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[2018] ZASCA 171
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Khan NO and Another v Maxprop Holdings (Pty) Ltd and Another (084/2018) [2018] ZASCA 171 (30 November 2018)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case
No: 084/2018
In
the matter between:
RAHIM
KHAN
NO FIRST
APPELLANT
THAMSANQA
EUGENE MSHENGU N.O. SECOND
APPELLANT
and
MAXPROP
HOLDINGS RESPONDENT
GARLICKE &
BOUSFIELD
INCORPORATED THIRD
PARTY
Neutral
citation:
Khan NO & another v
Maxprop Holdings (Pty) Ltd & another
(084/2018)
ZASCA 171 (30 November 2018)
Coram:
Cachalia, Mbha and Van der Merwe JJA
Heard:
14 November 2018
Delivered:
30 November 2018
Summary:
Civil procedure – refusal of amendment of particulars of
claim – not disclosing cause of action – no sufficient
particularity to bring claim within ambit of s 26(1) of
Insolvency
Act 24 of 1936
– amendment correctly refused – appellant
to be granted leave to amend as a matter of course – not shown
that
the pleading cannot be amended – appeal against dismissal
of claim upheld.
ORDER
On
appeal from:
KwaZulu-Natal Local
Division of the High Court, Durban (Moodley J sitting as court of
first instance):
(a)
The appeal is upheld to the extent set out below:
Paragraphs
2 and 3 of the order of the court a quo are set aside and replaced
with an order granting leave to the plaintiffs to
amend their
particulars of claim in terms of
rule 28.
(b)
The appellants are directed to pay the costs of appeal.
JUDGMENT
Mbha
JA (Cachalia and Van der Merwe JJA concurring):
[1]
The appellants are the joint trustees of the insolvent deceased
estate of Colin Bernard Cowan (Cowan). They appeal against the
judgment and order of Moodley J in the KwaZulu-Natal Local Division
of the High Court, Durban (the court a quo), in terms of which
the
learned judge dismissed their application to amend their particulars
of claim on the basis that they were excipiable. She also
dismissed
their claim against the respondent, Maxprop Holdings (Pty) Ltd
(Maxprop) and a third party, Garlicke & Bousfield
Incorporated
(Garlicke & Bousfield) with costs. The appeal against that
judgment is with the leave of the court a quo. The
third party abides
the decision of this court.
[2]
This appeal turns on the proper approach governing exceptions and the
appropriate consequential relief, if upheld. The fundamental
issue
that must be determined is whether the appellants’ particulars
of claim, read with the proposed amendment, are excipiable
as
disclosing no cause of action. If so, the next question that must be
answered is whether the court a quo was correct in dismissing
the
appellants’ claim, or whether it ought to have afforded them an
opportunity to amend their particulars of claim.
[3]
I now turn to consider the factual matrix against which this appeal
arose. The appellants instituted an action against Maxprop
for an
order setting aside a series of payments made by Cowan to Maxprop as
interest on investments in an unlawful pyramid or ponzi
scheme
operated by Cowan. They alleged that these payments amounted to
dispositions by Cowan of his property, made without value
as
contemplated by
s 26(1)
(a)
,
alternatively s 26(1)
(b)
of the Insolvency Act 24 of 1936 (the Act), in circumstances where
immediately after such dispositions were made, Cowan’s
liabilities exceeded his assets. They therefore contended that the
dispositions were liable to be set aside in terms of s 32(1)
of the
Act.
[4]
Maxprop joined Garlicke & Bousfield, a firm of attorneys with
whom Cowan was employed as an executive consultant, in the
action,
and into whose trust account the funds procured in the operation of
the pyramid scheme were deposited and withdrawals made,
as a third
party. They did so in order to obtain recompense in the event of the
appellants’ claim against it succeeding.
[5]
The third party excepted to the appellants’ particulars of
claim on the ground that they did not disclose a cause a cause
of
action in that, first, there was no allegation from which it could be
concluded in law that the payments allegedly received
by Cowan from
Maxprop or any investor pursuant to the scheme, became his property
and part of his estate. Second, that the averment
in the particulars
of claim was that such payments were stolen by Cowan and accordingly
his estate could not have been reduced
or diminished by any payment
made by him to Maxprop. The third partly therefore contended that any
payment by Cowan did not constitute
a disposition of his property and
could not be set aside under the Act.
[6]
On 17 December 2013, Bezuidenhout AJ upheld the exception. His
reasoning, in essence, was that there was no indication or averment
in the particulars of claim that the funds were at any stage part of
Cowan’s estate, hence there could not have been a disposition
of Cowan’s estate as contemplated by s 26(1) of the Act. He
granted the appellants leave to amend the particulars of claim
within
30 days of his order, and also granted leave to the third party to
apply for the dismissal of the claim if the notice to
amend was not
delivered timeously, or if any objection to the proposed amendments
in the notice delivered was sustained.
