Brief Summary

Execution — Default judgment — Application for rescission — Applicant sought to rescind default judgment granted for arrear rental and damages after failing to file a plea — Application dismissed as it was filed beyond the 20-day period stipulated in Rule 31(5)(d) — No adequate explanation for the delay provided — Applicant's prior communication indicated no intention to litigate further, undermining claims of a bona fide defense and counterclaim.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerns an application in the KwaZulu-Natal Division of the High Court (Pietermaritzburg) seeking to set aside a default judgment granted by the Registrar. The applicant, Carmel Nurseries CC, approached the court for relief against the respondent, the Dube Tradeport Corporation, after default judgment had been entered against Carmel Nurseries in the underlying action.

The default judgment was granted on 19 September 2014 after Carmel Nurseries failed to deliver a plea timeously and was properly barred. The underlying claim arose from a written lease agreement concluded between the parties on 20 February 2012, and included amounts claimed for rental and related charges, as well as an amount described as the cost to repair and restore the leased premises after the applicant vacated.

On 30 June 2015, Carmel Nurseries launched the present application, seeking rescission of the default judgment and leave to defend. In argument, the applicant’s counsel clarified that the relief was more appropriately framed as either a reconsideration under Rule 31(5)(d) (in relation to a Registrar’s default judgment) or, alternatively, rescission at common law.

The general subject matter of the dispute was therefore the applicant’s attempt to undo the procedural and substantive consequences of the Registrar’s default judgment relating to lease-related indebtedness and a further award associated with restoring the premises, together with the applicant’s asserted intention to advance a defence and a substantial counterclaim.

2. Material Facts

The court treated the following facts as material to the outcome.

A written lease agreement was concluded between the parties on 20 February 2012. The respondent later sued the applicant for amounts said to be due under the lease, including arrear and unpaid rental, electricity and water charges, and interest.

Carmel Nurseries failed to file a plea timeously in the action and was barred. Prior to the granting of default judgment, the applicant’s attorneys addressed a letter dated 29 August 2014 to the respondent’s attorneys confirming that the applicant did not intend to further litigate and that this was the reason no plea or counterclaim had been filed. The letter also contemplated hearing further once judgment had been granted.

On 19 September 2014, the Registrar granted default judgment against Carmel Nurseries for payment of R 2 299 736.82 (described by the court as arrear rental and municipal-type charges with interest) and R 182 005.40 (described by the court as the costs to repair and restore the leased premises), together with interest and costs.

The applicant only launched the present application on 30 June 2015, well after the 20-day period mentioned in Rule 31(5)(d). The applicant sought, in substance, condonation for the delay (although this was not claimed as a distinct prayer in the notice of motion).

The reasons advanced for the delay included that the applicant could not afford further legal costs; that the applicant’s general manager (Mr Minne) was immobilised in August 2014 due to a knee operation and was abroad during September to December 2014; and that in early 2015 the applicant became aware (through media reports) of alleged fraud by the respondent’s then CEO, which led the applicant to obtain legal advice that it allegedly had a counterclaim.

As to a proposed defence on the merits, the applicant alleged (in general terms) that certain cleaning costs were charged despite it having cleaned before vacating, that lighting charges were partly already settled, and that electricity meter readings were incorrect. A further allegation that a payment of approximately R208 000.00 (from a bank guarantee) had not been credited was conceded in argument to be incorrect, as the amount had been credited.

As to a counterclaim, the applicant contended for a substantial contractual damages claim arising from alleged breaches of a “composite agreement” (partly written and partly oral). The court considered, on the applicant’s own allegations, that the relevant breaches would have occurred during or about 2011 and October 2012 to January 2013, such that there was a “very real likelihood” the claims had prescribed. The applicant had also instituted separate action under case number 8337/15 to interrupt prescription.

The respondent was an organ of state established in terms of section 2 of the KwaZulu-Natal Dube Tradeport Corporation Act 2010. The court accepted that the applicant’s proposed counterclaim was a damages claim and found that the Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002 required compliance, including notice. No notice had been given in relation to the asserted counterclaim, nor in the separate action (8337/15). In that separate matter, Lopes J had refused condonation for late notice under the Act and dismissed the application with costs on 3 June 2016.

3. Legal Issues

The central legal questions were directed at whether the applicant was entitled to have the Registrar’s default judgment set aside, either through reconsideration under Rule 31(5)(d) or through rescission at common law.

This required determination of issues that combined procedural law and the application of law to fact, including whether the applicant had shown “good cause” in the sense relevant to rescission-type relief, namely a satisfactory explanation for default (and delay) and the existence of a bona fide defence with prima facie prospects of success.

