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[2018] ZAECELLC 12
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Larrett v Coega Development Corporation (Pty) Ltd and Others (EL1139/2013) [2018] ZAECELLC 12; 2019 (3) SA 510 (ECG) (11 December 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
(EAST
LONDON CIRCUIT LOCAL DIVISION)
CASE NO: EL1139/2013
DATE HEARD: 15/11/2018
DATE DELIVERED:
11/12/2018
In
the matter between
GLYNIS
BEVERLY LARRETT
APPLICANT
and
COEGA
DEVELOPMENT CORPORATION (PTY) LTD
1
ST
RESPONDENT
THE
STANDARD BANK OF SOUTH AFRICA LIMITED
2
ND
RESPONDENT
MR
K B
NDZIMELA
3
RD
RESPONDENT
INDEPENDENT CRUSHERS
CONSORTIUM (PTY) LTD 4
TH
RESPONDENT
JUDGMENT
ROBERSON
J:-
[1]
The applicant (Larrett) and the third respondent (Ndzimela) are the
directors of the
fourth respondent (the company). On 6
September 2013 Larrett instructed her attorney to institute
proceedings whereby the
company as plaintiff claimed payment of
R2 089 002.88 from the first respondent (Coega) in terms of
a contract allegedly
concluded between the company and Coega.
In the alternative the company claimed, in delict, payment of the
same sum from
the second respondent (Standard Bank). It is
common cause that at the time the summons was issued the institution
of the
proceedings had not been authorised because there was no
resolution to that effect by the board of directors.
[2]
In this application, Larrett seeks an order from this court
authorising her to continue
with the proceedings in the name of and
on behalf of the company, in terms of s 165 (5) of the Companies Act
71 of 2008 (the Act).
The application is opposed by Standard
Bank. Section 165 of the Act provides:
“
Derivative actions
(1)
Any right at common law of a
person other than a company to bring or prosecute any legal
proceedings on behalf of that company is
abolished, and the rights in
this section are in substitution for any such abolished right.
(2)
A person may serve a demand upon a company to commence or
continue legal proceedings, or take related steps, to protect
the
legal interests of the company if the person-
(a)
is a shareholder or a person
entitled to be registered as a shareholder, of the company or of a
related company;
(b)
is a director or prescribed
officer of the company or of a related company;
(c)
is a registered trade union
that represents employees of the company, or another representative
of employees of the company; or
(d)
has
been granted leave of the court to do so, which may be granted only
if the court is satisfied that it is necessary or expedient
to do so
to protect a legal right of that other person.
(3)
A company that has been served
with a demand in terms of subsection (2) may apply within 15
business
days to a court to set aside the demand only on the grounds that it
is frivolous, vexatious or without merit.
(4)
If a company does not make an application contemplated in subsection
(3), or the court
does not set aside the demand in terms of that
subsection, the company must-
(a)
appoint an independent and impartial
person or committee to investigate the demand, and report to the
board on-
(i) any facts or
circumstances-
(aa) that may
gave rise to a cause of action contemplated in
(bb)
that
may relate to any proceedings contemplated in the demand;
(ii) the probable
costs that would be incurred if the company pursued any such cause of
action or continued any
such proceedings; and
(iii) whether it
appears to be in the best interests of the company to pursue any such
cause of action or continue
any such proceedings; and
(b)
within 60 business days after being
served with the demand, or within a longer time as a court, on
application by the company, may
allow, either-
(i) initiate
or continue legal proceedings, or take related legal steps to protect
the legal interests of
the company, as contemplated in the demand; or
(ii) serve a notice
on the person who made the demand, refusing to comply with it.
