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[2013] ZAGPPHC 219
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Isibaya Fund v Visser and Others (41924/06) [2013] ZAGPPHC 219 (17 July 2013)
NOT
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT PRETORIA
CASE
NUMBER 41924/06
DATE:17/07/2013
In
the matter between:
THE
ISIBAYA
FUND
…........................................................................................
PLAINTIFF
and
E.
J.
VISSER
…....................................................................................................
FIRST
DEFENDANT
V.
COETZEE
…....................................................................................................
SECOND
DEFENDANT
T.
B.
LEHLOEKE
..................................................................................................
THIRD
DEFENDANT
JUDGMENT
PRELLER
J:
[1]
By agreement between the parties I made an order in terms of Rule
33(4) that the first and second defendants’ special
plea of
prescription be disposed of first and separately and that the other
prayers be postponed sine die.
[2]
In the summons plaintiff is described as a fund governed by the
Public Investment Corporation Act No. 23 of2004. The predecessor
of
that Act was the Public Investment Commissioners Act No 45 of 1984.
In terms of Sec. 12 (l)(b) of the former Act the Public
Investment
Corporation stepped seamlessly into the shoes of the commissioners,
taking over all their rights and obligations. Sec
12(10) provides
that any legal proceedings that were pending or could have been
instituted by or against the commissioners may
be instituted or
continued by or against the Corporation subject to any law governing
prescription of debt. (I shall revert to
the words in italics
shortly). The Corporation is, in terms of Sec. 2, “......... a
juristic person, an institution outside
the public
service................. ” (underlining added) which is
registered in terms of the Companies Act. The State is
the sole
holder of the shares in the Corporation (Sec. 3 (1)), and in terms of
Sec. 6 the members of the board of directors are
appointed by the
minister of finance. The main object of the Corporation is to be a
financial services provider and the Corporation
has in terms of Sec
11 wide powers to receive money for the purposes of investment.
[3]
One of the clients of the Commissioners was the Civil Servants’
Pension Fund, whose funds were entrusted to them for investment.
The
Commissioners operated a number of funds in whose names the
investments were made, plaintiff being the relevant one in this
case.
In the “Last Schedule” (which is in fact the first
annexure) to the shareholders’ agreement which is referred
to
below, ISIBAYA is defined as “....the ISIBAYA Fund Consortium
of Portfolio Fund Managers represented by INFINITY.”
INFINITY
is in turn defined as “...INFINITY ASSET MANAGEMENT
(PROPRIETARY) LIMITED, a company duly incorporated in accordance
with
”
A
“fund” is not referred to in either of the two Acts
mentioned nor in the Corporation for Public Deposits Act No. 46
of
1984. There is no provision dealing with any such fund and it does
not seem to me that the entity cited as the plaintiff in
this case
has legal personality. The plaintiff should therefore properly have
been the Public Investment Corporation. However,
no point was made of
this in either the pleadings or during the trial and for present
purposes I shall accept that the plaintiff
has the necessary locus
standi.
[4]
The claim is for an order that the defendants be “held liable
for the contravention of section 424 of the Companies Act”
no.61 of 1973 and be held personally liable for an amount of R80
million for losses suffered by the plaintiff in the affairs of
The
Carewell Group. There was no suggestion of a contravention of any of
the provisions of the said section but it was clear enough
that what
the plaintiff had in mind was a declaration of personal liability as
contemplated in the section. The three defendants
were the
representatives of various entities that had entered into a joint
venture with plaintiff and also controlled the holding
company that
is referred to in the next paragraph.
[5]
During 1998 plaintiff decided to invest part of the funds at its
disposal in a venture that was formed with defendants. On 22
February
1998 a Shareholders’ Agreement was signed, from which it
appears that the venture would consist of a group of companies.
A
copy is annexed to the particulars of claim which, together with its
annexures, consists of 160 pages. The holding company was
Lesiba
Healthcare Holdings (Pty) Ltd, which was later renamed.
[6]
In terms of the agreement plaintiff would invest an amount of R 35
million in what was agreed to be the holding company by purchasing
a
25% shareholding in it and would advance a further R 35 million by
way of a loan to the company. In order to protect its interests,
plaintiff would have the right to veto any decision by either the
shareholders or the board until such time as the loan has been
repaid
in full and would also be entitled to nominate two of the ten
proposed members of the board.
