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[2018] ZAGPJHC 600
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Samons v Turnaround Management Association Southern Africa (NPC) and Another (4939/2018) [2018] ZAGPJHC 600; 2019 (2) SA 596 (GJ) (15 October 2018)
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REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER: 4939/2018
In
the matter between:
THOMAS
HENDRICK
SAMONS APPLICANT
And
TURNAROUND
MANAGEMENT ASSOCIATION
SOUTHERN
AFRICA (NPC) (Reg no 2005/033371/08) FIRST
RESPONDENT
COMPANIES
AND INTELLECTUAL PROPERTY SECOND
RESPONDENT
COMMISSION
JUDGMENT
Windell
J
INTRODUCTION
[1]
The applicant was a licensed business rescue practitioner and a
member of the first respondent,
Turnaround
Management Association Southern Africa (NPC)
(“TMA”). His license to practise as a business rescue
practitioner was revoked on 1 February 2018 by the second respondent,
the Companies and Intellectual Property
Commission
(“the CIPC”),
after he was found guilty of misconduct and expelled from the
membership of TMA.
[2]
This is an application to review and set aside the finding of guilt
by TMA and its decision to expel the applicant from its
membership,
as well as the decision made by the CIPC in terms of which the
business rescue license issued to the applicant was
revoked.
[1]
The matter was initially brought as an urgent application but was
struck from the roll for lack of urgency.
[3]
TMA is a non – profit company registered in terms of section 13
(1)(A) (i) of the Companies Act (“the Act”)
[2]
and conducts business as an association with the primary focus on
business rescue corporation renewal and turnaround management.
TMA has adopted a code of conduct in terms of which its members must
conduct themselves ethically and in line with the necessary
prescripts set out in the relevant legislation. The members of TMA
are voluntary members and have by their membership agreed to
be bound
by the code of conduct. TMA is an association recognized and
accredited by the CIPC.
[4]
TMA and the CIPC oppose the application. The CIPC however conceded
that in the event that the applicant is successful in its
review of
TMA’s decision, and it is set aside that he would also be
entitled to the relief claimed against the CIPC.
[5]
The main issues to be decided in the review are:
[5.1]
Is the decision of the first respondent reviewable under the
Promotion of Administrative Justice Act
[3]
(“PAJA”)?
[5.2]
If PAJA is applicable, was the procedure followed by the first
respondent procedurally unfair and irrational?
[5.3]
Is the conduct of the first respondent in any event
contra
the
rules of natural justice?
BACKGROUND
FACTS
[6]
The applicant joined TMA in 2013 and had been a member in good
standing until September 2017. He was also issued a conditional
license to practise as a business rescue practitioner by CIPC on 5
May 2015. The applicant practices as ‘Restructuring SA’
and was appointed business rescue practitioner of Le Rendz-Vous Café
CC (“the close corporation”) on 7 December
2015 in terms
of a resolution passed by the members of the close corporation. Two
of the main reasons for the close corporation
being placed under
business rescue was the fact that it fell in arrears with its monthly
rental payments to its landlord, Kythera
Court and the payment of
franchise fees due to the franchisor. The applicant contends that he
prepared a business rescue plan that
envisaged a new lease agreement
with Kythera Court in terms of which all amounts to creditors would
have been paid by means of
post commencement finance, which the
members of the close corporation were prepared to advance. The
intended business rescue plan
was however dependent on the
co-operation of Kythera Court. Kythera Court did not co-operate but
instead brought an application
for the eviction of the close
corporation. Judgment was granted on 22 June 2016 and the court
ordered the eviction of the close
corporation from the premises. The
applicant contends that he was therefore unable to develop the
business rescue plan and was
requested by the members of the close
corporation to place the close corporation under liquidation which
occurred in February 2017.
[7]
Ms. Murray, one of the members of the close corporation blamed the
applicant for the failure of the business rescue and laid
a complaint
against him at TMA. On 6 September 2016 TMA’s disciplinary
committee convened in the absence of the applicant.
On 11
October 2017 he was found guilty of
inter
alia
misconduct and a fine of R 10 000
was imposed on the applicant. He was also suspended from TMA for a
period of 3 months subject
to the condition that he is not found
guilty of a further serious breach of the disciplinary code. It was
also ordered that the
particulars of the suspension be published on
TMA’s website with the recommendation that the applicant not
receive further
appointments for the duration of the suspension.
[8]
The applicant lodged an appeal against the disciplinary committee’s
findings. On 15 January 2018 the Disciplinary Appeals
Committee
confirmed the disciplinary committee’s findings and increased
the sentence by expelling the applicant from the
membership of TMA.