(5)
A person who has made a demand in terms of subsection (2) may apply
to a court for leave
to bring or continue proceedings in the name and
on behalf of the company, and the court may grant leave only if-
(a)
the company-
(i)
has failed to take any
particular step required by subsection (4);
(ii)
appointed an investigator or
committee who was not independent and impartial;
(iii)
accepted a report that was
inadequate in its preparation, or was irrational or unreasonable in
its conclusions or recommendations;
(iv)
acted in a manner that was
inconsistent with the reasonable report of an independent, impartial
investigator or committee; or
(v)
has served a notice refusing to
comply with the demand as contemplated in subsection (4) (b) (ii);
and
(b)
the court is satisfied
that-
(i)
the applicant is acting in good
faith;
(ii)
the proposed or continuing
proceedings involve the trial of a serious question of material
consequence to the company; and
(iii)
it is in the best interests of
the company that the applicant be granted leave to commence the
proposed proceedings or continue
the proceedings, as the case may be.
(6)
In exceptional circumstances, a person contemplated in subsection (2)
may apply to a court
for leave to bring proceedings in the name and
on behalf of the company without making a demand as contemplated in
that subsection,
or without affording the company time to respond to
the demand in accordance with subsection (4), and the court may grant
leave
only if the court is satisfied that-
(a)
the delay required for the
procedures contemplated in subsections (3) to (5) to be completed may
result in-
(i)
irreparable harm to the
company; or
(ii)
substantial prejudice to the
interests of the applicant or another person;
(b)
there is a reasonable
probability that the company may not act to prevent that harm or
prejudice, or act to protect the company's
interests that the
applicant seeks to protect; and
(c)
that the requirements of subsection
(5) (b) are satisfied.
(7)
A rebuttable presumption that granting leave is not in the best
interests of the company
arises if it is established that-
(a)
the proposed or continuing
proceedings are by-
(i)
the company against a third
party; or
(ii)
a third party against the
company;
(b)
the company has decided-
(i)
not to bring the proceedings;
(ii)
not to defend the proceedings;
or
(iii)
to discontinue, settle or compromise the proceedings; and
(c)
all of the directors who
participated in that decision-
(i)
acted in good faith for a
proper purpose;
(ii)
did not have a personal financial interest in the decision,
and
were not related to a
person who had a personal financial interest in the decision;
(iii)
informed themselves about the subject matter of the
decision to the extent they reasonably
believed to be appropriate; and
(iv)
reasonably believed that the decision was in the best
interests
of the company.
(8)
For the purposes of subsection (7)-
(a)
a person is a third party if the
company and that person are not related or inter-related; and
(b)
proceedings by or against the company
include any appeal from a decision made in proceedings by or against
the company.
(9)
If a court grants leave to a person under this section-
(a)
the court must also make an
order stating who is liable for the remuneration and expenses of the
person appointed;
(b)
the court may vary the order at
any time;
(c)
the persons who may be made liable
under the order, or the order as varied, are-
(i) all
or any of the parties to the proceedings or application;
and
(ii) the company;
(d)
if the order, or the order as
varied, makes two or more persons liable, the order may
also determine the nature and
extent of the liability of each of
those persons; and
(e)
the person to whom leave has
been granted is entitled, on giving reasonable notice to the company,
to inspect any books of the company
for any purpose connected with
the legal proceedings.
(10) At any
time, a court may make any order it considers appropriate about the
costs of the following
persons in relation to proceedings brought or
intervened in with leave under this section, or in respect of an
application for
leave under this section:
(a)
The person who applied for or
was granted leave;
(b)
the company; or
(c)
any other party to the proceedings or
application.
(11) An order
under this section may require security for costs.
(12) At any
time after a court has granted leave in terms of this section, a
person contemplated in subsection
(2) may apply to a court for an
order that they be substituted for the person to whom leave was
originally granted, and the court
may make the order applied for if
it is satisfied that-
(a)
the applicant is acting in good
faith; and
(b)
it is appropriate to make the order in
all the circumstances.