[7]
The first directors of the company were one Graham-Parker
(representing plaintiff) and the three defendants. Third defendant
was the managing director. Some three moths later the name of the
company was changed to The Carewell Group of South Africa (Pty)
Ltd.
Graham-Parker left the employ of plaintiff in August 1998 and his
place on the board was taken by one Luwazi Koyana, who also
testified
for plaintiff before me. First defendant resigned as a director with
effect from 1 June 1999 and second and third defendants
from the end
of August of the same year, although the latter remained involved in
the affairs of the company. On 31 August 1999
a settlement agreement
was signed, the purpose of which was to regulate to some extent the
termination of the relationship between
plaintiff and defendants.
After that date first and second defendants had no further
involvement in the affairs of the company.
Nothing in particular
turns on this agreement and there is no need to deal with the
contents thereof.
[8]
By the year 2001 the entire group of companies was dormant, had lost
all its share capital and had ceased trading. The group
was finally
wound up on 14 January 2005 on an application by plaintiff. I may add
that by order of the Master of the South Gauteng
division of this
court dated 9 March 2005, an inquiry in terms of section 417 read
with 418 of the Companies act was held into
the affairs of the
Carewell Group. The inquiry lasted from about April 2005 until May
2006 and the commissioner brought out her
report on 14 November 2006.
[9]
Summons was served on first and second defendants on 8 January 2007.
After reciting inter alia
most
of the history set out above, the following allegations are made in
paragraph 10 of the particulars of claim:
“
10
The plaintiff has established:
10.1
that the Carewell Group, almost from the outset of the injection of
the Plaintiffs funding, was mismanaged by various directors
of its
business who were in control of its affairs, more specifically the
First, Second and Third Defendants;
10.2
that in breach of their fiduciary duties, the First, Second and Third
defendants engaged the Carewell roup in certain extraordinary
transactions which were dubious, were not envisaged in the business
plan, had not been authorized at board meetings of directors
and
shareholders as envisaged by the terms of the Agreement, such
transactions involving reckless conduct, alternatively fraud,
as
envisaged by s. 424 of the Companies Act, No. 61 of 1973, on behalf
of the First, Second and Third Defendants being inter alia
the
following:
Five
instances of conduct by the defendants are listed in substantiation
of the allegations made in paragraphs 10.1 and 10.2, which
may be
summarized as follows:
1.
The purchase of 55 licences “up-front” while only 17
clinics were opened, and of a 25% interest in Solit (Pty) Ltd,
a
company in which first and second defendants had an undisclosed
interest;
1.
The lending of R 5 741 000 to a related company for the purchase of a
property without the approval of the board;
2.
A transaction with Incentive Holdings Limited shortly before its
listing on the Johannesburg Stock Exchange without the approval
of
the board;
3.
Certain unauthorized loans to directors and staff;
4.
Allowing a debt of R 23.5 million to the Carewell Group to be
incurred by one of its subsidiaries.
[4]
In paragraph 11 of the particulars of claim it is alleged that there
was a total lack of corporate
governance
by the three defendants, in that:
“
11.1
board minutes did not reflect the transactions referred to;
11.2
the attendance register was negligible;
11.3
there were inadequate resolutions approving and sanctioning the
transactions referred to;
11.4
there was collusion to misappropriate company funds in order to
dissipate its funds provided in essence by the plaintiff;
11.5
most of the transactions were not in accordance with the original
business plan, and had nothing to do with its ordinary course
of
business. ”
Save
for the allegation of misappropriation in paragraph 11.4, the
allegations in paragraph 11 are really covered by the five instances
of misconduct listed in paragraph 10.2.
[5]
The final allegation, in paragraph 12, is that plaintiff has, as
envisaged by section 424 of the Companies Act, been unable
to recover
an amount of R80 million lost by it due to the reckless and unlawful
conduct of the defendants in the affairs of The
Carewell Group. Apart
from the usual orders for costs and alternative relief, plaintiff
asks for an order that defendants
“
....
be held liable for the contravention of Section 424 of the Companies
Act, and be held
personally
responsible to make payment, jointly and severally for an amount ofR
80 million, owed by them to the Plaintiff for losses
in the affairs
of The Carewell Group. ”
It
was clear enough that the intention was that defendants be declared
personally liable for plaintiffs loss by virtue of the provision
of
Sec. 424 and the case was conducted on that basis.