[7]
On 21 February 2014 the appellants delivered a notice of their
intention to amend the particulars of claim. The proposed amendments
were couched as follows:
‘
8.3.
The deceased exercised control over the funds invested by
participants in the scheme (of which defendant was one) by directing
how and when the amounts contributed by participants should be paid
and to whom.
8.4. The deceased
benefited from the scheme either through theft or through purported
commissions on so-called investments.
9. The schedule
annexure ‘POC1’ hereto sets out particulars of the
payments made by the defendant by way of investments
in the
deceased’s unlawful scheme, the recipients of such amounts
chosen by the deceased from time to time, as well as particulars
of
the interest payments made to the defendant pursuant to such scheme.
10.
The deceased unlawfully and without just cause in pursuance of the
said scheme paid or caused to be paid the total amount of
R286
295 596.00 to the defendant. This amount exceeded the amount
which the defendant paid to the scheme by R21 525 996, 47.
The latter
amount was paid without just cause and unlawfully and pursuant to the
unlawful scheme conducted by the deceased, and
the defendant was
thereby unjustly enriched at the deceased’s expense.’
[8]
The respondent and the third party objected to the proposed
amendments on the ground that the defect in the pleadings had not
been cured. They contended that although it was alleged that Cowan
exercised control over the funds invested by participants and
that
the total amount paid to Maxprop was at his expense, there was no
allegation that the payments were from funds which were
Cowan’s
property and formed part of his estate.
[9]
The appellants nonetheless proceeded with their application for the
amendment in terms of rule 28(4) read with rule 6(11), and
simultaneously sought to amend their particulars of claim further in
respect of the proposed paragraph 10, by substituting the
amount
claimed of R21 525 996.47 with R17 796 813.01, as
reflected in annexure POC1 to the particulars of claim.
[10]
The court a quo found that the particulars of claim as intended to be
amended, were still excipiable because the claim had
not been brought
within s 26(1) of the Act. It also considered that because the
appellants already had a prior opportunity to amend
their claim, and
that they still were not able to cure the defect, the claim should be
dismissed.
[11]
As the appellants seek to impeach the payments made by Cowan to the
defendant on the ground that these payments constituted
dispositions
without value as contemplated in s 26(1)
(a)
,
alternatively s 26(1)
(b)
of
the Act,
[1]
it
is incumbent on them to prove a disposition of property or of rights
to property from Cowan’s estate. The term ‘disposition’
is defined in s 2 of the Act as ‘. . . any transfer or
abandonment of
rights
to property
and includes a sale, lease, mortgage, pledge, delivery,
payment
,
release, compromise, donation or any contract thereof. . . .
“
property”
means movable or immovable property wherever situated within the
Republic and “movable property” is
defined as “every
kind of property and
every right
or interest which is not immovable property”.’ (my
emphasis.)
[12]
So, for the payments allegedly made by Cowan to the defendant to
constitute dispositions as defined, they must consist of a
transfer
or abandonment of rights to the money paid.
[2]
As
Steyn J in
Finger
and others, NNO v Secretary of Inland Revenue
1971 (2) SA 411
(W) explained regarding the term disposal: ‘. .
. any ‘disposal’ by a person of an asset belonging to him
must
normally result in his being divested of all his rights in and
such asset
simul
ac semel
the ‘disposal’ thereof . . .’
[13]
Counsel for the appellants contended that the ambit of the concept of
‘disposition’ may, by interpretation, be
extended to
include any transaction which may have the effect that an insolvent’s
estate is affected, such as by a claim
in delict. He relied on
De
Villiers NO v Kaplan
1960 (4) SA 476
(C), where the court held
that a payment by an attorney from his trust account qualified as a
disposition by his later insolvent
estate despite this amount never
being or intended to be part of his assets. The amount had been paid
into his trust account and
was hence strictly the property of the
bank. The bank in turn paid the amount on the attorney’s
instruction to satisfy a
personal debt. In his judgment, Van Winsen J
held that the insolvent’s right of disposal constituted
‘property’
within the meaning of s 2 because:
‘
.