(13) An order
substituting one person for another has the effect that-
(a)
the grant of leave is taken to
have been made in favour of the substituting
person; and
(b)
if the person originally
granted leave has already brought the proceedings, the substituting
person is taken to have brought those
proceedings or to have made
that intervention.
(14) If the
shareholders of a company have ratified or approved any particular
conduct of the company-
(a)
the ratification or approval-
(i)
does not prevent a person from
making a demand, applying for leave, or bringing or
intervening in proceedings
with leave under this section; and
(ii)
does not prejudice the outcome of any application for leave, or
proceedings brought or intervened
in with leave under this section;
or
(b)
the court may take that ratification or approval into account in
making
any judgment or order.
(15)
Proceedings brought or intervened in with leave under this section
must not be discontinued, compromised
or settled without the leave of
the court.
(16) For
greater certainty, the right of a person in terms of this section to
serve a demand on a company,
or apply to a court for leave, may be
exercised by that person directly, or by the Commission or Panel, or
another person on behalf
of that first person, in the manner
permitted by section 157.”
[3]
In her
founding affidavit, Larrett stated that the company was formed in
order to secure various tenders for road surfacing contracts
from
Coega. The consortium consisted of four entities:
Independent Mobile Crushers CC, Sinoku Trading CC (Sinoku),
Mbalelanga Trading CC, and Satiolinx (Pty) Ltd. Ndzimela
is also a director of Satiolinx (Pty) Ltd. Annexed to
the
founding affidavit was a copy of the memorandum of agreement between
these four entities. It recorded
inter
alia
that the company had issued share capital of 100 shares and that each
entity was allotted 25 shares. The agreement also provided
for
arbitration in the event of a dispute or difference arising between
the parties.
[4]
According
to Larrett, in 2011 the company was awarded certain road surfacing
contracts by Coega. The actual contractor was
Asphalt Services
CC (Asphalt). Asphalt would do the work and invoice the
company, and the company would in turn invoice Coega.
The
company instructed Coega to make payments into Asphalt’s First
National Bank account because the company did not yet
have its own
bank account. On 1 April 2011 a pre-payment of R9 400 928.07
was made into Asphalt’s bank account.
Work to the value
of R11 490 092.84 was performed, leaving a balance of
R2 089 164.77 which was to be paid
into Asphalt’s
bank account. This amount was not paid into Asphalt’s
bank account. Instead, Sinoku’s
member, Ms N Gcanga, and
Ndzimela fraudulently arranged for this amount to be paid into
Sinoku’s account with Standard Bank.
The money has since
been withdrawn from Sinoku’s account.
[5]
Larrett
said that in terms of written instructions to Standard Bank, any
official documents were to be signed by both directors
of the
company. Coega provided a document to the company which was
endorsed by Standard Bank, verifying that the bank account
of the
company had been changed to an account which was held by Sinoku.
In the particulars of claim in the action it is alleged
that Standard
Bank owed the company a duty of care to ensure that an account which
was endorsed as that of the company, was indeed
the account of the
company. This duty of care was allegedly breached by Standard
Bank in endorsing Coega’s “supplier
information sheet”
by affixing its stamp to the document.
[1]
[6]
Larrett
initially pursued a criminal charge against Ndzimela. He
appeared in the Regional Court and the matter was postponed
from time
to time, the last dates being 13-15 June 2016 for trial.
Larrett knows Ndzimela’s residential address but
says that he
avoids contact with his former business associates and keeps a low
profile. In particular he has avoided communication
between him
and Larrett in relation to the company’s financial crisis
caused by him. Larrett says that there is no
purpose in trying
to make contact with him because he would, as a result of his
conduct, be hostile and not inclined to pursue
the company’s
civil claim. When he was previously asked when he was going to
pay the balance of the payment on the
contract, he offered to explain
the next day but did not do so. Despite ongoing
attempts to meet with Ndzimela
in his capacity as a director of the
company in order to obtain the necessary resolution to institute the
action, he has refused
to make himself available for a directors’
meeting or to communicate in relation to the company’s claim.