[12]
Defendants’ special plea is to the effect that plaintiff had
knowledge of the alleged conduct of defendants on or before
9 March
2000 and because summons was only served on defendants on 8 January
2007, plaintiffs claim had become prescribed in terms
of
section 11
of the
Prescription Act, No 68 of 1969
. Plaintiff did not replicate
to the special plea and has made no positive averments in respect of
prescription. It was common cause
that defendants bear the onus to
prove the facts relied on for prescription. The question for decision
is therefore simply whether
plaintiff had the knowledge needed to
institute its claim against defendants at the stage alleged in the
special plea, or at least
before 8 January 2004.
[13]
Mr. Wagener SC who appeared for first and second defendants, informed
me that he proposed proving the required knowledge on
two bases:
firstly that plaintiff had been represented on the board of directors
and therefore had knowledge of every relevant
fact as the events took
place and secondly by virtue of the application for an order for the
seizure of assets in terms of
section 26(1)
of the
Prevention of
Organised Crime Act 121 of 1998
which was granted by this court in
case number 6352/2000 on 9 March 2000. In addition plaintiff, because
of its suspicion of mismanagement,
had the affairs of the company
investigated by two different firms of auditors and was in possession
of both reports, as well as
the answer thereto by first and second
defendants, towards the end of July 1999. The first of these reports
was drafted by an ordinary
firm of auditors and the second by a firm
of forensic auditors. Both these reports served before a meeting of
the board of directors
of the company on which plaintiff was
represented as set out above.
[14]
Mr Wagener called the first defendant to testify. It soon became
clear that an inordinate amount of time would be spent in
dealing
with every incident of which plaintiff is alleged to have had
knowledge through its representative on the board. I accordingly
made
a ruling at the request of Mr Wagener that the evidence regarding the
application in case number 6352/2000 be dealt with first
and
separately. Mr Farber opposed the application, but in the end
consented to this procedure on the understanding that he might
need
the case to stand down in order to enable him to prepare for leading
his evidence. If needs be, the evidence relating to the
actual
incidents could be reverted to at a later stage.
[15]
The entire set of affidavits and annexures in case 6352/2000,
consisting of more than 2 000 pages, was placed before me in
five or
six lever arch files. The applicant was the Director of Public
Prosecutions, but it was brought at the instance and with
the
assistance of plaintiff. The application was based on the allegations
made by plaintiff in criminal charges against first and
second
defendants. The founding affidavit was deposed to by the head of the
asset forfeiture unit, Mr. W.A. Hofmeyr, who clearly
had no personal
knowledge of the facts. He relied on supporting affidavits by inter
alia one Amod, plaintiffs legal advisor, whose
information in turn
came from mainly the aforesaid Koyana (plaintiffs representative on
the board), and also from third defendant.
Although one of the
defendants
in the present claim, I can only assume that the latter’s
inclusion as a defendant was for the sake of formality
only, as he
clearly sided with plaintiff in the entire dispute. Mr Farber
submitted that it does not follow that the plaintiff
had the
necessary knowledge at the time when the Asset Forfeiture Unit
instituted its application against the defendants, because
it was the
National Prosecuting Authority that launched the application and not
the plaintiff. According to his argument the plaintiff
was not privy
to all the information available to the NPA.
There
is no merit in this submission. The NPA had no information of its own
and relied exclusively on the information supplied to
it by the
plaintiff. Mr. Farber was not able to refer me to any information
used in the application that did not originate from
persons who were
in the camp of the plaintiff.
[16]
In his evidence first defendant identified the passages in the
affidavits in which each one of the aspects mentioned in paragraph
10
of the particulars of claim is dealt with. Paragraphs 10 and 11 of
the particulars of claim were clearly based on the allegations
made
in the affidavits and the reports by the auditors.
