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[2011] ZASCA 159
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Lynn NO and Another v Coreejes and Another (687/10) [2011] ZASCA 159; 2011 (6) SA 507 (SCA); [2012] 1 All SA 620 (SCA) (28 September 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 687/10
In the matter between:
MARK WILLIAM LYNN NO
…................................................................
FIRST
APPELLANT
TINTSWALO ANNAH NANA
MAKHUBELE NO
…...........................
SECOND
APPELLANT
and
COLIN HENRY COREEJES
…............................................................
FIRST
RESPONDENT
LEON LOOCK
…............................................................................
SECOND
RESPONDENT
Neutral citation:
Lynn
NO v Coreejes
(687/2010)
[2011] ZASCA 159
(28 September 2011)
Coram: LEWIS, SNYDERS, MALAN,
MAJIEDT AND SERITI JJA
Heard: 1 SEPTEMBER 2011
Delivered: 28 SEPTEMBER 2011
Summary:
Civil
proceedings ─ s 382(1) of Companies Act 61 of 1973 ─
institution of action by two of three liquidators not a nullity
─
s 382(1) not containing a prohibition ─ therefore not analogous
with s 6(1) of Trust Property Control Act 57 of 1988.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
North Gauteng High Court,
Pretoria (De Vos AJ sitting as court of first instance):
The appeal is upheld with costs, including the costs of
two counsel.
The order of the court below is set aside and
substituted with the following order:
‘
The application is dismissed
with costs.’
______________________________________________________________
JUDGMENT
______________________________________________________________
MAJIEDT JA (LEWIS, SNYDERS, MALAN and SERITI JA
concurring)
[1] Section 382(1) of the Companies Act 61 of 1973,
1
provides that:
‘
When two or more liquidators
have been appointed they shall act jointly in performing their
functions as liquidators and shall be
jointly and severally liable
for every act performed by them jointly.’
The question for determination in this appeal is whether
non-compliance with this provision renders the power of attorney
given
by two of three liquidators for the institution of an action a
nullity and, if not, whether it is in law capable of ratification.
In
the high court De Vos AJ answered the first part of the question in
the affirmative, holding that it was indeed a nullity incapable
of
subsequent ratification. He upheld this as a point in limine in the
respondents’ favour and granted their application
to strike the
appellants’ claim in terms of Rule 30A. This appeal is with his
leave.
[2] The appellants and one Mr J M Oelofsen were
appointed as joint liquidators of Wagmaar Investments CC (Wagmaar)
which had been
voluntarily wound up in terms of a special resolution
of March 2005. The winding-up was preceded by a judgment in October
2004
for payment of the sum of R3 409 907.33, interest and punitive
costs against Wagmaar in favour of Total SA (Pty) Ltd (Total) after
a
lengthy trial before Maluleke J.
[3] During July 2008 the joint liquidators, as
plaintiffs, instituted action against the respondents, as defendants.
Their cause
of action appears to be the
actio
Pauliana
. The details of the claim are not
material to the issue for determination. It would suffice to state
that the respondents were
sued on the basis of allegations that they,
as trustees of the Kiriake Trust, received Wagmaar’s transport
and farming businesses
(with the assets thereof) and certain of
Wagmaar’s immovable and movable property for no consideration
in return, as part
of a fraudulent scheme designed by Wagmaar. The
respondents were cited in their representative (qua trustees) and
personal capacities.
[4] A procedural challenge in terms of Uniform Rule 7 by
the respondents to the authority of the attorneys representing the
liquidators
in the action developed into an objection by way of a
point in limine before the high court, when it became apparent that
Oelofsen
had not joined the appellants in instructing their attorneys
to institute the action. At the time of institution of the action
Oelofsen was still a joint liquidator. He resigned thereafter, citing
a potential conflict of interest. The Master accepted his
resignation
and appointed the appellants as joint liquidators of Wagmaar’s
estate.
