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[2018] ZANCHC 32
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London and Others v Department of Transport Roads and Public Works of Northern Cape and Others (380/2012) [2018] ZANCHC 32 (22 June 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
NORTHERN
CAPE DIVISION, KIMBERLEY
CASE
NO: 380/2012
Not
reportable
Circulate
to Judges: Yes
Circulate
to Magistrates: No
Circulate
to regional Magistrates: No
Heard
on: 22 March 2018
Delivered
on: 22 June 2018
In
the matter between:
FRANCIS
OBAKENG
LONDON
1st
APPLICANT
MOTSAMI
PETRUS
RANTHO
2nd
APPLICANT
MALEBOGO
LOUIS
MOKWENA
3rd
APPLICANT
THABISENG
CONSTANCE
KEMANE
4th
APPLICANT
and
THE
DEPARTMENT OF TRANSPORT ROADS
1st
RESPONDENT
&
PUBLIC WORKS OF THE NORTHERN CAPE
THE
PREMIER OF THE NORTHERN
CAPE
2nd
RESPONDENT
COUNCIL
OF THE NORTHERN CAPE FOR TRANSPORT,
ROADS
& PUBLIC
WORKS
3rd
RESPONDENT
JUDGMENT
VUMA,
AJ
INTRODUCTION
[1]
On 10 February 2017 Matlapeng AJ handed down a judgment in terms of
which he gave a directive that the issue regarding the question
of
law whether the respondents' ("plaintiffs")'s Particulars
of Claim disclose a cause of action be decided separately
in terms of
Rule 33(4) of the Uniform Rules of Court. The Learned Justice further
ordered that the proceedings in the main action
be stayed until the
disposal of this issue. The relief sought by the applicants
("defendants") is that the Exception
they raise subsequent
to the above be upheld with costs.
FACTIUAL
BACKGROUND
[2]
The three respondents (the plaintiffs in the main action) are the
shareholders of a company in liquidation, namely, Canton Trading
159
(Pty) Limited t/a Nyumbane Investments ("the company").
[3]
Before Matlapeng AJ' judgment, the defendants had raised two special
pleas in terms of section 23(1) of the Uniform Rules of
Court and
pleaded over the plaintiffs' particulars of claim on the merits of
the case. The two special pleas raised were lack of
locus standi
and non-joinder in relation to the absence of the liquidators of
the company. The question in respect of these two special pleas
was
heard before Williams J on 12 June 2014 and the Learned Judge
dismissed both special pleas in her judgment in handed down on
6
February 2015.
[4]
The plaintiffs' particulars of claim reads as follows:
"8. At all material times
hereto:
8.1.
Canton Trading 159 (Ply) Limited t/a Nyumbane Investments ("the
company') was
a
company which has been duly incorporated and
registered with limited liability in accordance with the Company Laws
of the Republic
of South Africa.
8.2.
The plaintiffs were shareholders in the company in the following
proportions:
8.2.1. The First Plaintiff- 22 ½
%
8.2.2. The second Plaintiff- 35 %
8.2.3. The Third Plaintiff- 22 ½
%
8.2.4. The Fourth Plaintiff- 15%
8.2.5
......
9. On or about 27
th
January 2009 at Kimberley the company and the First Defendant entered
into
a
public private partnership fleet agreement ('the
agreement];
a
copy of the agreement is annexed hereto marked
'A'.
…
17. In view of the agreement and
the availability of finance, the company at all material times
operated
a
viable and profitable business. However the refusal
of the Department to comply with its obligation to consent the
Finance Direct
Agreement prevented the company from finalizing the
grant of finance to it and this eventually caused the winding-up of
the company.
However at all material times prior thereto the business
of the company was in operation in
a
successful and effective
manner and substantial profits were generated.
18. In so refusing the Defendant
acted unreasonably.
19. In consequence of such refusal
the company was not able to obtain finance which would enable it to
fulfill its obligations under
the agreement.
19.1.
The company was not able to fulfill its obligations under the
agreement.