[17]
The interim attachment order in terms of the
Prevention of Organised
Crime Act was
granted on 9 March 2000 in an ex parte urgent
application. The provisional order was opposed on the return day and
was eventually
discharged by Van der Westhuizen J (as he then was) in
a fully reasoned judgment on 22 December 2000. He discharged the rule
in
the exercise of his discretion in terms of the Act. From his
judgment, as also from even a cursory glance at the affidavits
deposed
to on behalf of the applicant, it is abundantly clear that
the deponents had an intimate knowledge of the facts and
circumstances
on which they based their confident statements under
oath in the founding papers that serious irregularities and even
theft and
fraud had been committed.
Defendants
filed voluminous answering affidavits. It was a matter of months
before the applicants finally filed their replying affidavits.
In the
founding papers the applicants relied on about 18 transactions
involving an amount of approximately R 50 million. On the
return day
their counsel abandoned all but the five instances that are listed in
paragraph 10 of the particulars of claim and reduced
the amount
allegedly misappropriated to just about R 12 million. That was
certainly not, as suggested by Mr Farber for the plaintiff,
due to
any lack of knowledge on the part of the applicant at the time, but
simply because it had investigated the matter more fully
and knew
that its earlier claims could not be substantiated. The reason for
the discharge of the rule was likewise not a lack of
knowledge of the
facts on the part of the applicant, but the exercise of its
discretion by the court, based on inter alia the failure
by the
applicant to disclose several material facts in the ex parte
application.
[18]
In his cross-examination of first defendant which started on Monday
afternoon 29 November, Mr Farber commenced by referring
first
defendant to a handwritten document headed “With Prejudice
Offer” which he had signed on 15 June 2006 during
the course of
the inquiry in terms of section 417 of the Companies Act into the
affairs of the company. It was an offer by first
defendant to pay an
amount of R 1 400 000 as well as a contribution to costs of R 250 000
to the Public Investment Corporation
in settlement of every claim “on
both a civil and criminal basis” against first and second
defendants. Mr Wagener objected
to the production of this document on
the grounds that plaintiff had not made discovery in respect thereof.
In answer Mr Farber
informed me that plaintiff had only become aware
of the document during consultation on the previous Sunday afternoon.
The case
stood down until the next day on the understanding that Mr
Wagener would be allowed to consult with his client and consider his
position. On the next morning he informed me that in order to avoid a
further delay he would consent to the document being used
provisionally, subject to his right to dispute its admissibility and
relevance in closing argument and provided that the witness
be
allowed to place the background against which the document had been
signed on record.
After
eliciting from the witness the statement that he had written out the
document as it was dictated to him by Mr Farber, the
latter declined
the opportunity to cross-examine him further about the circumstances
under which it had been signed, save for recording
that he disputed
any suggestion by the witness of improper conduct by him in the
process.
[19]
In order to avoid the need to take the witness in cross-examination
through his answering affidavit, Mr. Wagener at my invitation
conceded that it could be accepted that the witness had given an
exonerating explanation for every allegation that is made against
defendants in the founding papers. It also emerged in his
cross-examination that first and second defendants had been arrested
and detained on criminal charges but were never asked to plead. All
charges against them were later withdrawn.
[20]
In re-examination by Mr Wagener he stated that he had signed the
acknowledgment under duress and that it was Mr Farber himself,
who
had been doing the questioning, who dictated its terms to him. He
added that he never admitted owing anything to plaintiff
and that
when he signed it, it was nothing more than an attempt to put an end
to the pressure that was brought to bear on him in
the inquiry. I
shall deal with the admissibility and relevance of this document
later in this judgment.
That
concluded the evidence for defendants on the special plea.
[21]
Mr. Farber called Mr. Luwazi Mandisi Koyana as a witness on behalf of
plaintiff. He is a chartered accountant and succeeded
Graham-Parker
as plaintiffs representative on the board of the Carewell Group. He
became the acting managing director after the
departure of third
defendant during about the middle of 1999. He was an employee of
Infinity Asset Management (Pty) Ltd, a company
that was managing the
investment in Carewell on behalf of plaintiff. According to him he
was moved to Carewell in order to salvage
their investment. As stated
above, he had deposed to an affidavit in case number 6352/2000 and he
and third defendant were the
two main witnesses on the facts on
behalf of the applicant. He conceded in his evidence in chief that he
could not say that there
was any new information in his evidence at
the inquiry in terms of section 417 that had not already been
included in his affidavit
in support of the application. He also
testified that at the inquiry he had expressed the view that a claim
in terms of sec. 424
against defendants could succeed.
