to pay its debts.
[44]
Counsel for the Respondents submitted that the further defect as a
result of the incompleteness of the testimony
presented before the
insolvency enquiry which is lethal to the Applicants’ case
relates to the fact that this Court is denied
an opportunity to make
a judicious decision concerning this evidence because it does not
have the full evidence before it for consideration,
including that of
Mr. Mokwena who was a trustee of the Trust and the person again whom
most of the allegations have been made at
the enquiry. I agree. It is
trite that the person against whom the evidence is tendered is
entitled to have such evidence considered
as a whole, including parts
of it favourable to him. This is so because one portion of evidence
may modify another and it would
be misleading to use one portion
without looking at the rest, as this might result in it being
understood in a sense in which it
was never meant.
See
R
v Valachia
[11]
and
R
v Vather
1961
(1) SA 350
(A) at 353 – 354
.
[45]
Based on the above principle I make a finding that these extracts
from transcript of an incomplete enquiry
fail to provide a complete
record for this Court to independently make a judicious decision.
Section 3 (1)(c) of the Act prescribes
that hearsay-evidence is
inadmissible unless a Court is of the opinion that such evidence
should be admitted in the interest of
justice having regard to a
cumulative consideration of all of the above factors set out in
subparagraphs (c)(i) to (vii) of section
3 (1)
[12]
.
[46]
The Court is enjoined to consider the probative value of the evidence
as prescribed in subparagraph (c) (iv).
Based on what is set out
above, the evidence arising from the transcripts of the enquiry and
reports annexed by the Applicants
to the present application, their
probative value depends on other persons other than the liquidators
and therefore constitute
inadmissible hearsay evidence.
[47]
Another factor to be considered is “the reason why the evidence
is not given by the person upon whose
credibility the probative value
of such evidence depends” as prescribed in subparagraph (c) (v)
of section 3 (1) of the Act.
The
Applicants in the present case failed to obtain and attach
confirmatory affidavits of Chuene and Legodi to the founding
affidavit.
These two persons are “the persons upon whose
credibility the probative value of such evidence depends”. The
large
number of exceptions that exist to allow for the reception of
evidence of a person since deceased suggests that death would be the
most compelling of the possible explanations. In the present case
Chuene and Legodi are still alive and available for the Applicants
to
obtain their direct evidence in the form of confirmatory affidavits,
repeating what they had said before the enquiry.
In
Padongelukkefonds
v Van den Berg en ‘n ander
[13]
the evidence was held to be inadmissible. In that case certain
allegations in the applicant’s founding affidavit contained
hearsay evidence furnished by someone with whom the applicant’s
legal representative had consulted but no reasons were given
as to
why no statement from that person had been included in the papers.
See
also
Makhathini v Road Accident Fund
2002 (1) SA 511
(SCA) at 524 B – C
.
[48]
One more factor that needs to be considered is “Any prejudice
to a party which the admission of such
evidence might entail”.
(Subparagraph (c) (vi)).
In
the present application Mr. Mokwena, who is painted as an
orchestrator of the alleged irregularities by the Trust, has not been
afforded an opportunity to present evidence at the enquiry which was
unceremoniously terminated by the liquidators and the Commissioner.
He has not been afforded any opportunity to challenge such testimony
or cross-examine the witnesses whose evidence is relied upon
by the
Applicants in the present application.
Furthermore,
Mr. Mokwena is not joined in these proceedings and yet the opinions
of the Applicants and their conclusions based on
the evidence adduced
at the enquiry gravely affect his constitutional rights in terms of
section 34 of the Constitution, to have
serious allegations of
irregularities made against him and the Trust and the alleged
indebtedness of the Trust decided by the application
of law in a fair
public hearing before a Court. I accordingly come to a conclusion
that the admission of the evidence adduced at
the enquiry will be
prejudicial to Mr. Mokwena and the Trust.
[49]
In the light of what is set out above, I make a finding that the
Applicants have failed to make out a case
why this hearsay evidence
should be admitted as evidence in the present application. The
Applicants do not meet the requirements
of the exception set out in
section 3
(1) of the
Law of Evidence Amendment Act, and
in particular
the interests of justice do not permit this hearsay evidence to be
admitted.
The
legal professional privilege
[50]
The Respondents contend that the testimony of Legodi at the
section
417
enquiry is protected under the professional privilege principle
concerning evidence and discussion between attorney and own client.
The basis of such privilege is that Legodi was the legal
representative of Mr. Mokwena and TMI in all litigation by and
against
the Majola Trust, on whose account TMI was liquidated and the
insolvency inquiry convened.