On 1 February 2018 the CIPC revoked applicant’s license as a
business rescue practitioner based on the
fact that he was no longer
a member in good standing of a ‘business management
profession’ as provided for in
section 138 (1) (a) of the Act.
GROUNDS
OF REVIEW
[9]
The review is based on PAJA,
[4]
alternatively on the rules of natural justice.
[10]
In order for the applicant to succeed under PAJA it must establish
one or more grounds for review under s 6(2). The essence
of the
review application is that the procedure followed by the first
respondent was procedurally unfair (s 6 (2)(c)) and irrational
(s
6(2)(f)(ii)). Firstly, at the disciplinary committee hearing the
first respondent amended the charge sheet in the absence of
the
applicant and found him guilty on an amended charge without notifying
the applicant of the amendment or affording him an opportunity
to
comment to the amended charge. Secondly, the first respondent, on
appeal, confirmed the guilty finding on the amended charge
and
increased the sentence without prior notification to the applicant of
its intention to do so. The applicant further contends
that the
proceedings conducted by TMA’s Disciplinary Committee and
Disciplinary Appeals Committee were subject to the principles
of
natural justice and that TMA violated these principles by following a
procedure that was fatally flawed.
[11]
The first and second respondents contend that the decision by the
first respondent is not administrative action and is not
reviewable
under PAJA. TMA observed the rules of natural justice and it is
contended that applicant can only blame himself for
not attending the
disciplinary proceedings.
REVIEWABILITY
OF FIRST RESPONDENT’S DECISION
[12]
The question that needs to be answered before unfairness or
irrationality is even considered is if the impugned decision
constitutes
administrative action and therefore subject to review in
terms of s 6(1) of PAJA? Applicant contended that TMA exercised a
public
power and/or public function when it conducted a disciplinary
hearing and its decisions are therefore reviewable under the
provisions
of PAJA.
The respondents
contend that TMA is a voluntary association which finds its life in
its Constitution. The regulation of members
arises
ex
contractu
with members having to
voluntarily accept the provisions of its Constitution and the
misconduct provisions included therein and
the decision therefore did
not constitute administrative action.
[13]
Administrative action in s
ection
1 of PAJA includes, among others, any decision taken by a natural or
juristic person other than an organ of state when exercising
a public
power or performing a public function in terms of an empowering
provision.
The
test for determining whether an act constituted an administrative
action is an elastic one. In
Calibre
Clinical Consultants (Pty) Ltd and Another v National Bargaining
Council for the Road Freight Industry and Another
[5]
Nugent JA referred to the
scope of public law review in other countries who have consistently
looked to the presence or absence
of features of the conduct
concerned that is ‘governmental in nature’. He observed
that in some instances what had
been considered to be relevant is the
extent to which the functions concerned are 'woven into a system
of governmental control',
or 'integrated into a system of statutory
regulation'. The learned judge
reflected
as follows:
“
[40]
It has been said before that there can be no single test of universal
application to determine whether a power or function
is of a public
nature, and I agree. But the extent to which the power or function
might or might not be described as 'governmental'
in nature,
even if it is not definitive, seems to me nonetheless to be a useful
enquiry
.
It directs the enquiry to whether the exercise of the power or the
performance of the function might properly be said to entail
public
accountability, and it seems to me that accountability to the public
is what judicial review has always been about
.
It is about accountability to those with whom the functionary or body
has no special relationship other than that they are adversely
affected by its conduct, and the question in each case will be
whether it can properly be said to be accountable, notwithstanding
the absence of any such special relationship.”
[14]
Can it be said that the TMA’s decision to expel the applicant
was the exercise of a public power in this sense?
It is so that
TMA is a voluntary association with its own code of conduct and
memorandum of agreement with its members. In
the preamble of
TMA’s code of conduct the association’s purpose is to
give credence and effect to the objectives mission,
and values of the
association as set out in the association’s memorandum of
incorporation. The code of conduct further
provides that it is
not a mere restatement of legislation and regulations, but rather a
set of principles and guidance based on
standards of conduct founded
in established precedent. However, this does not mean
that the powers it exercises are
necessarily private, rather than
public, as TMA contends.
[15]
TMA is an association of business rescue practitioners. Members
of the profession (who are also members of TMA) derive
their powers
from, and are regulated by, the Companies Act. In fact, the
profession would not exist but for the business
rescue provisions of
that Act.
[16]
Section 138 of the Companies Act
deals with p
ractitioner's
functions and terms of appointment and
provides
as follows:
“
Qualifications
of practitioners
(1)
A person may be appointed as the
business practitioner of a company only if the person-
(a)
Is a member in good standing of a
legal, accounting or business management profession accredited by the
Commission.