19.2.
The company was wound-up on the ground that it was unable to pay its
debts.
19.3.
The Plaintiffs' shares in the company were rendered worthless.
21. If the First Defendant had not
unreasonably refused to give its consent to the FDA
21.1. The company would have
fulfilled its obligations under agreement.
21.2. The agreement would have
endured until at least the end of 2015.
21.3. The company would have made
a
profit as follows:
21.3.1. 2011
-
R257 761-00
21.3.2. 2012-R7917803-00
21.3.3. 2013
-
R5 046 323-00
21.3.4. 2014- R6 921 497-00
21.3.5. 2015- R8 944 108-00
23. The Plaintiffs would have
received such profit as
a
dividend in accordance with their
shareholding in the company.
24. The Plaintiffs would have
received the following dividend:
24.1
The First Plaintiff - R6 544 685-70
24.1
The Second Plaintiff - R10 180 622-20
24.1
The Third Plaintiff - R6 544 685-70
24.1
The Fourth Plaintiff - R4 363 173-80".
SUBMISSIONS
BY THE DEFENDANTS
[5]
The defendants' complaint against the plaintiffs' particulars of
claim is that it lacks the necessary averments to found a cause
of
action since it fails to set out a cause of action for the following
reasons:
5.1 The plaintiffs' claim is
derivative;
5.2 The claim against the defendants
should have been pursued by the the company and not by the four
shareholders;
5.3 The shareholders' claim is not
against other shareholders who makes it impossible for the plaintiffs
to enable the company to
claim from a third party, but is rather a
claim directly by the shareholders against a third party;
5.4 The contractual relationship was
one between the company and the defendants and not between the
shareholders and the defendants;
5.5 In so far as the claim constitutes
a delictual claim, the injury was against the company and not against
the shareholders.
[6]
With regard to the second ground for the exception as appears in
paragraph 6.2 above, the defendants submitted that in paragraph
9 of
their particulars of claim, the plaintiffs rely on a contract between
the company and the defendants and further allege in
paragraph 27
thereof that the first defendant was under a duty of care to them and
therefore should not have refused its consent
to the Finance Direct
Agreement unreasonably. The defendants submit that accordingly it is
impermissible as same does not disclose
a cause of action where the
parties are in a direct contractual relationship for a party to rely
on an action based on delict and
a breach of duty of care and to base
its claim on the
actio legis aquiliae
instead of relying on
their contractual remedies.
[7]
They hinge their conclusion that the plaintiffs' particulars of claim
does not disclose a cause of action on what is held in
the matter of
ltzikowitz v ABSA Bank Ltd
2016 (4) SA 432
(SCA)
where the issue related to whether a shareholder can sue for the
diminution of value of shares due to a wrong committed against
a
company, the SCA held that it was a delictual claim for pure economic
loss which was not
prima facie
wrongful and that the claimant,
being no more than a shareholder, could not sue to recover its loss
as he had not been wronged by
ABSA. The SCA held further that the
fundamental company law principle that a company is a separate entity
had to be kept in mind.
It held further that a claimant could only
recover damages, firstly, where he could establish that the
wrongdoer's conduct constituted
a breach of a legal duty owed to him
personally. Secondly, the SCA held that where on an assessment of
facts, a court is satisfied
that the breach of duty caused the
claimant personal loss that is distinct from that of the company as a
separate corporate entity,
he could sue as a shareholder.
[8]
The defendants further submitted that the plaintiffs cannot sue on an
agreement to which they were not a party without joining
the
liquidators, as was held on the rule in
Foss v Harbottle
[1843] EngR 478
;
(1843)
2 Hare 461
(67 ER 189).
They disputed the contention by the
plaintiffs that since the issue of non-joinder was one of the special
pleas decided upon and
thus was
res judicata,
stating that
Williams J's remarks thereon were
orbiter,
especially since
she was not invited to decide upon the question whether the
plaintiffs' particulars of claim disclose a cause of
action.