[7]
A decision
was taken in 2014 to bring an application in terms of s 163 of the
Act, for an order similar to the one sought in the
present
application. Section 163 enables a court to grant a wide range
of relief where a shareholder or director applies
for relief from
oppressive or prejudicial conduct. On 13 March 2015 Stretch J
dismissed the application, finding that the
correct section to have
been invoked was s 165 and not s 163.
[8]
Larrett
said that she had served a demand on the company in accordance with s
165 (2) of the Act and that the company had not applied
to set it
aside in terms of s 165 (3), nor had it appointed an independent
person or committee to investigate the demand in terms
of s 165 (4).
[9]
Standard
Bank’s answering affidavit was deposed to by Ms Sharmaine
Deonarain, Standard Bank’s Group Legal Division Head
of Legal
Advisory Services. She maintained that s 165 (5) did not
empower a court to ratify proceedings which were unauthorised
at the
outset and that it only empowered a court to authorise the
continuation of proceedings which were originally authorised
by a
company but not prosecuted further. According to Deonarain,
Larrett failed to follow any procedure in order to obtain
the
necessary authorisation for the institution of the action, either by
way of s 165 or by convening a meeting of shareholders
or directors.
Nor did Larrett utilise the arbitration clause in the memorandum of
agreement. Deonarain further raised
the defence of prescription
in that if s 165 was applicable, it would involve the
ex
post facto
ratification of the process by the court after the debt had already
prescribed. She said that Larrett and the company knew
the
identity of Standard Bank and the facts giving rise to the claim no
later than 29 August 2012 when Larrett’s attorney
had written
to Standard Bank demanding payment. The debt therefore
prescribed no later than 28 August 2015. The summons
issued on
6 September 2013 was a nullity and did not interrupt prescription.
[10]
Deonarain
recounted some events which occurred after Standard Bank entered an
appearance to defend the action. Standard Bank’s
attorneys disputed Larrett’s attorney’s authority to act
on behalf of the company in instituting the action.
In response
Larrett’s attorney said that Larrett intended pursuing the
action and if Standard Bank persisted with the challenge
to his
authority an application in terms of s 163 of the Act would be
brought. Standard Bank’s attorneys advised Larrett’s
attorney to bring such an application, without conceding that the
provisions of s 163 were wide enough to authorise the continuation
of
the action. In this letter they requested that Larrett include
in her application details of the request for proposals
or tenders
received by her from Coega and copies of documents submitted in
response. In addition she was to mention who it
was from Coega
who had requested confirmation from Standard Bank concerning the
details on the supplier information sheet.
Deonarain said that
this information was important in light of certain of the contents of
the service level agreement (the SLA)
concluded with Coega, a copy of
which was annexed to the answering affidavit.
[11]
The first
page of the SLA reflected that the agreement was entered into between
Coega and “Independent Crushers Consortium
hereinafter referred
to as ‘the Quarry Operator’”. Under the
heading “Definitions and Interpretations”,
“Quarry
Operator” meant “Independent Crushers Consortium,
Registration Number 2008/201319/23”. Deonarain
pointed
out that this registration number was, according to a Lexis Nexis
search, the registration number of Sinoku. In the
search deed,
annexed to the answering affidavit, the member of Sinoku was named as
Nobom Lissom Gcanga. Deonarain said that
when Sinoku’s
account was opened with Standard Bank, its sole member was reflected
as Mr N L Gcanga and it was represented
that Sinoku traded as
Independent Crushers Consortium. Deonarain further pointed out
that the SLA did not provide for advance
payments but rather for
payment of invoices to be made 30 days after submission.
Larrett did not include the requested information
in her s 163
application.