. . although the amount in the trust account was not, while it was
still in such account, an asset belonging to Katz, he had a
right of
disposal over such amount which right empowered him to deal with it
in such a way as to make it, or an amount equivalent
thereto, part of
his assets. Clearly such a right of disposal over amounts in his
trust account has a monetary value. In the case
where he directed the
money to be paid to his trust creditors, he would be released from
his obligations to them. Where he directed
the payment of the excess
in the account to his personal creditors or to himself his estate
would thereby be benefited. Even where
he were to disregard the
obligation resting upon him to utilise the amount in his trust
account for the purposes for which it was
entrusted to him and
thereby abuse his right to dispose of such amount such action on his
part could, in certain circumstances,
inure to his benefit.’
[14]
I agree with the contention by appellants’ counsel that an
insolvent in Cowan’s position may, under certain circumstances,
have a right of disposal over an amount of money which is the subject
matter of an illicit transaction, which empowered him to
deal with it
in such a way as to make it or an amount equivalent thereto, part of
his assets. As Van Winsen J correctly observed
in
De
Villiers NO v Kaplan
, such a right of
disposal will have a monetary value in particular where the insolvent
could direct the money to be paid to his
trust creditors thereby
releasing him from his obligations to them. What must however still
be established in this case is whether
the appellants had
sufficiently alleged in their particulars of claim, as sought to be
amended, that Cowan was empowered or had
any legitimate control over
the trust account of Garlicke & Bousfield, or any other account
from which the interest payments
were made.
[15]
The principles governing the formulation of a cause of action are
trite. The plaintiff must only plead ‘a complete cause
of
action which identifies the issues upon which the plaintiff seeks to
rely, and on which evidence will be led, in intelligible
and lucid
form and which allows the defendant to plead to it.’
[3]
Rule
18(4) of the Uniform Court Rules requires a pleading to contain a
clear and concise statement of the material facts upon which
the
pleader relies for his claim . . . with sufficient particularly to
enable the opposite party to reply thereto. Rule 20(2) requires
a
declaration to set forth the nature of the claim and the conclusion
of law which the plaintiff shall be entitled to deduce from
the facts
stated therein.
[16]
In my view, the court a quo was correct in its finding that the
amendments sought did not cure the defect that, as amended,
the
particulars of a claim would not disclose any cause of action. There
is no allegation made in the proposed amendment that Cowan
had any
control of the funds in the Garlicke & Bousfield trust account,
or any other account from which the payments were made
to Maxprop,
which gave him a right of disposal over the money.
[17]
Although annexure ‘POC1’ to the particulars of claim
shows the movement of money invested and returns paid, obviously
at
the instance of Cowan, Cowan is not pleaded in the amendment to be a
beneficiary of the funds set out in this annexure. Importantly,
it is
not pleaded that Cowan had a right to the money and the right to
transfer or abandon the right to the money. Counsel for
the appellant
ultimately conceded that it was not sufficiently pleaded that Cowan
had a right of disposal over the funds.
[18]
In my view, the proposed amendments lacked sufficient averments from
which it could reasonably be inferred that Cowan’s
estate
parted with rights that formed part of his estate. The court a quo
correctly found that the particulars of claim would remain
excipiable, as the claim had not been brought within the ambit of s
26(1) of the Act.
[19]
I now turn to consider whether the court a quo was correct in
dismissing the appellants’ claim upon dismissing the
application
for leave to amend. The court a quo took the view that
the appellants had already been afforded two opportunities to plead a
sustainable
cause of action. Furthermore, the conclusions the court a
quo had reached in upholding the exception were similar to those of
Bezuidenhout
AJ. In the learned judge’s view, granting the
appellants another opportunity to amend would be an indulgence that
would extend
the matter unjustifiably.
[20]
The court a quo’s approach was supported by respondents’
counsel. In addition, he submitted that no facts were
advanced on the
appellants’ behalf which are indicative that they are able to
cure the defects in the pleadings. He in particular
referred us to
annexure ‘POC1’, which sets out the commission paid out
to so-called investors, in which Cowan, as a
beneficiary never
featured.
[21]
The law governing exceptions and the appropriate consequential
relief, if upheld is clear. An exception that a cause of action
is
not disclosed by a pleading ‘cannot succeed unless it be shown
that ex facie the allegations made by a plaintiff and any
document
upon which his or her cause of action may be based, the claim
is
(not may be) bad in law’.
[4]
In
cases where an exception has successfully been taken to a plaintiffs’
initial pleading on the ground that it discloses
no causes of action,
the invariable practice of our courts has been to order that the
pleading be set aside and that the plaintiff
be given leave, if so
advised to file an amended pleading within a certain period of
time.
[5]
The
law on this subject has recently been re-affirmed by this Court in
Ocean
Echo Properties 327 CC v Old Mutual Life Assurance Company (South
Africa) Limited,
[6]
where
it was held:
‘
[8]
. . . The upholding of an exception disposes of the pleading against
which the exception was taken, not the action or defence.