[51]
It is common cause that Legodi gave evidence in the enquiry into the
affairs of TMI. At a particular time
Legodi was also a trustee of the
Dikwenanyana Trust. His testimony at the enquiry purports to
implicate Mr. Mokwena and the Trust.
[52]
It is trite that communications between a lawyer and a client may not
be disclosed without the client’s
consent and that this legal
professional privilege is central to fair legal process. The legal
professional privilege was described
as a fundamental right
[14]
.
[53]
In the matter of
Waymark
NO v Commercial Union Assurance Co Ltd
[15]
the Court had to decide on the crisp question on whether a witness
who was called to give evidence at an enquiry in terms of section
417
of the Companies Act 61 of 1973 may claim immunity from disclosure of
certain facts on the basis of legal professional privilege.
The Court
decided the question in the affirmative and with reference to the
case of
S
v Sefatsa and Others
1988 (1) SA 868
(A)
quoted the judgment in the High Court of Australia in
Baker
v Campbell
[1983] HCA 39
;
(1983) 49 ALR 385
at 4425
where Dawson J said:
“
The
law came to recognize that for its better functioning it was
necessary that there should be freedom of communication between
a
lawyer and his client for the purpose of giving and receiving legal
advice and for the purpose of litigation and that this entailed
immunity from disclosure of such communications between them…”
[54]
In the light of the above it is my view and finding that the
testimony of Legodi before the insolvency enquiry
is in breach of the
legal professional privilege. On this ground also, the evidence of
Legodi is inadmissible against Mr. Mokwena
and the Trust.
Whether
the Trust veneer be pierced
[55]
The Applicants pray for an order that the Trust veneer be pierced.
Their claim herein is based on the alleged
trust form abuse by Mr.
Mokwena.
This
Court must vigilantly examine the facts of this case to determine
allegations of trust form abuse. If such abuse is established,
the
Court is entitled to pierce the trust veneer. As explained in
Van
Zyl NO v Kaye NNO
, supra, paragraph 22, piercing the trust
veneer is:
“…
An
equitable remedy… one that lends itself to a flexible approach
to a fairly and justly address the consequences of an unconscionable
abuse of the trust form in given circumstances. It is a remedy that
will generally be given when the trust form is used in a dishonest
or
unconscionable manner to evade a liability, or avoid an obligation.”
[56]
An enquiry into the affairs of TMI has been established in terms of
sections 417 and 418 of the Companies
Act 61 of 1973. The evidence
led thus far at the enquiry purport to provide the foundation for the
Applicants’ case in the
current proceedings. The Respondents
contend that the evidence is inadmissible for the purpose the
Applicants seek to employ it.
[57]
Much was made by the Applicants of the allegations that the Trust is
Mr. Mokwena’s “alter ego”
in the sense that he
dealt with the Trust’s property as if it were his own and that
his co-trustees were merely his puppets.
The Applicants sought
substantiation for these allegations in the answers given by the
First Respondent, Chuene and Legodi (the
erstwhile co-trustees) at
the aforementioned section 417 enquiry into the affairs of TMI.
But,
in any event, as mentioned, the Respondents objected to the
admissibility of the evidence adduced at the enquiry proceedings
on
the basis, amongst other reasons, of its hearsay character. The
Applicants responded by applying, in terms of
section 3
(1)(c) of the
Law of Evidence Amendment Act 45 of 1988
, for the admission of the
transcript of the entire evidence given by the trio at the enquiry.
[58]
I have already decided hereinabove that it would not be in the
interest of justice to admit that evidence.
In
the result the prayer by the Applicants that the Trust veneer be
pierced is doomed to fail.
Whether
Applicant’s claim is
bona fide
disputed
[59]
It is trite that winding up or sequestration proceedings ought not to
be resorted to in order by means thereof
to enforce payment of a
debt, the existence of which is
bona
fide
disputed by the respondent on reasonable grounds; the procedure for
winding up or sequestration is not designed for the resolution
of
disputes as to the existence or non-existence of a debt. See
Badenhorst
v Northern Construction Enterprises (Pty) Ltd
[16]
.
This has become known as the “Badenhorst rule”.
Hiemstra
J in
Badenhorst
at 347 H – 348 C said the
following:
“
Die
maatskappy betwis die geldigheid van die vordering van £120, en
wanneer ‘n skuld te goeder trou betwis word, moet
‘n
likwidasie aansoek geweier word. Hierdie proses is nie bedoel vir die
beslissing van twyfelagtige skulde nie”.