A further issue arose from the fact that part of the Registrar’s default judgment (the amount of R182 005.40) was, prima facie, a claim for damages and therefore not obviously within the Registrar’s competence to grant (given the limitation to claims for a debt or liquidated demand). However, the court approached this against the practical and procedural question whether the applicant’s inexcusable delay and failure to establish rescission requirements meant the judgment would stand.

Additional issues relevant to the asserted counterclaim included whether the counterclaim appeared to be met by prescription, whether the applicant had complied with the statutory notice regime governing claims against organs of state under the 2002 Act, and whether failure to comply (and failure to obtain condonation) undermined the counterclaim’s prospects of success.

4. Court’s Reasoning

The court noted that the applicant framed its relief as a reconsideration under Rule 31(5)(d) or, alternatively, rescission at common law. The judgment recorded that there was debate in commentary and case law concerning the nature of “reconsideration” under Rule 31(5)(d), including whether it involves interference only where the Registrar erred (as in Bloemfontein Board Nominees Ltd v Benbrook 1996 (1) SA 631 (O)) or whether the court substitutes its discretion and applies a good-cause standard (as in Pansolutions Holdings Limited v P & G General Dealers and Repairers CC 2011 (5) SA 608 (KZD)). The court did not decide that conflict because it found it unnecessary in light of its conclusion.

Proceeding on an assumption favourable to the applicant, the court treated the governing test as effectively requiring good cause, whether the matter was approached as Rule 31(5)(d) reconsideration or common-law rescission. The court adopted the standard formulation that good cause requires both a reasonable and acceptable explanation for the default and the disclosure of a bona fide defence carrying prima facie prospects of success, with reference to Chetty v Law Society, Transvaal 1985 (2) SA 756 (A).

The court then dealt with the timing difficulty. Rule 31(5)(d) requires a dissatisfied party to set the matter down within 20 days of acquiring knowledge of the Registrar’s judgment or direction. The application was launched well beyond that period. Even on a common-law rescission approach, the application had to be brought within a reasonable time, and any delay had to be fully explained. The court accepted that condonation could be sought even though not set out as a separate prayer, referring to Pangbourne Properties Ltd v Pulse Moving CC and Another 2013 (3) SA 140 (SGJ), but held that the applicant still had to provide a reasonable explanation covering the entire period of delay (with reference to Ethekwini Municipality v Ingonyama Trust 2014 (3) SA 240 (CC)).

On the facts presented, the court found the explanation for delay to be inadequate and unacceptable. The court emphasised that the applicant’s letter of 29 August 2014 showed that the applicant anticipated judgment would follow and had communicated an intention not to litigate further. The asserted incapacity and travel of the general manager did not, in the court’s view, explain why instructions could not have been given to take steps if rescission had genuinely been intended. The later media reports about the respondent’s CEO were treated as, at most, a reminder of previous dealings and not an explanation for why the rescission application was only brought at the end of June 2015.

The court further found that the explanation that the applicant only later learned it had a counterclaim was contradicted by the 29 August 2014 letter stating that the applicant did not file a plea or counterclaim because it did not intend to litigate further. The applicant did not address this conflict in the affidavits, did not explain the letter, and did not suggest attorney error. On this basis, the court concluded there was no evidential foundation on which condonation could be granted and no basis to treat the delay (including the period after early 2015) as reasonable.

The court also held that there was no reasonable and acceptable explanation for the default itself, given the applicant’s explicit communication that it would not plead. The court treated this as inconsistent with a genuine intention to advance a bona fide defence at the time.

Turning to the alleged defence on the merits, the court held that the asserted defences (cleaning costs, lighting charges, incorrect meter readings) were known to the applicant at the time, yet the applicant provided no particularity as to what amounts were disputed and to what extent the charges were allegedly incorrect. The court regarded the lack of detail as undermining the bona fides of the alleged defence. Although the applicant sought to persuade the court to exercise a discretion in its favour on the basis that some defence “might” exist, the court refused to do so, holding that it was incumbent on the applicant to set out the defence with sufficient detail to establish prima facie prospects.

The court then addressed the asserted counterclaim and treated it as a claim for contractual damages. It considered that the alleged causes of action would have arisen by, at the latest, January 2013 (and in part as early as 2011), creating a real likelihood that the claims had prescribed. The court noted that the applicant had instituted separate proceedings (case number 8337/15) to interrupt prescription, which reinforced the prescription concern.

In addition, the court held that because the respondent was an organ of state, the applicant was required to comply with the Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002, including the statutory notice requirement. No notice had been given, and in the separate action the applicant’s application for condonation for late notice had already been refused by Lopes J. While the applicant relied on Dauth and others v Minister of Safety and Security and others [2008] ZANCHC 26; 2009 (1) SA 189 (NC) to argue that a “premature” summons is not void, the court distinguished the point, noting that Dauth addressed the effect where condonation is granted, and not where condonation is refused. The court expressed the view that unless the requisite notice is given or condonation is granted, prescription will not be interrupted.

