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[2014] ZAFSHC 83
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Udumo Trading 147 CC v Dihlabeng Municipality (4418/2011) [2014] ZAFSHC 83 (5 June 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 4418/2011
In
the matter between:
UDUMO
TRADING 147 CC
…................................................................................................
Applicant
and
DIHLABENG
MUNICIPALITY
..........................................................................................
Respondent
CORAM:
LEKALE, J
HEARD
ON:
22 MAY 2014
JUDGMENT
BY:
LEKALE, J
DELIVERED
ON:
5 JUNE 2014
INTRODUCTION
AND BACKGROUND:
[1]
On 14 October 2011 applicant
,
Udumo
Trading 147 CC, issued summons against the respondent local
municipality for recovery of the balance of the contract price
for
services rendered. The respondent entered appearance to defend
the action, whereupon, the applicant applied for summary
judgment
which the respondent also opposed. In opposing such
application, the respondent,
inter alia
,
disputed applicant’s
locus standi
and pointed out that the applicant was, in law, non-existent because
it was finally deregistered by the registrar of companies
on 24
February 2011 for annual return non-compliance. The applicant,
thereupon, took necessary steps to protect its interests
and on 10
January 2012 its registration was reinstated.
[2]
The respondent, however, persisted in its view that the applicant
lacked
locus standi
when it issued summons and filed a special plea to that effect.
Pleadings were, eventually, closed and the matter was set
down for
trial commencing on 28 January 2014. Following failure by the
parties to agree on how best to deal with,
inter
alia
, the issue of applicant’s
legal handicap as at the date of summons the applicant launched the
instant application on 22 January
2014 essentially moving for an
order:
“
2.
Declaring the summons issued by the applicant in Case No 4418/2011
and all subsequent steps taken in pursuance of the action
during the
period of its deregistration, to be valid and of full force and
effect;
3.
That the costs of the application be costs in the cause;
”
[3]
The respondent, on its part, filed an answering affidavit on 7
February 2014 opposing the motion on the grounds that it is not
just
and equitable to grant the validation order sought. The
applicant filed a reply on 1 April 2014 which was clearly late
and,
as such, necessitated the filing of a condonation application by the
applicant on 14 May 2014.
[4]
At the commencement of the hearing the parties correctly agreed that
in order to obviate duplication in arguments it was convenient
and
appropriate for the court to hear the merits of the validation
application before it could determine the condonation application.
ISSUES
IN DISPUTE
[5]
The parties are
ante omnia
in dispute over whether or not the applicant’s ratification
application enjoys prospects of success so as to render condonation
of the late filing of replying affidavit a worthy exercise.
[6]
In the ratification application parties are effectively at variance
on whether or not it is just and equitable to grant the
desired
relief regard being had to defences raised by the respondent as well
as the fact that the applicant’s claims have
essentially
prescribed and the order sought would, if granted, serve to revive
the same.
CONTENTIONS
BY THE PARTIES
[7]
Mr Van Aswegen for the applicant submits that the ratification
application has good prospects of success in that the court has
inherent jurisdiction to grant the same and, in terms of section
83(4)(a) of Companies Act No 71 of 2008 (the Act), it has the
power
to grant the relief sought if it is just and equitable to do so.
In his view good cause exists for condonation of late
filing of
replying affidavit because it was necessary for the applicant to
trace and collate all relevant information relating
to its claims so
as to reply to the respondent’s contentions. According to
him the applicant has good prospects of
success in its claim because
it is common cause that the applicant concluded a service contract
with the respondent and it is,
further, patent from available
correspondence between the parties that the applicant tendered for
the relevant job as an external
service provider. The question
as to whether or not the tender process complied with the
respondent’s supply chain
management policy and,
a
fortiori
, with the Constitution of the
Republic of South Africa (the Constitution) falls to be dealt with
properly at the trial of the matter.
The contract in question
has not been reviewed or declared unlawful by a court although it has
been irretrievably lost in the hands
of the respondent.
[8]
It is the applicant’s case that the apparent delay in bringing
the present application is simply attributable to the unfortunate
mistake on the part of its present attorney who was under the
impression that the reinstatement of applicant’s registration
had retrospective effect as the position was under the earlier
Companies Act of 1973. Mr Van Aswegen points out that, although
it is true that the reinstatement of the applicant’s juristic
personality did not interrupt prescription and, as such, the
claims
have effectively prescribed, the reality of the situation is that
when the action was purportedly instituted the claims
had not yet
prescribed.
[9]
Mr Van der Walt eloquently reminds the court that the intention
underlying the Prescription Act is to compel creditors to assert
and
enforce their debts timeously so as to promote legal certainty and
that a defendant, in the position of the respondent municipality,
is
entitled as of right to raise prescription as a defence. In his
view, it is not just and equitable to validate the summons
in the
instant matter for same would effectively deprive the respondent of
its right to rely on prescription. The applicant
does not have
any prospects of success in its claims because the contract it seeks
to enforce was unlawful for failure to comply
with the respondent’s
supply chain management policy. The respondent is, in law,
entitled to assail the legality of
the relevant contract by raising
the issue in a manner which allows proper and full ventilation of the
same as it has done in its
plea and answering affidavit. The
applicant had ample opportunity to launch the present application or
issue fresh summons
immediately after it regained its juristic
personality and before its claim prescribed but it failed to do so.