[5] In the high court the appellants implicitly accepted
that only two of the three liquidators had mandated the institution
of
the action and the matter was argued on that basis, as was also
the case in this court. The appellants relied on an indemnity
agreement
signed by all three liquidators (including Oelofsen) with
Total in respect of the action and other related proceedings and an
ex post facto
ratification
by the appellants of the institution of the action to cure this
defect. The respondents, on the other hand, persisted
in their
contention regarding the attorneys’ authority, arguing that all
the liquidators did not authorise the institution
of the action. They
contended that s 382(1) of the Act requires that the liquidators had
to act jointly in giving such authorisation
and that the indemnity
could not cure the defect. The institution of action could not be
ratified
ex post facto
since
it was a nullity. As stated, the respondents’ argument found
favour with the court below.
[6] In coming to the conclusion that the unauthorised
action is a nullity and incapable of ratification, De Vos AJ relied
on
Powell & another v Leech & another;
Leech & others v Powell & others
2
in which two liquidators had been appointed by the
Master in respect of a company in provisional liquidation. Only one
of them sought
and obtained a search warrant in terms of
s 69
of the
Insolvency Act 24 of 1936
. In an application for the setting aside of
the search warrant, Sutherland AJ held that the provisions in s
382(1) of the Act,
which require liquidators to act jointly, were
peremptory and that subsequent ratification of the decision to apply
for the search
warrant was legally untenable. He put it thus:
3
‘
Ratification after the event
is not open to a liquidator who did not participate in the original
decision. Section 382 clearly contemplates
a joint decision prior to
action taking place. There is no room to make a joint decision after
the act has been performed. Comparisons
between the powers of
liquidators and the powers of directors to ratify each other’s
deeds are fundamentally inapt in this
context.’
I am of the view, however, that
Powell
is distinguishable on the facts.
Powell
dealt with a situation where ratification was no longer
possible, since the warrant had been applied for without the
requisite consent
and had been issued and executed. The present
matter is different – here a procedural challenge was made in
respect of the
institution of an action by two of three liquidators,
and the proceedings have not been finalised.
[7] The respondents relied on
Lupacchini
NO & another v Minister of Safety and Security
4
in supporting the judgment of the court below. That case
concerned the question whether non-compliance with s 6(1) of the
Trust
Property Control Act 57 of 1988 rendered any acts by the
trustees a nullity. Action had been instituted by trustees of a
trust,
but one of them was authorised by the Master to act as a
trustee only after the action was instituted. Section 6(1) reads as
follows:
‘
Any person whose appointment
as trustee in terms of a trust instrument, section 7 or a court order
comes into force after the commencement
of this Act, shall act in
that capacity only if authorized thereto in writing by the Master’.
It was not in issue that institution of the action in
these circumstances was in contravention of s 6(1). In deciding that
the proceedings
instituted by a trustee without authorisation was a
nullity, Nugent JA analysed a number of decisions and came to the
conclusion
that ‘. . . [there are] no indications that legal
proceedings commenced by unauthorised trustees were intended to be
valid.
On the contrary, the indications seem . . . to point the other
way’.
5
An important consideration in reaching that conclusion,
said Nugent JA, is the fact that there is no criminal sanction
stipulated
in respect of a trustee who acts without authorisation,
leading to the inescapable inference that the legislature intended
such
acts to be a nullity, ‘because otherwise a contravention
of the prohibition would have no consequences at all’.
6
[8] I turn next to a consideration of the legal
consequences of non-compliance with s 382(1). A useful point to start
with, I believe,
is to determine whether s 382(1) contains a general
prohibition. In order to make such a determination and also to
examine whether
Lupacchini
can
be applied to this case, a brief consideration of the role of
liquidators under the Act, as opposed to that of trustees under
the
Trust Property Control Act, is required. The law reports and the text
books are replete with descriptions of what a liquidator
is and does.
I adopt for present purposes the following description in M S
Blackman et al
Commentary on the Companies Act
vol 3 at 14–288:
‘
. . . a person who holds an
office under the Companies Act, which office confers on him various
powers to enable him to wind-up
the company. One of these powers is
the power to bind the company’s estate; another is the power to
institute and defend
proceedings in the company’s name.’
First and foremost and at the risk of stating the
obvious, it is well to remind oneself that a liquidator is a creature
of statute;
he or she derives his or her powers from the Act and the
Insolvency Act and
may act within the bounds of those powers only.