(b)
Has been licensed as such by the
Commission in terms of subsection (2);
(c)
is not
subject to an order of probation in terms of section 162 (7);
(d)
would not be
disqualified from acting as a director of the company in terms of
section 69 (8);
(e)
does not have
any other relationship with the company such as would lead a
reasonable and informed third party to conclude that
the integrity,
impartiality or objectivity of that person is compromised by that
relationship; and
(f)
is not related
to a person who has a relationship contemplated in paragraph (d).
(2)
For the purposes of subsection (1) (a) (ii), the
Commission may license any qualified person to practise in terms
of
this Chapter and may suspend or withdraw any such licence in the
prescribed manner
.
(
Reference to subsection 1 (a) (ii)
must read s 138 (1)(b))
(3)
The Minister may make regulations prescribing-
(a)
standards and
procedures to be followed by the Commission in carrying out its
licensing functions and powers in terms of this section;
and
(b)
minimum
qualifications for a person to practise as a business rescue
practitioner, including different minimum qualifications for
different categories of companies.
[17]
From this it is clear, not only that business rescue practitioners in
certain circumstances must be licensed to operate by
the CIPC, but
also that business management professions must be accredited by the
CIPC. It is common cause that TMA is a
‘business
management profession’ accredited by the CIPC.
Regulation
126
(1)
(a)
stipulates
that the CIPC “
must,
when considering an application for accreditation of a profession
under section 138(1), have due regard to the qualifications
and
experience that are set as conditions for membership of any such
profession,
and
the ability of such profession to discipline its members and the
Commission may revoke any such accreditation if it has reasonable
grounds to believe that the profession is no longer able to properly
monitor or discipline its members
”
(my emphasis)
[18]
Business rescue practitioners are in a position of trust and owe
substantial duties of care. They are officers of court in
terms of s
140 of the Act and their powers and duties are prescribed in s 140 of
the Act.
[19]
These provisions demonstrate that albeit that an association like TMA
may be formed as a private association, its purpose and
its
functioning serves a broader public purpose: its function in
disciplining its members is critical to the public trust that
can be
placed on the profession of business rescue practitioners, and,
indeed, on the whole scheme of business rescue. The
Act and the
Regulations expressly ensure that the CIPC has an interest in
ensuring that only those associations who meet certain
standards are
accredited. One of the factors the CIPC will consider is the
ability to monitor and discipline its members.
[20]
TMA’s decision to expel the applicant from its membership
resulted in the applicant no longer being a member of good
standing
of a
‘
business
management profession’
which then resulted
in the revoking of his license by the CIPC. Thus, if one considers
the statutory context, when TMA, as an accredited
business management
profession, makes a finding following a disciplinary hearing into one
of its members, it is carrying out a
function that entails public
accountability, in the sense described earlier. It is
exercising a public power. I conclude
in this regard that its
decision amounts to administrative action, and is subject to review
under PAJA.
THE
DECISION OF THE FIRST RESPONDENT
[21] After a preliminary
assessment of the complaints received by Murray the applicant was
charged with misconduct in terms of the
TMA’s Code of Conduct.
In the charge sheet the applicant was
inter alia
charged with
the following:
Charge 1.3: The defendant
failed to inform the members of the close corporation of the
liquidation application.
Charge 1.5: The defendant
failed to issue a business rescue plan within 25 days of appointment
as per section 150 (5) of the Companies
Act and further failed to
obtain an extension for the publication of the business rescue plan
from the affected parties.
Charge 2: The defendant
failed to uphold his fiduciary duties to exercise care, skill and
diligence, having failed to secure the
liquor license of the close
corporation; protect the assets of the close corporation and maintain
a fixed asset register and stock
inventory resulting in an inaccurate
and undervalued valuation.
Charge 3.1: The defendant
failed to provide a reconciliation of fees and disbursements with
supporting documentation when requested
by the complainant.
Charge
3.2: In terms of section 18.4 the defendant is obliged to fully
disclose all relevant invoices, receipts and information
pertaining
to the fee or expense and the TMA will then make a final
determination.
[22]
The applicant was given the opportunity to reply in the form of an
affidavit to the charges. The applicant deposed to an affidavit
and
answered to the various charges as was set out in Ms. Murray’s
complaint. The applicant was then informed, in writing,
of the date
the disciplinary hearing would be held. On 7 September 2017 the
applicant failed to attend the disciplinary hearing
and was found
guilty on three charges. The committee found as follows:
“
Amended
charge 1.3: The failure by the defendant to properly secure assets
and equipment of the close corporation and is further
failure to
liquidate the close Corporation.