The negligence
of the applicant’s attorney did not interrupt
prescription. Mr Van der Walt implores the court to issue an
order which
is just and equitable to both the applicant and the
respondent.
APPLICABLE
LEGAL PRINCIPLES
[10]
In condonation proceedings the question is whether or not it is in
the interest of justice to condone the delay involved regard
being
had to a balanced
conspectus
of
factors such as the degree of lateness, the reasons for the delay and
prospects of success. The test for prospects of success
is a
bona fide
case
which,
prima facie
,
carries some prospects of success.
(See:
Grootboom v National Prosecuting
Authority and Another
2014 (2) SA
68
(CC) and
Chetty v Law Society
Transvaal
1985 (2) SA 756
(A) at
765 against B – D.)
[11]
The parties are correctly in agreement that the Act does not
explicitly provide for retrospective reinstatement of registration
of
a company
ipso facto
in the same manner as its predecessor did but, effectively, gives the
court the power to make
“
any
other order that is just and equitable in the circumstances
”
as
well as an order declaring the dissolution of a company to have been
void.
(See:
Section 83(4)(a) of the Act.)
[12]
A municipality, as an organ of state, is constitutionally obliged to
engage in a system which is fair, equitable, transparent,
competitive
and cost-effective when it contracts for goods and services.
Failure by an organ of state to comply with such
constitutional
requirement renders the ensuing contract void for illegality despite
prejudice to the service provider involved.
The organ of state
is obliged to resist the enforcement of such contract and may, in an
appropriate case, do so by raising the
question of legality of such a
contract by way of a counter application seeking a declaratory
order.
(See:
Section 217 of the Constitution and
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
2010 (1) SA 356
(SCA)
[13]
The High Court, as do the Constitutional Court and the Supreme Court
of Appeal, has inherent power to protect and regulate
its own process
and to develop the common law taking into account the interests of
justice. Such power, being special and
extraordinary in nature,
gets exercised sparingly and only in clear cases. In exercising
such inherent jurisdiction, the
High Court is not empowered to make
orders which are in conflict with clear intention of the legislator.
The High Court can
do anything which the law does not prohibit and
only to the extent necessary.
(See:
Section 175 of the Constitution and
Phillips
and Others v National Director of Public Prosecutions
[2005] ZACC 15
;
2006 (1) SA 505
(CC).)
APPLICATION
OF LEGAL PRINCIPLES AND FINDINGS
[14]
In the summons the applicant relies on a contract in its claim
against the respondent. The respondent, on its part, inter
alia
disputes the validity of such a contract. The summons, as it
presently stands, discloses a cause of action to the extent
that if
the averments contained therein are eventually proved at the trial of
the matter, the claim would be sustained. To
the aforegoing
extent the applicant has disclosed a
bona
fide
case which
prima
facie
carries some prospect of
success. As Mr Van Aswegen correctly points out, for the
purposes of the present proceedings the
applicant is not enjoined to
prove its case on a balance of probabilities.
[15]
The application for validation moves the court to either exercise its
inherent jurisdiction or to invoke the provisions of
section 83(4) of
the Act to validate summons and all subsequent steps taken in
pursuance of the action by the applicant.
I am, however, not
persuaded that the present is an appropriate and clear case for the
court to exercise its inherent power, regard
being had to the
provisions of section 83(4)(a) of the Act which expressly and
effectively empower a court to make
“
any
other order which is just and equitable in the circumstances
”
on
application by the liquidator or other person with interest in the
company. In my view the aforegoing provisions cater
adequately
for,
inter alia
,
the making of an order for retrospective consequences of
reinstatement of registration of a company. In this
regard
it is worth reiterating that the section in question
effectively makes it possible, in wide terms, for the court to
inter
alia
make such an order in
circumstances where it is just and equitable to do so.
[16]
It is, in my opinion, clear that the obvious possible gripe about the
present regime is that a court order is necessary for
such a relief
to be realised even in a case of deregistration as a result of annual
return non-compliance as opposed to the position
which obtained under
section 73A of the 1973 Companies Act and section 26(7) of
Close
Corporations Act 69 of 1984
, which effectively provided for
retrospective restoration of corporate personality
ipso
facto.