Although there are some analogies to be drawn between the office of a
liquidator
and that of a trustee (eg the fiduciary nature of both), a
liquidator is not a trustee in the strict sense.
7
The estate of the company in liquidation remains vested
in the company itself (save of course in those exceptional
circumstances
where a court orders in terms of s 361(3) of the Act
that all or part of the company’s property shall vest in the
liquidator);
the liquidator merely administers the estate as laid
down by statute
8
and does so under the control of the Master.
9
In a trust on the other hand, the trust estate vests in
the trustees who must administer it.
10
[9] In the case of a trust the trust deed is its
‘constitutive charter’
11
and ‘[w]hen fewer trustees than the number
specified [in the trust deed] are in office, the trust suffers from
an incapacity
that precludes action on its behalf’.
12
Even where trustees act jointly, they cannot in law bind
the trust estate where they are not the requisite number stipulated
in
the trust deed, because ‘the trust’s incapacity during
this period does not arise from the joint action requirement,
but
from the trust’s incapacity while a sub-minimum of trustees
held office’.
13
The difference between s 6(1) of the Trust Property
Control Act and s 382(1) of the Companies Act is stark –
appointment as
a trustee by the Master is a
sine
qua non
for a trustee to be clothed with the
requisite authority to act on behalf of the trust, whereas s 382(1)
does not contain such a
requirement. A mere reading of the two
sections reveals a marked difference; in this regard the use of the
word ‘only’
in s 6(1) is significant, since this is
indicative of invalidity in the case of non-compliance.
[10] It will be recalled that in
Lupacchini
the absence of a criminal sanction in s 6(1)
of the Trust Property Control Act led Nugent JA to the conclusion
that non-compliance
with that section renders all acts a nullity.
14
Section 382(1) of the Act imposes no criminal sanction.
The consequences of joint action, however, are set out in the second
part
of the subsection, that is joint and several liability for every
act performed jointly. Nothing is said of the validity or otherwise
of an act that is not performed jointly. For these reasons
Lupacchini
is not applicable in this instance.
[11] The primary objective of s 382(1) is to ensure that
joint liquidators act jointly. The second part of the section which
relates
to joint liability is in my view decisive in this regard. It
imposes joint and several liability on liquidators who act jointly.
Nothing more is said and it is not necessary to inquire into any
implication that might flow from this provision. The subsection
does
not visit the acts of the liquidators who did not act jointly with
nullity.
[12] Section 386(4)
(a)
empowers
a liquidator to, inter alia, bring or defend legal proceedings on
behalf of the company. The section requires a liquidator
to be duly
authorised by a meeting of creditors or members (s 386(3)) or by the
Master in case of urgent legal proceedings for
the recovery of
outstanding accounts (s 386(4)) before he or she can bring such
proceedings on behalf of the company. Our courts
have held that if a
liquidator litigates without the prescribed authority, the court may
refuse to allow him his costs out of the
company’s assets and
he may have to pay such costs himself.
15
The litigation is not a nullity, it merely has potential
adverse costs implications for the liquidator. And there is ample
authority
that a person against whom the unauthorised liquidator is
litigating may not object to such lack of authorisation, for it is a
matter between the liquidator and the creditors.
16
Retrospective sanction of unauthorised litigation is
available to the liquidator in appropriate instances, either from the
creditors
or members under s 386(3) or, if refused, from the Master
under s 387(2) and, if the Master refuses, from the court under s
386(5)
read with s 387(3).
17
[13] Actions in terms of s 382(1) are prohibited only in
the absence of consent of all the liquidators. In
Neugarten
& others v Standard Bank of South Africa Ltd
18
the absence of consent by all the members of a company
for security furnished by that company for an obligation of another
company
controlled by one or more of the directors of the
first-mentioned company, in contravention of s 226(2)(a) of the Act,
was considered
and resolved as follows:
19
‘
The transactions set out in ss
(1) of s 226 are prohibited or illegal only in the absence of the
consent of all the members. The
question in any specific case is
whether such consent has been given: if it has, the transaction is
not prohibited or illegal.
Consequently, to postulate that the
transaction is prohibited and illegal is to beg the question. If the
requisite consent is given
to the transaction
in
initio
, it is a
valid transaction. If the transaction is subsequently ratified by the
non-consenting members, the ratification relates
back to the original
transaction and the position is the same as if consent had originally
been given.’