[12]
Following
the dismissal of the s 163 application, Larrett was requested to
withdraw the action. On 30 March 2015 Larrett’s
attorney
informed Standard Bank’s attorneys that at a shareholders
meeting of the company held on 16 January 2015, the shareholders
resolved to remove Ndzimela as a director of the company, and
authorisation for the institution of the action was ratified with
retrospective effect. The purported resolution was annexed to
Deonarain’s affidavit. It recorded that the shareholders
present at the meeting were Larrett and Xolani Mampunye. The
resolution to remove Ndzimela as a director was signed by Larrett
on
behalf of Independent Mobile Crushers CC and by Mampunye on behalf of
Mbalelanga Trading CC. The resolution that the institution
of
the action should be ratified was signed by Larrett on behalf of the
company. Standard Bank’s attorneys wrote to
Larrett’s
attorney saying that it appeared that the meeting had not been
properly convened because only two of four shareholders
were present
and any resolution passed was invalid. The attorneys also
expressed the view that ratification at this stage
would prejudice
Standard Bank. There was no response from Larrett’s
attorney.
[13]
During
October 2015 Standard Bank’s attorneys were informed that
Larrett was taking the necessary steps in terms of s 165
of the Act
to obtain authorisation for the continuation of the proceedings.
The attorneys pointed out in response that s
165 of the Act could not
be resorted to where the proceedings were unauthorised.
[14]
Deonarain
expressed the view that it could be inferred from Larrett’s
omission to include the requested information in the
s 163
application (see paragraph [11] above) that the tender had not been
awarded to the company and consequently Larrett could
not satisfy the
court that she was acting in good faith. Further with regard to
good faith Deonarain said that Larrett had
failed to make a full and
frank disclosure to the court. In the present application
Larrett contended that the shareholders
of the company were as per
the memorandum of agreement, whereas in the s 163 application she
said that she personally was a 51%
shareholder in the company.
Deonarain also pointed to the delay in bringing this application some
18 months after judgment
was delivered in the s 163 application,
while Larrett knew at all times that the action was unauthorised, and
had known that her
attorney’s authority to institute the
proceedings had been disputed at least since March 2014. A
further example of
lack of good faith, according to Deonarain, was
Larrett’s failure to produce a copy of the company’s
alleged written
instructions to Standard Bank concerning the
signature of official documents and to disclose the details of the
company’s
bank account. Larrett had made the same
allegation in the s 163 application and Standard Bank had denied that
it had received
written instructions or that the company had a bank
account with Standard Bank. Yet a further example of a lack of
good faith
was Larrett’s failure to provide further details of
the criminal proceedings against Ndzimela.
[15]
In her
replying affidavit, in response to the contents of the SLA
highlighted by Deonarain, and Standard Bank’s request that
information pertaining to the tender documents be included in the s
163 application, Larrett said that she had no knowledge of
what
importance Standard Bank attached to the contents of the founding
affidavit or how it interpreted the SLA and the relationship
between
the parties. She said it was not for Standard Bank to prescribe
what allegations in the founding affidavit should
be made merely
because it regarded certain allegations as important. She said
that in her s 163 application she provided
the details which she
considered to be necessary and declined the invitation to provide the
requested information which she regarded
as irrelevant to the cause
of action. Larrett did not deal with the contents of the SLA
referred to by Deonarain, namely
the successful tenderer’s
registration number being that of Sinoku, and the lack of provision
for an advance payment.
She maintained that the tender was
awarded to the company.
[16]
Larrett had
no response to the allegations regarding the invalidity of
resolutions taken at the shareholders’ meeting.
She had
no response to the averment that in the s 163 application she had
said she was personally a 51% shareholder and maintained
that the
shareholdings were as per the memorandum of agreement. Her
response to the allegation that she had failed to make
a full
disclosure concerning the company’s alleged written
instructions to Standard Bank and the company’s bank details
with Standard Bank, was to deny such a lack of disclosure and to
maintain that all steps had been taken in good faith.