An
unsuccessful pleader is given the opportunity to amend the plea, even
when the plea has been set aside because it does not disclose
a
defence. The rationale for this seems to be that although the defence
contained in the pleading may be bad the pleading as such
continues
to exist. Ordinarily therefore the court should grant leave to amend
and not dispose of the matter. Leave
to
amend is not a matter of an indulgence; it is a matter of course
unless there is a good reason that the pleading cannot be amended
.
No ‘good reason’ was evident or asserted in this case. In
those circumstances, counsel for Old Mutual conceded
that,
irrespective of the merits of the exception, Le Grange J ought not to
have proceeded to enter judgment against the appellants.
. . .’
(my emphasis.)
[22]
Although
Ocean Echo Properties
related to a plea, the approach
set out therein also holds in respect of particulars of claim
excepted against. In
Belet Cellular v MTN Service Provider
[2014] ZASCA 181
, this court held:
‘
[5]
As was said by Brand JA in
Trustees, Bus
Industry Restructuring Fund v Break Through Investments CC &
others
2008 (1) SA 67
(SCA) para 11-
‘
Because
the respondents chose the exception procedure - instead of having the
matter decided after the hearing of evidence at the
trial - they had
to show that the appellants' claim
is
(not may be) bad in law
. In the present
context they therefore had to show that clause 19.5 cannot reasonably
bear the narrower meaning contended for by
the appellants (see eg
Lewis v Oneanate (Pty) Ltd & another
[1992] ZASCA 174
;
1992 (4) SA 811
(A) at 817F - G;
Vermeulen v Goose Valley Investment
(Pty) Ltd
[2001] 3 All SA 350
(A) para
7).’ (my emphasis.)
[23]
In my view, the real bone of contention in this case is that the
appellants have not alleged, in their particulars of claim,
that the
returns paid to Maxprop were part of the deceased’s insolvent
estate or made any other allegation to the effect
that the deceased
had a right of control or disposal over the funds which would bring
such payments within the ambit of a s 26(1)
disposition. I am thus
not persuaded that the appellants would not be able to cure the
defect in the pleadings.
[24]
I accordingly find that the court a quo’s dismissal of the
appellants’ claim on the grounds advanced, to have been
incorrect and against the established practice and law. In the
circumstances this appeal must succeed.
[25]
In light of the fact that the respondent was substantially successful
in having the exception upheld, and that the appellants
had in effect
sought a further indulgence, the respondent should be awarded its
costs.
[26]
I accordingly make the following order:
(a) The appeal is
upheld to the extent set out below:
Paragraphs 2 and 3
of the order of the court a quo are set aside and replaced with an
order granting leave to the plaintiffs to
amend their particulars of
claim in terms of rule 28.
(b) The appellants
are directed to pay the costs of appeal.
_______________
B H Mbha
Judge of Appeal
APPEARANCES:
For
Appellants: KJ Kemp SC
Instructed
by: Geyser Du Toit Louw Kitching Pinetown Inc, Pinetown
Hill
McHardy & Herbest Inc, Bloemfontein
For
Respondents: AJ Dickson SC
Instructed
by: Francois Medalie & Co, Pinetown
McIntyre
Van Der Poosst, Bloemfontein
[1]
Section
26(1)
of the
Insolvency Act 24 of 1936
provides as follows:
‘
Every
disposition of property not made for value may be set aside by the
court if such disposition was made by an insolvent –
(a) more than two
years before the sequestration of his estate, and it proved that,
immediately after the disposition was made,
the liabilities of the
insolvent exceeded his assets;
(b) within two
years of the sequestration of his estate, and the person claiming
under or benefited by the disposition is unable
to prove that,
immediately after the disposition was made, the assets of the
insolvent exceeded his liabilities:
Provided that if it
is proved that the liabilities of the insolvent at any time after
the making of the disposition exceeded his
assets by less than the
value of the property disposed of it may be set aside only to the
extent of such excess.’
[2]
Estate
Jager v Whittaker & another
1944 AD 246
at 249.
[3]
Jowell
v Bramwell-Jones & others
1998 (1) SA 836
(W) at 902G-H.
[4]
Vermeulen
v Goose Valley Investments
(Pty)
Ltd
2001 (3) SA 986
(SCA) para 7.
[5]
Group
Five Building v Government of the Republic of South Africa (Minister
of Public Works and Land Affairs)
1993 (2) 593 (A) at 602C-D.
[6]
Ocean
Echo Properties 327 CC & another v Old Mutual Life Assurance
Company (South Africa) Limited
[2018] ZASCA 9
;
2018 (3) SA 405
(SCA)
para
8.