[14] Where an act is done by some and not all the
liquidators it may not bind the company in liquidation.
20
But it does not follow that the conduct of the
liquidator may not be ratified. In
Smith v
KwaNonqubela Town Council
21
the same approach as in
Neugarten
was followed, albeit in a different context:
22
‘
The next attack upon the
purported ratification was along these lines: Watson’s
contentious act was an administrative one;
it was not authorised by
law; an unauthorised act is invalid; an invalid act cannot be
ratified. The argument, I fear, already
breaks down at the first
proposition and it becomes unnecessary to consider the others. The
launching of legal proceedings is not
an administrative act but a
procedural one open to any member of the public. Watson apparently
believed on insubstantial grounds
that he had the necessary authority
to act on behalf of the town council. He was wrong. His expressed
intention was to act on behalf
of the town council and not on his own
behalf. It is a general rule of the law of agency that such an act of
an “unauthorised
agent” can be ratified with
retrospective effect.
.
.’.
[15] Two of the three liquidators authorised the
institution of the action. The non-consenting third liquidator then
resigned and
his resignation was accepted. The remaining two
liquidators were then appointed by the Master as the only joint
liquidators in
the estate. They jointly pursued the litigation, as
such ratifying their procedural act taken initially. As no time limit
within
which they had to take or ratify the institution of the action
arises in the case, that is the end of the matter.
23
[16] For these reasons the high court erred in upholding
the objection in limine. It should have dismissed with costs the
application
to strike out the claim in terms of Rule 30A. The appeal
must consequently be upheld and the following order is issued:
1 The appeal is upheld with costs, including the costs
of two counsel.
2 The order of the court below is set aside and
substituted with the following order:
‘
The application is dismissed
with costs.’
___________________
S A MAJIEDT
JUDGE OF APPEAL
APPEARANCES:
Counsel for appellants : C E PUCKRIN SC
M P VAN DER MERWE
Instructed by : Alex May Inc.
Lovius Block, Bloemfontein
Counsel for respondents : A C FERREIRA SC
D F BLIGNAUT
Instructed by : Bekker Attorneys
Symington & De Kok, Bloemfontein
1
The
repeal of this Act by the
Companies Act 71 of 2008
has no bearing on
this appeal.
2
Powell
& another v Leech & another; Leech & others v Powell &
others
[
1997] 4 All SA 106
(W).
3
At
118g-h.
4
Lupacchini
NO & another v Minister of Safety and Security
2010
(6) SA 457
(SCA).
5
P
ara
22.
6
P
aras
17 and 18, he then continued to cite Goldblatt J in
Simplex
(Pty) Ltd v Van der Merwe & others NNO
1996
(1) SA 111
(W) at 113C-D.
7
M
S
Blackman et al at 14–288; P M Meskin
Henochsberg on the
Companies Act
5 ed
Vol 1 at 789.
8
Blackman
et al, ibid.
9
Section
381 of the Act.
10
Land
and Agricultural Bank of South Africa v Parker & others
2005 (2) SA 77
(SCA) para 10.
11
Ibid.
12
P
ara
11.
13
P
ara
13.
14
Para
7 above.
15
Waisbrod
v Potgieter
& others
1953
(4) SA 502
(W) at 507H.
16
Dublin
City Distillery (Great Brunswick Street, Dublin) Limited &
another v Doherty
[1914] AC 823
;
Waisbrod v Potgieter
,
supra, at 507G-H;
Bowman NO v Sacks &
others
1986 (4) SA 459
(W) at 461G;
Griffin & others v The Master &
another
(
Commins
& another intervening
)
2006 (1) SA
187
(SCA) para 7.
17
Henochsberg
on the
Companies Act
supra
at 822.
18
Neugarten
& others v Standard Bank of South Africa Ltd
1989
(1) SA 797
(A).
19
At
803D-E.
20
Cooper
v The Master & others
1996 (1) SA
962
(N).
21
Smith
v KwaNonqubela Town Council
1999 (4)
SA 947
(SCA).
22
Para
10.
23
Smith
para 12.