[17]
It was
submitted on behalf of Standard Bank that there were three
unassailable grounds of resistance to the application, without
considering its merits. The first was
res
judicata
(the judgment in the s 163 application); the second was prescription;
and the third was that the structure and purpose of s 165
was such
that it could not be resorted to where the proceedings sought to be
continued were at inception unauthorised. Of
these three
grounds I intend only to deal with the third.
[18]
Counsel for
Standard Bank dealt comprehensively with the provisions of s 165 in
his heads of argument, emphasising that according
to a number of its
provisions the court acts as a gatekeeper. It may, in terms of s 165
(3), set aside a demand made in terms of
s 165 (2) on the grounds
that it is frivolous, vexatious or without merit. Leave to
institute and continue proceedings on
behalf of the company in terms
of s 165 (5) may only be granted in defined circumstances. The
person granted leave to institute
or continue proceedings may be
substituted by another person only if the court is satisfied that the
applicant is acting in good
faith and it is appropriate to make such
an order in all the circumstances (s 165 (12)). A court may
grant leave for a derivative
action even if the shareholders have
ratified the conduct of the directors which is in issue (s 165
(14)). Once the court
has authorised a derivative action, the
action cannot be discontinued, compromised, or settled without the
leave of the court (s
165 (15)).
[19]
It was
submitted on behalf of Standard Bank that prior to the institution of
the unauthorised proceedings, Larrett did not follow
any of the steps
contained in the section, thereby preventing the court from
exercising its gatekeeper role and undermining the
purpose of the
section. She went ahead without the authority of the company or
the court. Larrett did not challenge
the assertion that the
resolution taken at the shareholders’ meeting was invalid and
did not rely on it.
[20]
Insofar as
Larrett now wants authorisation to continue proceedings on behalf of
the company, they must, as submitted on behalf of
Standard Bank, be
proceedings which were properly authorised at inception. If
not, the court would effectively be ratifying
the institution of the
proceedings on behalf of the company, which s 165 does not authorise
a court to do, and would do so without
the strict requirements of s
165 first having been met. The authorities to which Counsel for
Larrett referred in support
of ratification were, as pointed out on
behalf of Standard Bank, cases where the company itself had ratified
unauthorised conduct.
[2]
[21]
Counsel for
Standard Bank gave the example of an action which was authorised by
the board of directors, but thereafter the directors
in bad faith
were unwilling to continue with the action. In such a case it
would be open to the person with
locus
standi
to apply for authorisation to continue with the action. The
strict requirements of the section would have to be complied
with and
the court would have to exercise its gatekeeper and oversight role.
Reference was made to the judgment of Binns-Ward
J in
Lewis
Group v Woollam and Others
2017 (2) SA 547
(WCC) where the learned judge said at paragraph [51]:
“
An
example that suggests itself as a possibility is a case in which the
company has already instituted proceedings for a declaration
of
delinquency, but for reasons that do not bear scrutiny has failed to
prosecute them to conclusion. In those circumstances the
best
interests of the company might be served by the continuation of the
proceedings derivatively. The costs incurred by the
company in
taking the case to the stage that had been reached when proceedings
had stalled would be squandered were the complainant
shareholder to
initiate proceedings afresh for the same relief on the same facts in
its own name. A sensible basis in the company's
best interests for
the granting of derivative standing to a shareholder could
conceivably be demonstrable in the postulated example.”
[22]
I
am in respectful agreement with these examples. It would simply
not be a sensible interpretation of the section to allow
a person to
have instituted unauthorised proceedings, purportedly on behalf of
the company, without first complying with the provisions
of the
section. One cannot bypass the section. The effect of the
section is that the institution of a derivative action
must be
authorised by a court. The logical corollary to this is that
the proceedings which are sought to be continued must
have been
properly authorised at inception.