[9]
Regarding the plaintiffs' cause of action, the defendants further
submitted that for delict, wrongfulness must be clearly established
as was held by the Constitutional Court ("CC") in Country
Cloud Trading CC v MEG Department of Infrastructure Development
2015
(1) 1 para 23 (CC) and that the delictual claim must be able to stand
on its own. They submitted that the plaintiffs' submission
regarding
the doctor-patient claims were distinguishable from this matter since
such delictual claims could stand on their own
feet, which is a
requirement. It was further submitted that the plaintiffs'
particulars of claim, on their own, cannot prove what
is set out
therein.
SUBMISSIONS
BY THE PLAINTIFFS
[10]
In resisting the defendants' rule 33(4) application (and despite
Matlapeng AJ's finding that there was nothing untoward in
the
defendants raising this issue in
terms
of rule 33(4) and not rule 23(1) since they (the defendants) had
raised the issue with sufficient particularity to enable
the
plaintiffs to deal with them), the plaintiffs submitted that the
defendant's invocation of rule 33(4) was inappropriate.
[11]
Regarding the issue of
res
judicata in respect of
Williams J judgment, the plaintiffs submitted that despite Matlapeng
AJ's finding that the SCA's decision
in
ltzikowitz
above
was simply a restatement of the law as it has always been, that
Williams J's judgment in respect of the two special pleas
put the
issues raised therein to bed. They submitted that the issue before
court is whether, on the pleadings, the plaintiffs'
case is made out.
Adding to this, the plaintiffs submitted that the other issues for
determination related to
res judicata,
the delictual issue and
whether or not the Foss v Harbottle rule was applicable.
[12]
Re
Foss v Harbottle
rule, they submitted
that as was held by Williams J, it was not applicable in light of the
liquidators' categorical letter stating
that they will not be
pursuing action against the defendants which justified their
locus
standi.
Williams J made this finding after the finding that there
was no risk of double jeopardy given the lack of intention letter
from
the liquidators. With regard to the other two issues raised
before William J as special pleas, they submitted that same res
judicata,
the latter's remarks were not made in passing and the
ratio
of her judgment and not
orbiter.
It was neither
interlocutory but an order which has finality between the parties.
They argued that this therefore mean that the
matter was ripe for
trial between the parties on the pleadings and thus the trial court,
at the beginning thereof, will not have
to decide if a cause of
action has been made out given the pronouncement already made out by
Williams J.
[13]
Regarding delictual claims, they submitted that the issue
therein was 1) whether the defendant breached the contract between
first
defendant and the company, whether the defendant had a duty of
care towards the plaintiff which determination was essential for
a
delictual claim; and 3) whether the defendant's breach was wrongful.
They submit that once these three are determined, the rest
can be
determined on trial after hearing evidence.
[14]
The plaintiffs further submitted that the plaintiffs could
refer to the existence of a contractual relationship in order to
prove
the relationship between the defendants and the plaintiffs
necessary to give rise to a delictual duty. They further submitted
that
a proper basis for a delictual claim has been set out in the
plaintiffs' particulars of claim and therefore it cannot be contended
that such particulars of claim do not set out a cause of action.
ISSUES
[15]
Based on the above, this court is called upon to make a
determination in respect of the following issues, namely:
15.1 Whether the plaintiffs'
particulars of claim establish a cause of action;
15.2 Whether the plaintiffs' claim can
stand separately on the allegations made as a delictual claim
independent from the contractual
relationship between the company and
defendants.
15.3 Whether the plaintiffs can rely
on any exceptions to the Rule laid down in
Foss v Harbottle
which have been confirmed in the matter of
ltzikowitz v
ABSA Bank Limited
2006 (4) SA 432
(SCA).
15.4 Whether Williams J's findings are
res judicata in relation hereto.