[22]
He testified in cross-examination that the Public Investment
Commissioners (“PIC”) were an arm of government and
that
plaintiff was a division in the business of the Commissioners and not
a separate entity. That could mean nothing more than
that in reality
the plaintiff before me was the Public Investment Corporation. The
question whether that means that plaintiff is
the State as
contemplated in the
Prescription Act and
the argument advanced in
this regard by Mr. Farber will be dealt with later in this judgment.
[23]
Because of his function to salvage the investment, he informed his
principals at the PIC of events as they unfolded. He participated
in
the decision to prosecute the first two defendants and the PIC as
well as the attorney who acted for them, one Mr. Pathudi Maponya,
were also consulted. He never saw the two reports of the auditors in
their final form and as far as he was aware they were never
finalised, due to plaintiffs failure to pay the fees of the auditors.
In any event he made sure that
all
the information at his disposal was passed on to the asset forfeiture
unit. Mr. Maponya had also testified at the inquiry that
he did the
“donkey work” for the inquiry. He was the plaintiffs
attorney and all the knowledge that he obtained in
the process was
obtained on behalf of the plaintiff and simply is the plaintiffs
knowledge.
That
concluded the evidence of the plaintiff.
[24]
Mr. Wagener submitted that
section 11
(d) of the
Prescription Act is
applicable and that the relevant period for the prescription of
plaintiffs claim is three years. In this regard
section 12
(3) is
also relevant, which reads:
“
(3)
A debt shall not be deemed to be due until the creditor has knowledge
of the identity of the debtor and of the facts from which
the debt
arises: Provided that a creditor shall be deemed to have such
knowledge if he could have acquired it by exercising reasonable
care.”
He
submitted that plaintiff must have had all the knowledge that it
required in order to institute its claim by the time that the
application was made in the beginning of 2000. Plaintiff was the
complainant in the criminal case that gave rise to the application
for the attachment order, and the application was based on the
statements made on behalf of plaintiff in the criminal case. I shall
deal further with the question of plaintiffs knowledge later in this
judgment.
[25]
Mr. Farber made several submission regarding prescription but I do
not find it necessary to deal with every one of them and
shall limit
myself to the main points of his argument.
His
first submission was that the applicable period of prescription was
15 years, in terms of
section 11
(b) of the
Prescription Act. For
this submission he relied on the provisions in the Public Investment
Commissioners Act, in terms of which the Commissioners were
charged
with the investment of certain funds held on behalf of the
Government. (Apart from the Government, the headnote to the
Act also
makes provision for the investment of funds held on behalf of
“certain bodies, councils, funds and accounts”.)
Furthermore the commissioners were the Minister or his alternative
and certain persons appointed by him, with the result that the
commissioners and their successor, the Public Investment Corporation,
were all government controlled who invested government funds
and the
loan should therefore be regarded as one by the government.
The
short answer to that submission is that the Commissioners were
clearly not the State as contemplated in the
Prescription Act. The
meaning attributed to “the State” in that Act has to be
restricted. (See: Holeni v. Land and Agricultural Development
Bank,
2009 (4) SA 437
SCA at paragraph [18].) Plaintiff is certainly not
“....government, going about government business and recovering
moneys
due to treasury.” (Ibid. paragraph [19]). Furthermore,
as pointed out in paragraph [2] above, the real plaintiff in this
case is the Corporation which, in terms of section 2 of its creating
Act, is “.... a juristic person, an institution outside
the
public service...”. This status of the PIC must, if anything,
apply with even more force to Isibaya, which is merely
one of its
divisions. It is also of interest that the amount of R 70 million was
paid to Carewell by plaintiff and not by National
Treasury. Both the
loan and the capital investment were therefore not made by the State.