The charge sheet was
found to be defective in respect of the original charge 1.3 and the
Disciplinary Committee allowed the claimant
as (pro forma) prosecutor
to amend the charge sheet at the disciplinary hearing in accordance
with paragraph 24.18 of the TMA Disciplinary
Code. The disciplinary
hearing thereafter proceeded with the alternative and more serious
charge of the failure by the defendant
to liquidate the close
corporation at the point where he no longer believed that there was
reasonable prospect to rescue the close
corporation.
The
failure by the defendant to properly secure the assets and equipment
of the close corporation and his further failure to liquidate
the
close corporation is a serious dereliction of his duties as BRP and
he is found guilty.
Amended
charge 1.5: Failure by the defendant to timeously obtain the
requisite consent for the extension for the publication of
the
business rescue plan.
The
charge sheet was found to be defective in respect of the original
charge 1.5 and the disciplinary committee allowed the claimant
as
(pro forma) prosecutor to amend the charge sheet at the disciplinary
hearing in accordance with paragraph 24.18 of the TMA disciplinary
code. The disciplinary hearing thereafter proceeded with the
alternative and more serious charge of failure by the defendant
timeously
to obtain the requisite consent for an extension for the
publication of the business rescue plan. As a result of the
defendant’s
failure to engage with creditors, and timeously
obtain their consent to an extension for the publication date of the
business rescue
plan, the defendant elected to embark on an
unnecessary, costly court process to obtain the requisite extension
which he could
have obtained by active engagement with the creditors.
The
defendant is found guilty of the amended charges insofar as he failed
to properly exercise his duties as a BRP by not having
obtained the
requisite extension for the publication date of the business rescue
plan and thereafter having engaged a legal team
for the purposes of
an unnecessary, costly illegal application.
Charge
2.1:
The defendant is found
guilty of failure to secure the assets of the close corporation and
to maintain a fixed asset register and
stock in the entity.
Charge
3.2 In terms of section 18.4 the defendant is obliged to fully
disclose all relevant invoices, receipts and information pertaining
to the fee or expense and the TMA will then make a final
determination:
The defendant was
requested by the disciplinary committee in an email dated 26 July
2017 to provide a reconciliation of fees and
disbursements with
supporting documentation in accordance with paragraph 18.4 of the
TMA’s code of conduct. The defendant
has failed and neglected
to comply with his request and is therefore found guilty of the
charge.”
[23]
The applicant was fined an amount of R 10 000 payable to the
bank account of the TMA and suspended from the TMA for a
period of
three months, subject to the condition that during the period
of suspension the defendant is not found guilty of
a further serious
breach of the Disciplinary Code. The disciplinary committee proposed
to use this period of suspension to further
investigate the conduct
of the defendant as a business rescue practitioner in other business
rescues where the defendant has been
involved and/or appointed as
business rescue practitioner. The disciplinary committee further
ordered that the detail of the defendant’s
suspension be
published on the TMA’s website with a recommendation that the
defendant should not receive further appointments
as a turnaround
professional for the duration of the suspension, and pending the
outcome of the further investigation to be conducted
by the
disciplinary committee.
[24] The applicant
appealed the guilty finding and the sentence of the disciplinary
committee. The appeal was upheld by the disciplinary
appeals
committee on all grounds except for the two charges relating to the
extension of the publication of the business rescue
plan and the
non-disclosure of relevant invoices. The appeals committee found that
the defendant’s total disregard of his
obligation to provide
all business rescue costs and fee information in a transparent
fashion to be a fundamental and inexcusable
breach of the TMA code of
conduct. Furthermore the committee found the conduct of the applicant
was reckless and unprofessional
with regard to publication and
extension of the deadline for publication of the business rescue
plan. As a result the appeals committee
expelled the applicant from
TMA’s membership.
The amendment of
the charge sheet in the absence of the applicant
[25]
The disciplinary committee appointed Ms. Murray as prosecutor and
instructed her on the day of the hearing to amend the charge
sheet.
In accordance with paragraph 23.4 of TMA’s Disciplinary Code
the disciplinary committee will ‘observe the rules
of natural
justice but will not be bound by any enactment or rule of law
relating to the admissibility of evidence in proceedings
before a
court of law’. In accordance with paragraph 24.17 of the
Disciplinary Code the chairperson may determine the procedure
to be
followed at a hearing whilst ensuring that the proceedings remain
procedurally fair and in accordance with the principles
of natural
justice.