THE
LAW AND THE APPLICABLE LEGAL PRINCIPLES
[16]
Rule 33(4) provides as follows:
"33
Special Cases and
Adjudication upon Points of Law"
(4) If, in any pending action, it
appears to the court
mero motu
that there is
a
question of law or fact which may conveniently be decided either
before any evidence is led or separately from any other question,
the
court may make an order directing the disposal of such question in
such manner as it may deem fit and may order that all further
proceedings be stayed until such question has been disposed of, and
the court shall on the application of any party make such order
unless it appears that the questions cannot conveniently be decided
separately."
[17]
In
Foss v Harbottle
[1843] EngR 478
;
(1843) 2 Hare 461
(67 ER 189)
it
was held that a company as a legal person, separate and distinct from
its directors and shareholders with its own rights and
interests to
which it alone is entitled, is the only person to sue for the damage
should a wrong be done to it. It was further
held that a shareholder
should not be allowed to institute action where he complains that as
a result of the wrong done to the
company, his shares have diminished
in value, if the company itself has a claim against the wrongdoer for
the loss suffered by
it as a result of the wrong. The rule in
Foss
v Harbottle
is aimed at preventing the risk of double
jeopardy or double recovery which is clearly unacceptable and
contrary to all basic principles
of justice.
[18]
In the matter of
ltzikowitz v ABSA Bank Ltd
2016
(4) SA 432
(SCA),
where the issue related to whether a
shareholder can sue for the diminution of value of shares due to a
wrong committed against
a company, the SCA held that it was a
delictual claim for pure economic loss which was not
prima facie
wrongful and that the claimant, being no more than a shareholder,
could not sue to recover its loss as he had not been wronged by
ABSA.
The SCA held further that the fundamental company Jaw principle that
a company is a separate entity had to be kept in mind.
It held
further that a claimant could only recover damages, firstly, where he
could establish that the wrongdoer's conduct constituted
a breach of
a legal duty owed to him personally. The SCA further held that where
on an assessment of facts, a court is satisfied
that the breach of
duty caused the claimant personal loss that is distinct from that of
the company as a separate corporate entity,
he could sue as a
shareholder.
[19]
In
Mclelland v Hullett and Others
1992 /1) SA
456 /D & CLO) at 467 B-H,
it was held that the rule in
Foss
v Harbottle
is however not absolute and is subject to
considerations of justice. It was held that where the risk of double
jeopardy is non-existent
and the shareholder is left with diminished
patrimony, the continued application of the rule in
Foss v
Harbottle
would amount to an unwarranted and technical
obstruction to the course of justice.
[20]
In
Lillicrap, Wassesnaar and Partners v Pilkington
Brothers
(SA) (Pty) Ltd
1985 (1l SA 475
(A)
the court
held that the plaintiff could not sue in delict but in contract and
thus had no claim. It was further held that a delictual
remedy was
not
necessary and that the parties should not be denied their reasonable
expectation that their rights and obligations would be
governed by
their contractual arrangements.
[21]
Derivative action is an exception to the rule in
Foss v
Harbottle
which is available under the common law to minority
shareholders to act on behalf of a company against wrongdoers within
the company
and who control its affairs.
[22]
Section 165 of the Companies Act has replaced the
shareholders' common law derivative action and provides for a
procedure whereby
certain persons may
"commence or continue
legal proceedings, or take related steps, to protect the legal
interests of the company'
on behalf of the company.
ANALYSIS
[23]
Foremost the defendants concede that the issue whether the
plaintiffs' cause of action should have been raised as an exception
and
not brought in terms of rule 33(4), but that, regardless and as
was held by Matlapeng AJ, there was nothing that precludes them
from
availing to themselves rule 33(4) provisions since they raised the
issues with sufficient particularity to enable the plaintiffs
to deal
with. Save for the issue of costs that arise given the non-exhaustion
of the exception as a resort provided to the defendants
by rule 23(1)
of the Uniform Rules of Court, the issue in
casu
can be
determined in terms of rule 33(4).
[24]
It is common cause that the parties agree that the plaintiffs
based their claim on a delict and not a contractual relationship.