The result is that after
administrative reinstatement of registration has been effected in
terms of section 82(4) of the Act, any
interested party desirous of
retrospective restoration of consequences of corporate registration
needs to approach the court for
appropriate relief with attendant
costs. In enacting section 83(4) (a) of the Act as opposed to
replicating section 73A of the
old Companies Act and retaining the
old regime the legislature appears to have acknowledged that it is
not always possible, fair
and appropriate to turn the hands of time
back and to have confirmed the sentiments expressed in decided
cases in relation
to sections 73 of the 1973 Act and 26 of
Close Corporations Act such
as
Mouton
v Boland Bank Ltd
2001(3) SA 877
(SCA) where it was, inter alia, pointed out that
“
[12]
… The Legislature has created a statutory fiction that a
corporation never ceased to exist, when in fact it did. But
I do not
think that we should attribute to the Legislature a belief that it
can actually recall time passed, for, as the poet has
said:
‘
The
Moving Finger writes; and, having writ, Moves on: nor all thy Piety
or Wit Shall lure it back to cancel half a Line’.
”
(Compare:
Peninsula Eye Clinic (Pty) Ltd v
Newlands Surgical Clinic (Pty) Ltd and Others
2012 (4) SA 484
(WCC) and
Fintech(Pty)
Ltd v Awake Solutions (Pty) Ltd and Others
2013 (1) SA 570
(GSJ) at par [14].)
[17]
It is correct, as submitted by Mr Van der Walt, that the concept just
and equitable in the context of the Act and the present
matter
extends to both the applicant and the respondent and, as such, an
appropriate order should be just and equitable to both
the parties.
It is true, as pointed out for the respondent, that a validation
order would deprive the respondent of prescription
as a sword and
shield in its hands. It is, however, equally correct that as at
the date of summons the claims involved had
not prescribed. But
for the fact of the applicant’s deregistered status as at the
date of summons, prescription would
not have set in and been
available to the respondent as a special defence. In
determining whether or not it is just and equitable
to validate
summons and subsequent associated steps in the circumstances of the
present matter, the effect of such an order should,
in my view, not
give the applicant undue advantage and benefit over the respondent.
Such an order should simply purge the
applicant of adverse direct
consequences of its deregistration by placing it, as far as the
action is concerned, in the position
it would have been had it not
been deregistered.
(Compare
the position under Section 73 of the old Companies Act and the
repealed
section 26
of the
Close Corporations Act.)
[18
]
It is, further, correct as emphasised for the respondent that none of
the ineptitude and remissness that led to the applicant’s
deregistration is attributable to the respondent. The position
is, however, that the applicant’s registration has now
been
reinstated after it took necessary steps to purge itself of the
relevant defect. Validation of the action, in my judgment,
would simply level the playfield to enable full, fair and proper
ventilation of the issues between the parties. On the other
hand, refusal of such a relief would give the respondent undue
advantage over the applicant in that it would be able to raise
prescription as a special plea when, had the applicant not been
deregistered as at the date of summons, such a defence would not
be
available to it. The position would be different had the claims been
extinguished by prescription as at the date of summons.
The fact that
the applicant’s registration has been reinstated is, in my
opinion, significant in that the applicant retains
its original
registration number as opposed to being registered afresh and being
issued with a new registration number. In my view
reinstatement of
registration
prima facie
entitles
an entity, in the position of the applicant, to retrospective
restoration of consequences of incorporation where it is
possible,
appropriate and fair for such
status quo
ante
to be restored.
[19]
There, further, appears to be no unreasonable prejudice to the
respondent if the desired order is granted insofar as it cannot
be
said that the written contract disappeared during the period of the
delay on the part of the applicant to apply for validation
of the
action. The aforegoing prevails despite the fact that the respondent
raises the issue of the legality of the contract sought
to be
enforced in its plea. That question does not arise for determination
in the present proceedings. It is, thus,
in my view just
and equitable to purge the applicant of the consequences of
deregistration insofar as they relate to the institution
and
prosecution of its action against the respondent. To this
extent good cause exists for condonation of late filing of
a replying
affidavit.
COSTS
[20]
The applicant effectively seeks an indulgence in the application for
condonation. The practice with regard to costs in
such
circumstances is that the party seeking indulgence carries the
costs. There exists no cause or request before me to
deviate
from such practice.
[21]
In the validation application the applicant prays for an order
directing costs to be in the cause. The respondent, on
its
part, asks for dismissal of the application with costs.
Although the applicant has obtained success in the application
I am
persuaded that the instant is an appropriate case for costs to be in
the cause regard being had to the fact that summons was
purportedly
issued timeously as well as the fact that the applicant was solely
responsible for its own deregistration. The
respondent was,
further, aware of the reinstated registration of the applicant at all
times material to the validation application.
ORDER
[22]
In consequence the following orders are made:
1.
Condonation of the late filing of replying affidavit is granted.
2.
Applicant shall pay the costs in the condonation application.
3.
The summons issued by the applicant in case no 4418/2011 and all
subsequent steps taken in pursuance of the action during the
period
of the applicant’s deregistration are declared to be valid and
of full force and effect.
4.
Costs of the validation application shall be costs in the cause.
______________
L.
J. LEKALE, J
On
behalf of applicant: Adv W.A. van Aswegen
Instructed
by:
Lovius
Block
BLOEMFONTEIN
(Ref:
OVS/lv/M420/12*L01795)
On
behalf of respondent: Adv D.J. van der Walt SC
Instructed
by:
Symington
& De Kok
BLOEMFONTEIN