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[2018] ZAFSHC 7
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Makanda and Others v Mosotho and Others (4153/2016) [2018] ZAFSHC 7 (9 February 2018)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Reportable:
YES
/NO
Of
interest to other Judge:
YES
/NO
Circulate
to Magistrates:
YES
/NO
Case
No. 4153/2016
In
the matter between:
MAKALIMENG
BERLINA
MAKANDA
1
st
Applicant
PITSO
FAIRBRIDGE MOGOREGI
2
nd
Applicant
MPATI
GRACE ERICA
KALANE
3
rd
Applicant
MOSOEUNYANESHADRACKRAMATHE
4
th
Applicant
and
LEHLOHONOLO
MOSOTHO
1
st
Respondent
MARIRIPE
OLEHILE PHILLIP
MOLEMA
2
nd
Respondent
ELIAS
PULE
MATJOA
3
rd
Respondent
DANNYBOY
POLIMPOTE PITSE
4
th
Respondent
AFRNNAIHEALTH
(PTY)
LTD
5
th
Respondent
COMPANIES
AND INTELLECTUAL PROPERTY
COMMISSION
6
th
Respondent
JUDGMENT
BY:
P
MOLITSOANE
HEARD
ON:
23 NOVEMBER 2017
DELIVERED
ON:
8 FEBRUARY 2018
[1]
This is an application in terms of
s162
of the
Companies Act 71 of
2008
to declare the first, second, third and fourth
respondents(hereinafter referred to as respondents) as delinquents,
alternatively
to place them, in their respective capacities as
directors of the fifth respondent under probation. Applicants
further, inter alia,
seek an interdict against the first to the
fourth respondents. There is no relief sought against the fifth and
sixth respondents
as they were cited only due to the interest they
may have in these proceedings. The application is opposed.
[2]
The respondents raised two points
in limine
and it was agreed
by counsels of the parties that those points should be adjudicated
and disposed of first. I agreed to the request
and I so ordered.
ISSUES
FOR DETERMINATION (POINTS IN LIMINE)
[3]
The contention of the respondents is twofold:
3.1
Firstly, whether the relief sought can be obtained by way of
application proceedings as
opposed to action proceedings
3.2
Secondly, whether there is a material defect of non-joinder of the
rest of the shareholders.
SUBMISSIONS
BY COUNSEL
[4]
On the first point
in limine,
Mr Metlae for the respondents
contends that in the determination of whether the conduct of the
respondents as directors of the fifth
respondent were reckless or
negligent in the running of the affairs of the Fifth respondent, the
enquiry to be conducted should
be both objective and subjective. The
argument further goes on to say that the particular circumstances of
the fifth respondent
must be taken into account.
[5]
Mr Metlae further argues that the respondents have denied
recklessness. He further submitted as to why such alleged conduct
of
the respondents cannot be regarded as amounting to recklessness,
which conduct included factors that negated any subjectivity
by
reasonable persons in circumstances of the respondents.
[6]
The respondents rely also on the evidence in previous proceedings in
this court, to wit, Case 3590/2014 and 1050/16. Counsel
for
respondents argues that such reliance was misplaced as the court in
those previous cases were seized with different points
in issue,
namely, the fifth respondent's obligations and contempt of court
respectively.
[7]
On the other hand, Mr Snellenburg SC, argued that the submission that
the relief sought cannot be obtained on motion proceedings
is without
merit. He submits that there is no bona fide dispute regarding the
fact that the first to the fourth respondents breached
the basic
obligations and duties in terms of the Act.
[8]
On the second point
in limine,
it is contended on behalf of
the respondents that the rest of the shareholders should have been
joined.
[9]
Applicants, however, submit that shareholders have no say in whether
the directors are to be found to be delinquent or not.
The interest
of shareholders is not affected by the order of declaration of
delinquency as the directors owe a fiduciary duty the
fifth
respondent.
THE
APPLICABLE LEGAL PRINCIPLE AND MERITS
[10]
It is indeed so that the ultimate central issue for determination
in this matter is whether the conduct of the respondents
amounted to
recklessness, and consequently whether such conduct renders them
delinquents in terms of the Act. It is apposite in
this regard to
refer to the decisions delivered in particular to
s424
(1) of the
previous Companies Act 71 of 1973 where recklessness was an issue.