[26]
Mr Farber submitted in the alternative that the investment was made
in 1998 and in any event, according to defendants, the
plaintiff had
knowledge of the identity of the defendant and of the facts from
which the debt arose at the time of the application,
which was in the
year 2000. That was well before the Public Investment Corporation
Act, No. 23/2004 came into force and the investment
was made by the
Public Investment Commissioners in terms of Act 46/1984.
In
the first place, what is at stake here is not the loan to or the
investment in the Carewell group, but the manner in which the
defendants conducted the business of that company. The date on which
the loan was made is therefore of no consequence.
Secondly,
and although it is not necessary for me to make a finding in this
respect, it seems clear to me that even the commissioners
were not
the State for the purposes of the
Prescription Act. That
is apparent
from the headnote of the Act in terms of which the commissioners were
entrusted with funds
for
investment from not only the Government, but also of “.....
certain bodies, councils, funds and accounts.” Furthermore,
apart from the minister, there would be at least two other
commissioners appointed by him, leaving the possibility that the
majority
of the commissioners could be private citizens.
Thirdly,
by the time that the present action was instituted, the previous act
had been replaced by the Public Investment Corporation
Act n. 23
of2004. As already pointed out, that body is clearly not the State
for the purposes of the
Prescription Act. Nor does
it avail the
plaintiff that the claim may have arisen during the shift of the
Commissioners: When the new Act came into operation,
the
commissioners simply ceased to exist and all the assets and
liabilities of the Commissioners were transferred to the Corporation.
Any claim that the Commissioners may have had against the defendants,
now became the claim of the Corporation, which is not the
Sate. The
claim, even if it were based on the original loan and investment, was
no longer a “debt owed to the State”
nor one
“
arising
out of an advance or loan of money” as contemplated in
sec. 11
(b) of the
Prescription Act. As
pointed out above, the claim was not
one for a loan of money, but one for an order that the defendants be
held liable by virtue
of the provisions of sec. 424 of the Companies
Act.
Plaintiff
is clearly not the State and there is no reason why the applicable
period should not be three years.
[27]
He further submitted that in terms of the loan agreement the first
instalment was only repayable in March 2003 and the second
one a year
later. Although the agreement contains an acceleration clause, it was
subject to an election by plaintiff, who elected
not to rely on the
clause after the first default by Carewell. Consequently, on his
argument, the debt became due at the earliest
only after the second
default during March 2004, which was less than three years before
service of the summons in January 2007.
That
cannot be correct for two reasons. Firstly plaintiff is not claiming
repayment of the loan, but an order in terms of section
424 of the
Companies Act. Secondly prescription in respect of a debt that is due
on demand commences to run as soon as demand can
be made. A plaintiff
cannot thwart the very objective of the Prescription Act by electing
for years not to rely on an acceleration
clause and then claim to
have elected not to rely on it until he has reached the safety of the
three year period before prescription
is completed. See in this
regard
Western
Bank v. S J J van Vuuren Transport, 1980(2) SA 348 (T) as approved of
in:
The
Master v. I L Back & Co Ltd, 1983(1) 896 (AD) at 1004F-H and
1005H-1006A.
[28]
Mr Farber also referred me to par. [28] of the judgment in Duet and
Magnum Holdings v. Koster, 2010(4) SA 499 SCA in which
Nugent JA
refers to the “last event” that was required to have
occurred for the particulars of claim not to have been
excipiable. He
submitted that in the present case that “last event” was
the insolvency enquiry, “where sufficient
and reasonable
knowledge was acquired”.
That
submission misses the point of the dictum by Nugent JA. The “last
event” referred to by the learned Judge of appeal
is not the
final piece of the puzzle that completes the picture for the
plaintiff, but the occurrence of the last event which the
plaintiff
must allege in his particulars of claim in order to complete his
cause of action. The question is not whether the plaintiff
on that
occasion obtained sufficient information to persuade him of the
soundness of his case, but when he became aware of all
the facts that
he needed to allege in order to draft particulars of claim that will
not be excipiable.
See
inter alia: Minister of Justice v. Gore, 2007(1) SA 111 SCA par.
[17].
[29]
I should perhaps briefly deal with the document signed by the first
defendant at the inquiry in terms of Sec. 417.