[23]
Counsel for
Standard Bank expressed the position as follows: the fact that s 165
allows for the continuation of proceedings is not
a licence to avoid
the strict requirements of the section and unilaterally institute
unauthorised proceedings, hoping that the
court will sanction them at
a later stage. Such conduct would be subversive of the plain
and ordinary meaning of the section
and its intention.
[24]
I agree
with the submissions made on behalf of Standard Bank. In my
view to interpret s 165 so as to allow for the authorisation
of the
continuation of unauthorised proceedings would allow the avoidance of
the requirements of the section and negate its purpose.
[25]
It was
submitted on behalf of Larrett that s 165 should be read in a manner
that promotes the spirit, purport and objects of the
Bill of Rights,
and that remedial statutes should be generously interpreted.
The section should also be interpreted in the
context of the mischief
it seeks to remedy. Section 165 (5) does not, so it was
submitted, limit the continuation of proceedings
to properly
authorised proceedings, and includes proceedings which have not been
properly authorised. I am of the view that
this argument does
not take into account that, even if Ndzimela was uncooperative and
may not have attended a directors meeting
if requested, s 165 was
always available to Larrett, and would be to a person in a similar
position, before the institution of
proceedings. There is
therefore no need for such an extended interpretation of the
section. Further, as was submitted
on behalf of Standard Bank,
the principles of interpretation in this respect, namely in the
context of the mischief which is sought
to be avoided, preclude the
seeking of ratification after the event.
[26]
I conclude
therefore that the proceedings in respect of which Larrett seeks
leave to continue, are not proceedings contemplated
in terms of s 165
(5) of the Act. The application therefore cannot succeed.
[27]
In any
event, even if authorisation could be granted in such circumstances,
in my view the applicant has not established the requirements
of s
165 (5) (b) (i), (ii) and (iii).
[28]
In
Mbethe
v United Manganese of Kalahari (Pty) Ltd
2017 (6) SA 409
(SCA), Swain JA dealt with the onus on an applicant
with regard to these requirements at paragraphs [16] and [17] as
follows:
“
[16]
It is clear that an applicant seeking to advance a derivative
action, whether at common law or in terms of s 266
of the 1973
Act, bore an onus. At common law the contemplated action related to
the existence of the right relied upon and the
breach of the duty
owed to the member, by the company. In the statutory action this
related to the existence of a prima facie cause
of action against the
wrongdoer. In either case, the court exercised an overriding
discretion whether or not to grant leave
to institute the derivative
action. The imposition of an onus on an applicant, together with the
exercise of a discretion by the
court, had as its objective not only
the need to protect the rights of members of the company, but also
the need to protect the
administration of the business of the
company, against frivolous or vexatious claims, or claims which were
not in the interests
of the company.
[17] Although
the statutory derivative action provided for in s 165 of the Act is
wider in scope than the common-law action, as
well as that under the
former statutory regime, a need to strike the appropriate balance
between these same interests, remains
of paramount importance
in determining not only the nature and extent of the onus
resting upon an applicant, but also the
nature and extent of the
discretion vested in the court. There is accordingly no basis for the
submission by appellant's counsel
that the provisions of s 165(5)(b)
of the Act require an applicant to satisfy the requirements of the
section on a lesser standard
than proof on a balance of
probabilities.”
[29]
Further
with regard to these requirements Swain JA said at paragraph [19]:
“
Although
the individual requirements of s 165(5)(b)(i), (ii) and (iii) of the
Act are conjunctive, this does not mean that they
are to be
considered in isolation. For example, in considering whether
the 'proceedings involve the trial of a serious question
of
material consequence to the company', a finding that the applicant
possesses a collateral or ulterior purpose, will also be
of relevance
in deciding whether the applicant acts in good faith. Similarly,
evidence which suggests that the proceedings are
not 'in the best
interests of the company', may establish an absence of good faith on
the part of the applicant.”