[25]
Regarding the question whether remarks or findings made by
Williams J in her February 2015 judgment regarding the special pleas
in re
locus standi and non joinder, were orbiter or
ratio
and thus making such issues
rei judicata,
I am of the view
that since no appeal was lodged by the defendants, that her findings
are thus binding but limited to the extent
of the directive made by
Matlapeng AJ
re
this rule 33(4) application.
[26]
I am of the view that since the plaintiffs instituted the
action their action?? not on behalf of the company based on the
agreement,
but in their personal capacities and in delict, for the
losses they alleged to have suffered as a result of the alleged
breach
of the duty of care by the first defendant towards them, the
company's shareholders, that neither does their claim amount to a
derivative action entitling them to the
Foss v Harbottle
principle nor the provisions of section 165 of the Companies
Act.
[27]
However, when regard is had to the facts in
casu,
I am
of the further view that the
Foss v Harbottle
rule is not
applicable in light of what was held in
Mclelland
v
Hullett and Others
(above) that the rule in
Foss v
Harbottle
is not absolute but is subject to considerations of
justice. I therefore find that despite the liquidators having availed
their
indication that they will not be pursuing any damages claim
against the defendants after summons had already been issued, that
the fact remains that it is common cause that the risk of double
jeopardy is non-existent and the shareholder is left with diminished
patrimor:iy. To continue to apply the rule in
Foss· v
Harbottle
would amount to an unwarranted and technical
obstruction to the course of justice.
[28]
The above view is borne by the fact that since the company's
liquidators' express letter in which they state that they have no
intention
to institute an action for damages against the defendant.
As a result of the said letter the risk of double recovery against
the
defendants is therefore non-existent and therefore renders the
rule in
Foss v Harbottle
inapplicable.
[29]
As stated above, it is common cause that for an action based
on a delict to disclose a cause of action, the allegation of
wrongfulness
and or unlawfulness must be made and that in
casu
no
such unlawfulness or wrongfulness allegation was made. Instead the
plaintiffs make allegations pertaining to the contract which
approach
is untenable since a cause can only be based either on a delict or a
contract and not on both. Although the plaintiffs
submit that the
alleged defects in their particulars of claim can be cured by
evidence and thus the defendants' exception should
be dismissed, the
defendants' submitted that either their exception be upheld or an
order directing the plaintiffs to amend their
particulars of claim
within 20 days thereof be made. I am of the view that to uphold the
defendants' exception would be too crass
an order which would at all
levels defeat the interest of justice. I am of an equal view that the
argument that the issues raised
by the defendants can be cured by the
evidence during trial would invariably defeat the purpose of rule
33(4) the purport of which
is to put to bed issues best dealt with
separately before a trial can be commenced to circumvent unnecessary,
inter
alia, costs and time wastage.
[30]
Curtly, I am of the view that the plaintiffs' particulars of
claim establish a cause of action nor that same can stand separately
on the allegations made as a delictual claim independent from the
contractual relationship between the company and defendants.
I am of
the further view that despite the Foss v Harbottle rule being
confirmed by the SCA in ltzikowitz v ABSA Bank Limited given
that the
plaintiffs' action is a derivative one, the latter can rely on the
exception created in
Mclelland v Hullett and Others
above
Mclelland v Hullett and Others
above in the interest of
justice.
COSTS
[31]
Several points were raised by the defendants. The main one has been
upheld. Those not upheld related to peripheral issues.
On the whole,
the defendants have substantially succeeded with their exception and
there is no reasons why the costs of the exception
should not follow
the result.
RESULT
[32]
In the result the plaintiffs should be allowed to proceed with their
claims and the following Order is made:
ORDER
1.
The Exception is upheld
2.
The plaintiffs are to file their amended particulars of claim within
20 days hereof.
3.
Costs, including costs of counsel, are awarded to the defendants.
_____________________
L
Vuma
Acting Judge
Northern
Cape High Court
Appearances
For
Applicants: Adv. J.G. Rautenbach SC
Instructed
by: Mjila & Partners
For
Respondents: Adv. N. Segal
Instructed
by: Cranko Karp & Associates