[26] On receipt of the
charge sheet the applicant responded to Ms. Murray allegations in
writing, in the form of an affidavit. He
made written submission in
response to the charges as it was set out in the charge sheet at that
stage. He never had the opportunity
to consider or to respond to the
amended charges. He was subsequently found guilty on a charge did not
form part of the original
charge sheet. He was not notified of
the amendment and the committee was, in my view, not entitled to
amend and proceed in
his absence. The procedure followed was unfair
and
contra
the rules of natural justice.
Increase of the
sentence
[27]
It is common cause that TMA’s appeal committee has wide ranging
powers and was entitled to re-visit the sentence.
[28]
The appeals committee found the applicant guilty of fewer charges but
imposed a harsher sentence. They did so without informing
the
applicant of its intention to do so. In my view this is procedurally
unfair and irrational. A similar scenario can be
found in
criminal appeals. The power of a court of appeal
to increase a sentence imposed by the trial court is well
established in our law.
It
has
become practise that if a court of appeal is
prima
facie
of
the view that there is a prospect that the sentence might be
increased on appeal, that notice is given before the hearing
of the
appeal to the interested parties, that such an increase is being
considered. This is done so that the parties, including
the
appellant, are not taken by surprise at the hearing.
[29]
In
S
v Bogaards
[6]
the Constitutional Court held that given the importance of the right
to a fair trial and the substantive notion of fairness which
it
embraces, the failure to give notice, constituted a failure of
justice and the appeal was rendered unfair and the sentence imposed
was set aside. In
S
v Joubert
[7]
the court held that a failure to give such notice had materially
prejudiced the accused; a prejudice that goes further than a mere
lack of adequate opportunity to prepare properly. The court held that
the requirement of prior notice to an accused person by the
appellate
court balances the appellant's right to a fair trial and the
court's duty to ensure that the sentence is appropriate
and,
where necessary, to increase an inappropriate sentence.
[30]
There is no reason why these principles enunciated by the
Constitutional Court and the SCA would not be applicable to a
disciplinary
hearing. The appellant focused his submissions on appeal
on the sentence imposed by the disciplinary committee. There was no
reason
for him to reconsider his position or to make submissions on a
possible increase of sentence by the appeals committee. The
applicant,
if notified, could even have withdrawn the appeal. The
prejudice is self-evident.
THE
SECOND RESPONDENTS DECISION
[31]
Section 138 of the Act empowers the CIPC to license any qualified
person to practice as a business rescue practitioner and
to suspend
or withdraw such license. Regulation 126 (7) (b) provide for the
suspension or revoking of a license if the Commissioner
has
reasonable grounds to believe that the person is no longer qualified
to be licensed and has contravened the conditions of the
license.
[32] The second
respondent pleaded as follows in its answering affidavit:
“
29.1
The disciplinary appeals committee decided to expel the applicant
from its membership. It follows therefore that once the applicant
was
expelled from membership of the first respondent, the applicant was
no longer a member of good standing of the association
and could no
longer be appointed as a practitioner of a company as required by
section 138 of the Act. Accordingly the applicant
was no longer
qualified to be licensed.
29.2
It is for the above reason that a decision by the second respondent
was taken to revoke the applicant’s license”.
[33]
It is common cause that the decision by the TMA materially and
significantly influenced the decision taken by the CIPC. The
commission revoked the applicant license because the applicant was
expelled from TMA and was no longer a member in good standing
of a
business management profession. The second respondent conceded that
the applicant would be entitled to have its decision reviewed
and set
aside in the event that TMA’s decision is reviewed and set
aside.
[34]
In the result the following order is made:
[34.1] The decision of
the first respondent is reviewed and set aside.
[34.2] The decision of
the second respondent is reviewed and set aside.
[34.2] The first and
second respondents to bear the costs of the review jointly and
severally, the one paying the other one to be
absolved.
______________________________
L. WINDELL
JUDGE OF THE HIGH
COURT
GAUTENG LOCAL
DIVISION, JOHANNESBURG
Counsel
for the applicant: Advocate KW Luderitz SC
Instructed
by: DLBM Attorneys Inc
Counsel
for the first respondent: Advocate M. Desai
Instructed
by: Hogan Lovels Inc
Counsel
for the second respondent: Advocate M.R. Maimele
Instructed
by: The State Attorney
Date
of hearing: 23 August 2018
Date
of judgment: 15 October 2018
[1]
In terms of
s
126
(7) of the
Companies Act 71 of 2008
.
[2]
Act 71 of 2008.
[3]
Act 3 of 2000.
[4]
Act 3 of 2000
[5]
2010 5 SA 457
SCA at [40].
[6]
2013
(1) SACR 1
(CC)
[7]
2017
(1) SACR 497
(SCA)