See
also
Laeveldse Koöperasie Bpk v Joubert
1980
(3) SA 1117
(T) at 1120 H – 1121 E
.
[60]
In
Kalil
v Decotex (Pty) Ltd and Another
[17]
it was stated that:
“
As
in the present case, the disputes which arise on the affidavits may
relate to the locus standi of the applicant, either as a
member or
creditor, or as to whether proper grounds for winding-up have been
established. In regard to locus standi as a creditor,
it has been
held, following certain English authority that an application for
liquidation should not be resorted to in order to
enforce a claim
which is bona fide disputed by the company. Consequently, where the
respondent shows on a balance of probability
that its indebtedness to
the applicant is disputed on bona fide and reasonable grounds, the
Court will refuse a winding-up order.
The onus on the respondent is
not to show that it is not indebted to the applicant: it is merely to
show that the indebtedness
is disputed on bona fide and reasonable
grounds.”
The
guidelines laid down in
Kalil
as to how factual disputes regarding the respondent’s
indebtedness in an application such as the present should be
approached,
were stated thus by Brand J in
Payslip
Investment Holdings CC v Y2kTec Limited
[18]
:
“
With
reference to disputes regarding the respondent’s indebtedness,
the test is whether it appears on the papers that the
applicant’s
claim is disputed by respondent on reasonable and bona fide grounds.
In this event it is not sufficient that
the applicant has made out a
case on the probabilities. The stated exception regarding disputes
about an applicant’s claim
thus cuts across the approach to
factual disputes in general.”
[61]
A party challenging an application for winding-up of a company or
sequestration as an abuse of the process
of the Court on the grounds
that the applicant’s claim against the respondent is disputed
must show –
(a) that the
claim is disputed;
(b)
that it is
bona fide
disputed; and
(c)
that the grounds for disputing the claim are reasonable.
The
authorities are clear that it does not have to be established, even
on the probabilities, that the respondent would, as a matter
of fact,
succeed in any action which the applicant might bring to enforce the
disputed claim. The Court need merely be satisfied
that the grounds
upon which the claim is disputed are not unreasonable. To do that it
is not necessary that the actual evidence
which would be relied upon
at a trial be adduced on affidavit or otherwise. It is sufficient,
provided it is done
bona fide
, to allege facts which, if
proved at a trial, would constitute a good defence to the claims made
against the respondent.
See
Hűlse-Reutter and Another v Heg Consulting Enterprises
(Pty) Ltd
1998 (4) SA 208
(CPD)
.
[62]
In
Hűlse-Reutter and Another
, supra, at 219E –
220A Thring J commented as follows on the nature and extent of the
onus of proof:
“
I
think it is important to bear in mind exactly what it is that the
trustees have to establish in order to resist the application
with
success. Apart from the fact that they dispute the applicants’
claims, and do so bona fide… what they must establish
is no
more and no less than the grounds on which they do so are reasonable.
They do not have to establish, even on the probabilities,
that the
company, under their direction, will, as a matter of fact, succeed in
any action which might be brought against it by
the applicants to
enforce their disputed claims. They do not… have to prove the
company’s defence in any such proceedings.
All that they have
to satisfy me of is that the grounds which they advance for their and
the company’s disputing these claims
are not unreasonable…
it seems to me to be sufficient for the trustees in the present
application, as long as they do so
bona fide… to allege facts
which, if proved at a trial, could constitute a good defence to the
claims against the company.”
See also:
Freshvest Investments (Pty) Ltd v Marabeng (Pty) Ltd
(1030/2015)
[2016] ZASCA 168
(24 November 2016)
wherein this
principle was set out that winding-up proceedings are not designed
for the enforcement of disputed debts.
[63]
The respondent in an application for winding-up or sequestration is
not required to prove the truth of his
defence. However, it is
necessary for the respondent to place sufficient facts to show that
the debt is
bona fide
disputed on reasonable grounds.
[64]
In their application for sequestration the liquidators rely for their
status as creditor of the Dikwenanyana
Trust, upon an alleged amount
of about R 7 400 000.00 paid out from TMI trust account by Mr.
Mokwena to the Dikwenanyana Trust.
They
rely mainly upon the evidence of First Respondent, Chuene and Legodi
(all being trustees of the Trust at some time) during
interrogation
at the liquidators’ instance at an enquiry into the affairs of
TMI in terms of section 417 and 418 of the Companies
Act 61 of 1973.