[30]
With regard
to the requirement of good faith, at paragraph [20] the learned Judge
said:
“
I turn to
examine the meaning of the requirement that an applicant must act 'in
good faith'. In
Swansson
supra
para 36, the first factor in determining whether the good-faith
requirement was satisfied was held to be —
'whether
the applicant honestly believes that a good cause of action exists
and has a reasonable prospect of success'.
In addition it
was also held that, whether —
'the
applicant honestly holds such a belief would not simply be a matter
of bald assertion: the applicant may be disbelieved if
no reasonable
person in the circumstances could hold that belief'.
In our law it
would not be a matter of mere assertion by an applicant that he
possesses the requirement of good faith. Although
the test for good
faith is subjective, relating as it does to the state of mind of an
applicant, it is nevertheless subject to
an objective control. The
state of mind of an applicant has to be determined by drawing
inferences from the objective facts,
as revealed by the
evidence.”
[31]
In her
founding affidavit Larrett stated that she was acting in good faith,
that the continuation of the proceedings involved a
trial of a
question of material consequence to the company and that it was in
the best interests of the company if she was to be
granted the
necessary leave.
[32]
Standard
Bank was understandably limited in what it could uncover in relation
to the tender award but the aspects of the SLA to
which it referred
were in my view significant. The SLA objectively indicates that
the tender was awarded to a corporate entity
with Sinoku’s
registration number. Deonarain said that when Sinoku’s
bank account was opened it was represented
that it traded as
Independent Crushers Consortium. These factors and Standard
Bank’s denial that the company had an
account with it, which
must be accepted, required an explanation from Larrett, which she
could have provided. They were factors
crucial to her claim
that the company was awarded the tender, and consequently crucial to
her assertion that the action involved
a serious question of material
consequence to the company and that continuation was in the best
interests of the company.
As pointed out above, she failed to
deal with a number of other matters raised by Standard Bank in the
answering affidavit which
were within her knowledge, for example in
what capacity she was a shareholder in the company, the company’s
written instructions
to Standard Bank concerning official documents,
and the details of the bank account alleged to be held by the company
with Standard
Bank. Her failure to deal with these crucial
factors raised by Standard Bank forms part of the evidence from which
inferences
can be drawn in relation to her assertion of good faith.
[33]
In my view,
an inference that there are matters which she does not want to reveal
and that she has not been frank with the court,
is warranted.
This must reflect adversely on her assertion of good faith,
especially considering the significance of what
was raised by
Standard Bank. The significance of what was raised by Standard
Bank also relates to whether or not Larrett
has established the other
two requirements of s 165 (5) (b). Similarly, her failure to
deal with what was raised reflects
adversely on her assertions
concerning these two requirements. Consequently Larrett has not
satisfied the requirements of
s 165 (b) on a balance of
probabilities. On this ground too, the application would fail.
[34]
The
following order will issue:
The application is
dismissed with costs, including the costs of Senior Counsel.
______________
J
M ROBERSON
JUDGE
OF THE HIGH COURT
Appearances:
For
the Plaintiff: Adv S Cole, instructed by Don Maree Attorneys, East
London
For
the Respondents: Adv S Symon SC, Edward Nathan Sonnenbergs Inc,
Sandton c/o Bax Kaplan Russell Inc, East London
[1]
This document was an annexure to Standard Bank’s answering
affidavit. It does not reflect that there was a change
of bank
account details. The supplier is named as Independent Crushers
Consortium and the directors are named as Gcanga
and Ndzimela.
The Standard Bank account details are inserted and Ndzimela, in his
capacity as director of Independent Crushers
Consortium, signed the
document and declared that the information was correct.
[2]
For example
Johannesburg City Council v Elesander Investments and
Others
1979 (3) SA 1273
(T),
Carlkim (Pty) Ltd and Others v
Shaffer and Others
1986 (3) SA 619
(N), and
Merlin Gerin
(Pty) Ltd v All Current and Drive Centre (Pty) Ltd and Another
1994 (1) SA 659
(C).