Recklessness or an intention to defraud creditors
was also a
determinative factor in an enquiry in terms of Companies Act, 1973.
[11]
In Philotex (Pty) Ltd and others v Snyman
and others 1998(2)
SA 138 (SCA) at 143 E-H the court said:
“
In
S v Dlhamini
1988(2) SA 302(A) at 308 D-E gross negligence was
described as including an attitude or state of mind characterised by
an 'an entire
failure to give consideration to the consequences of
one's actions, in other words, an attitude of reckless disregard of
such consequences'.
The
test for
recklessness is objective
insofar as the
defendant's actions are
measured against
the
standard
of
conduct of the
notional
reasonable person and is subjective insofar as one has to
postulate that notional being as belonging to
the
same group or class as the
defendant,
moving in the
same
sphere
and
having the
same knowledge: S
v
Van As
9211976 (2) SA 921(A) at 928 C-E. One
should add that there may also be a subjective element present if the
defendant has the risk-consciousness
mentioned in
Van Zyl
but that, as indicated, is not an essential component of
recklessness and its existence is no impediment to the application of
the
objective test referred to above.”
[12]
Respondents argue that recklessness is denied and they further argue
that evidence was advanced to explain both their conduct
as well as
what they did to assist the 5th respondent. In an enquiry into
recklessness, the court will have regard to the circumstances
of the
company itself. The enquiry will thus encompass looking into the
alleged failure of the respondents to consider their actions
which
will include the alleged breach of both their statutory and common
law duties.
[13]
The question whether motion proceedings are the only competent
proceedings for relief under section 424(1) of Act, 1973 was
left
open by the full bench of the Transvaal Provincial Division in
Joh
Air (Pty)Ltd v Rudman
1980(2) SA (TPD).
In Food and
Nutritional Products (Pty) Ltd v Neumann
1986(30 SA 464 (W) it
was held that s424 (1) of Act, 1973 did not restrict a litigant to
application proceedings and that relief
may be sought in action
proceedings. Conversely this would imply where a litigant due to the
circumstances of his case proceeded
to seek relief by way of an
action that did not exclude proceeding by way of motion proceedings
if the rules allowed.
[14]
The mere fact that the subjective element of recklessness may be an
issue does not necessarily imply that relief cannot be
obtained by
way of motion proceedings. Further, fact that the respondents deny
recklessness does not in itself also necessarily
bar the applicants
to proceed by way of an application. The court is still enjoined in
the context of declaration of delinquency
to enquire whether the
respondents breached their statutory and common law duties.
[15]
The question whether to proceed by way of motion proceedings or
action remains whether there is a bona fide, genuine point
of dispute
which cannot be resolved on the affidavits. The court in
Tamarillo
(Pty) Ltd v BN Aitken
(Pty) Ltd 1982(1) SA 398 at 430G
-
431A laid the approach as follows:
“
A
litigant is entitled to seek relief by way of notice of motion. If he
has reason to believe that facts essential to the success
of his
claim will probably be disputed he
chooses that procedural
form at his peril, for the Court in the exercise of its discretion
might decide neither to refer the matter
for trial nor to direct that
oral evidence on the disputed facts be placed before it, but to
dismiss the application.(Room Hire
Co (Pty) Ltd 1943(3) SA 155(T) at
1168) But
if notwithstanding that
there
are facts in dispute on the facts stated by the respondent, together
with the admitted facts in the applicant's affidavits,
the applicant
is entitled to relief(whether in respect of all his claims or one or
more of them) it will make
an order
giving
effect to such
finding, with
an
appropriate order as to
costs. (Cf.
Stellenbosch
Farmers
Winery
Ltd
v
Stellenvale Winery(Pty) Ltd 1957(4) 234 (C) AT 235; Burnkloof
Caterers (Pty) Ltd v Horseshoe Caterers (Green Point)(Pty) Ltd
1976
(2) SA 938).The
Court does not exercise a discretion in motion
proceedings whether or not to grant claims established by the
admitted or undisputed
facts: except perhaps in very extraordinary
circumstances the
applicant
has
a
right
to
an order in respect of such
established claims.(Room Hire case
at 1166"
[16]
This application is essentially premised on s162 of the Act. In its
application reference and incorporation of previous litigation
between the parties is made. Respondent is of the view that such
reference cannot be made in view of the fact that the issues in
those
cases were different from the issue
in casu.