[65]
I have made a finding that the evidence of First Respondent, Chuene
and Legodi at the aforesaid enquiry is
inadmissible against the Trust
(Respondents herein) earlier in this judgment.
The
consequence of my finding in relation to the evidence at the enquiry
is that the liquidators (Applicants herein) failed to prove
their
status as a creditor of the Trust.
[66]
In view of the alleged indebtedness being disputed, where there is a
material dispute of facts in motion
proceedings, such disputes ought
to be resolved through action proceedings and equally, the purported
indebtedness by the Trust
cannot be decided in this sequestration
proceedings. There is a
bona fide
dispute of the indebtedness
of the Trust.
[67]
In an effort to show that the Trust is indebted to TMI, the
Applicants attached to their founding affidavit
a report by Jan
Dekker Auditors who were apparently appointed to investigate the
financial affairs of TMI. The said report shows
money flow from TMI
trust banking account to Mr. Mokwena’s banking account, the TMI
business banking accounts and also to
the Dikwenanyana Trust banking
account.
It
is on this basis that the Applicants allege or contend that Mr.
Mokwena made exorbitant withdrawals from TMI trust and business
accounts to the Trust, himself or both.
[68]
The money flow as alleged by the Applicants does not take their case
any further in establishing the Trust’s
indebtedness to TMI.
The onus rests on the Applicants to prove that the aforesaid money
flow transactions from one banking account
to the other was done
sine
causa
and unlawfully.
It
happens always in the course of attorneys practice that money is
transferred from trust banking account to the business banking
account and vice versa.
Such
transfers from an attorney’s trust account is justified when
fees earned by a legal practitioner are so transferred to
the firm’s
business account. Furthermore, payments to the firm’s trust
creditors or clients are now and then being
made out of the firm’s
trust banking account.
Hence,
the alleged money flow as set out in Jan Dekker Auditors report does
not take the Applicants case any further.
Conclusion
[69]
On the conspectus of the evidence considered in this matter, I come
to a conclusion that it has not been
established that the Trust is
either factually insolvent or that it had failed to pay its debts as
they fall due. It is common
cause that the liquidators have never
made any demand for payment of the alleged indebtedness from the
Trust.
Accordingly,
there is no basis for contending that the Trust has failed to pay its
debts or that it is liable to be sequestrated.
The
application for the sequestration of the Dikwenanyana Trust brought
by the liquidators of TMI should not succeed.
[70]
In the result the application is dismissed with costs, including the
costs of senior counsel.
E
M MAKGOBA
JUDGE
PRESIDENT OF THE HIGH COURT,
LIMPOPO
DIVISION
APPEARANCES
Heard
on
:
30 May 2022
Judgment
delivered on
:
18 July 2022
For
the Applicants
:
Adv. R Raubenheimer
Instructed
by
:
Coombe Commercial Attorneys Inc.
c/o
Becker Attorneys
For
the Respondents
:
Adv. L Sigogo SC
Instructed
by
:
Kutullo Kgafane Attorneys
[1]
Notice
of Motion, page 2 of the paginated papers.
[2]
Inquiry
in terms of sections 417 and 418 of the Companies Act 61 of 1973.
[3]
Insolvency
Act 24 of 1936
,
section 9(1).
[4]
Simmons
NO v Gilbert Hamer & Co Ltd
1963
(1) SA 897
(N).
[5]
2005
(4) SA 389
(D) at 397 G.
[6]
Paragraph
[9] of the judgment.
[7]
O’Shea
NO v Van Zyl and Others
2012
(1) SA 90
(SCA).
[8]
Van
Zyl and Another NNO v Kaye NO and Others
2014
(4) SA 452 (WCC).
[9]
Van
Zyl
supra
at paragraph [44].
[10]
See
paragraphs 50 and 51 of the First Respondent’s affidavit &
paragraphs 21 to 24 of Mr. Mokwena’s affidavit.
[11]
R
v Valachia
1945
AD 826
at 837.
[12]
See
Executor
Estate late Phillips and Others v Government of the Republic of
South Africa and Another
[2003] 3 ALL SA 575
(C).
[13]
1999
(2) SA 876 (O).
[14]
See
Euro
Shipping Corporation of Monrovia v Minister of Agriculture,
Economics and Marketing and Others
1979 (1) SA 637 (C).
[15]
[1992]
4 ALL SA 169 (Tk).
[16]
1956
(2) SA 346 (T).
[17]
1988
(1) SA 943
(A) at 980 B – H.
[18]
2001
(4) SA 781
(C) at 783 H – I.