The court also considered argument about whether notice would be required where the damages claim is advanced by counterclaim, referring to Raman v Barlow Motor Investments (Pty) Ltd t/a Natal Motor Industries, Prospecton, and others 1999 (4) SA 606 (D), but distinguished that context. The court reasoned that the purpose of the 2002 Act is to secure timeous notice to organs of state, and it would be “absurd” if a claimant who did nothing within the statutory period could later avoid the notice regime simply because it was sued and wished to counterclaim. The court considered that the refusal of condonation in the separate action was not only fatal there but also indicated serious doubt that condonation would be granted for any late counterclaim notice, thereby undermining prospects of success.

Finally, the court recorded an additional argument by the respondent based on an entire agreement clause in the written lease (clause 30.1), which might preclude reliance on alleged oral terms underpinning the asserted “composite agreement.” The court did not decide this point because it had already concluded that the application failed on other grounds.

In the course of explaining why the judgment stood despite the Registrar’s limited competence in relation to damages-type awards, the court referred to the importance of legal certainty and drew an analogy with the principle that unlawful administrative action stands until set aside, citing Oudekraal Estates (Pty) Ltd v City of Cape Town and others 2010 (1) SA 333 (SCA).

5. Outcome and Relief

The court dismissed the application with costs.

The court therefore refused to rescind (or reconsider and set aside) the Registrar’s default judgment and refused leave to defend the action. No costs order in favour of the applicant was made; instead, costs were awarded against the applicant.

Cases Cited

Bloemfontein Board Nominees Ltd v Benbrook 1996 (1) SA 631 (O).

Pansolutions Holdings Limited v P & G General Dealers and Repairers CC 2011 (5) SA 608 (KZD).

Chetty v Law Society, Transvaal 1985 (2) SA 756 (A).

Pangbourne Properties Ltd v Pulse Moving CC and Another 2013 (3) SA 140 (SGJ).

Ethekwini Municipality v Ingonyama Trust 2014 (3) SA 240 (CC).

Oudekraal Estates (Pty) Ltd v City of Cape Town and others 2010 (1) SA 333 (SCA).

Dauth and others v Minister of Safety and Security and others [2008] ZANCHC 26; 2009 (1) SA 189 (NC).

Raman v Barlow Motor Investments (Pty) Ltd t/a Natal Motor Industries, Prospecton, and others 1999 (4) SA 606 (D).

Legislation Cited

KwaZulu-Natal Dube Tradeport Corporation Act 2010 (section 2).

Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002 (section 3(1)(a); section 3(4)(a)).

Small Claims Court Act 61 of 1984 (mentioned in the discussion of the meaning of “institute”).

Rules of Court Cited

Uniform Rule 31(5)(d).

Uniform Rule 31(2)(b) (referred to in commentary discussed in the judgment).

Uniform Rule 6(12)(c) (referred to by analogy in argument).

Held

The court held that the applicant failed to establish the requirements for rescission-type relief (or reconsideration under Rule 31(5)(d) on an assumed similar standard), because it did not provide a reasonable and acceptable explanation for its default and for the delays in bringing the application, and because it failed to disclose a bona fide defence with prima facie prospects of success.

The court further held that the proposed counterclaim lacked prima facie prospects, given the likelihood of prescription and the applicant’s failure to comply with the statutory notice regime applicable to damages claims against organs of state, together with the refusal of condonation in related proceedings.

On that basis, the application to set aside the default judgment was dismissed with costs.

LEGAL PRINCIPLES

A party seeking to set aside a default judgment, whether through a reconsideration mechanism under Rule 31(5)(d) (on the approach assumed in this judgment) or through common-law rescission, must show good cause. In this context, good cause requires a reasonable and acceptable explanation for the default and a bona fide defence disclosed with **prima facie prospects of success.

Where relief depends on condonation for delay, the explanation must cover the entire period of delay, and the applicant must provide an evidential basis justifying condonation.

A defence is not established in a rescission application by broad assertions alone. The applicant must set out the defence with sufficient particularity to demonstrate bona fides and prima facie prospects.

For a damages claim against an organ of state, compliance with the Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002 (including the statutory notice requirement, or condonation where notice was late) is material to the viability and prospects of such a claim. The court treated non-compliance, and the refusal of condonation in related proceedings, as substantially undermining the prospects of success of the asserted counterclaim.

The judgment also reflected an approach that, in the context of inexcusable delay and the need for legal certainty, a judgment (including one that may be vulnerable on competence grounds) will stand unless and until properly and timeously set aside through appropriate procedures.

Carmel Nurseries CC v Dube Tradeport Corporation (7660/2014) [2016] ZAKZPHC 53 (21 June 2016)