I find it
difficult to discern how this argument can be sustained.
Admittedly not all parts of the evidence in those cases
can be relied
upon. The central consideration in the admissibility of evidence is
its relevancy to the issues before court. It
is my considered view
that the court best suited to make that consideration will be the
court seized with the main application.
I can find no reason why
reliance cannot be made on previous cases between the parties.
[17]
I cannot find on the documents before me that there is a serious or
bona fide genuine point of dispute between the parties
which cannot
be resolved on the affidavits filed.
[18]
Respondents also argue that the shareholders should have been joined
in view of their interest in this matter.
[19]
The test for joinder of parties has been formulated thus by
Erasmus-Superior Court Practise Volume 2 at 01-124:
"The
test
is whether or not a party has a 'direct and
substantial interest'
in
the subject matter of the action,
that is, a legal interest
in
the subject matter of the
litigation which may be affected prejudicially by the judgment of the
court."
On
page D1-125 the learned author further goes on to say:
“
The
rule is that
any person is a necessary party and
should be
joined if such person has a direct and
substantial interest in any order the court might
make,
or if such
an
order cannot
be
sustained or
carried
into
effect without prejudicing that party, the court is satisfied
that he has waived his right to be
joined”
[20]
Directors are appointed in terms of ss66 (4) and 68 of the Act. It is
apparent from the reading of the said sections that the
shareholders
would have a substantial interest in the tenure of the directors
simply because they appoint them. It is indeed so
that directors only
owe a fiduciary duty to the company but shareholders also have a
direct interest that the said directors conduct
the business of the
company for the benefit of the shareholders. If the shareholders can
a have a say in the appointment of directors
I cannot see how they
would not have an interest when they are declared delinquent or place
under probation.
[22]
It is my considered view that the shareholders should have been
joined in these proceedings.
[23]
Against this backdrop it must be borne in mind that there is no
securities register or its equivalent as envisaged by s24(4)
of the
Act. This was the finding by this court in case number 3590/2016.
This court in case 3590/2014 brought by the applicants
ordered, inter
alia, that the fifth respondent furnish the applicants with a
securities register. Apparently contempt of court
proceedings were
initiated against the fifth respondents and the fifth respondents was
found to be in contempt. None of the respondents
were found to be in
contempt of the order of Naidoo J presumably because only the fifth
respondent is obligated to maintain a securities
register or its
equivalent. Such a register has still not been furnished to the
applicants.
[24]
The respondents cannot be hampered by non-production of this document
which essentially is out of their hands. In case number
2584/2016 the
applicants obtained an interdict against the respondents and
“other interested parties.”
It would
appear that those other interested parties were presumably
people having an interest in this matter.
Mr Metlae also alluded to
the fact that applicants could have joined those people. In the
absence of the securities register I
cannot find a reason why the
applicants cannot serve this application on 11other interested
parties11 as listed in
case number 2584/2016.
[25]
I will consequently uphold the second point raised
in limine
by
the respondents.
[26]
With regard to the question of costs the respective litigants were
partially successful and it will be in the interest of justice
that I
make the order below.
ORDER:
1.
The first point
in limine
on the question of a dispute of fact
is dismissed;
2.
The second point
in limine
on the question of non-joinder is
upheld subject to paragraphs 2.1 and 2.2 below
2.1
Applicants are ordered to join shareholders as listed in the
securities registers
of the Fifth respondent,
2.2
If the said securities register cannot be obtained, Applicants are
hereby granted leave
to join all the respondents as listed in case
number 2584/16.
3.
The parties are granted leave to approach this court on the same
documents (amplified further
if necessary) for finalisation of this
matter.
4.
Each party shall bear his or her own costs.
_______________________
P.
MOLITSOANE,
AJ
For
the Applicants:
Adv. N Snellenburg
Instructed
by
SC Rossouws Attorneys
BLOEMFONTEIN
For
the Respondent:
Adv D Metlae
Instructed
by
Bezuidenhouts Inc
BLOEMFONTEIN