I
find it inconceivable that neither Mr. Farber, who did the
questioning at the inquiry and obtained the acknowledgment of debt
from the first defendant, nor is instructing attorney could have been
unaware of what would, from their point of view, have been
a very
important document until as late as the Sunday afternoon, after the
trial had already started and just before the cross-examination
of
the first defendant was to commence. This failure was not explained
to me, nor was the person identified who brought its existence
to
their attention. I think that discovery should have been made
of
it before the time and if not, then at least at the commencement of
the hearing on the Monday morning.
Secondly
the nature of the dispute should be kept in mind. The claim is not
for money owing, but for an order in terms of Sec. 424
of the
Companies Act. The fact that the defendant may have given an
undertaking to pay a sum of money to the plaintiff is irrelevant
and
has no bearing on the question whether the affairs of the company
were conducted in the manner contemplated in Sec 424. If
the
plaintiff wished to rely on the acknowledgment as a cause of action,
it should have been pleaded.
I
accordingly find the document to be inadmissible, both because of the
failure to make discovery of it and because it is irrelevant.
[30]
The first of the main issues for decision in this case concerned the
nature of plaintiffs claim. Plaintiff sues for a declaratory
order in
terms of section 424 of the Companies Act and the question arises
whether such an order is a “debt” as contemplated
in
section 11
of the
Prescription Act. A
similar question arose for
decision in Barnard & Lynn NNO v. Schoeman, 2000(3) SA 168 (N) in
respect of a claim for setting
aside a disposition in terms of
section 340( 1) of the Companies Act. The court found that the “debt”
is not a debt
in the normal sense but a specialised right of action
bestowed on a liquidator arising out of his statu1984 in Burly
Appliances
Ltd v. Grobbelaar NO & Ors., 2004(1) SA 602 (C). The
court found that the term “debt” is not defined in the
Prescription Act, but
has to be given a wide and general meaning and
dismissed the exception.
[32]
This court followed the decision of the Cape court in Barnatory
functions and that the claim had accordingly not become prescribed..
[31]
The Cape court came to a different conclusion on an exception raised
against a special plea of prescription on a claim in terms
of
sections 64 and 65 of the Close Corporations Act, rd NO v.
Bezuidenhout, 2004(3) SA 274 (T) in respect of a claim in terms of
sections 63, 64 and 65 of the Close Corporations Act. In Duet and
Magnum Financial Services CC (In Liq) v. Koster, 2010(1) SA 312
(T)
it was argued that a finding that e.g. the affairs of a company had
been conducted recklessly or fraudulently is an essential
step that
has to be pleaded before an action can be instituted for the payment
of an amount. According to the argument, the running
of prescription
will only commence once such a finding has been made. The argument
was rejected and the court followed the judgments
in Burley and in
Barnard v. Bezuidenhout on a claim for an order setting aside and
unlawful disposition by a close corporation
that fell within the
ambit of either section 26(1 )(b), 30(1) or 29(1) of the Insolvency
Act. The court also found that there is
no reason, for purposes of
the commencement of the running of prescription, to distinguish
between a claim in terms of sections
64 and 65 of the Close
Corporations Act on the one hand, and one in terms of section 424 of
the Companies Act on the other.
[33]
The Duet and Magnum case went on appeal to the Supreme Court of
Appeal and the judgment was confirmed. (Reported at 2010(4)
SA 499).
In paragraphs [12] and [13] of the latter judgment the court found
that similar remedies are given to the liquidator in
terms of
sections 64 and 65 of the Close Corporations Act and section 424 of
the Companies Act, and concluded in paragraph [13]:
“
In both cases the
declaration that is made by the court brings into existence debts
that did not exist before and simultaneously
enables the debts
immediately to be enforced through the ordinary process of
execution.”
The
right to have such a declaration made is the right that plaintiff is
attempting to enforce and which the Supreme Court of Appeal
found to
have been extinguished by prescription. I can see no reason why the
Prescription Act should
not apply with equal force to the present
claim as it does to claims in terms of sections 26 to 31 of the
Insolvency Act.
[34]
Mr. Farber sought to distinguish the Duet and Magnum case from the
present, because the former was based on the provisions
of the Close
Corporations Act and the latter on section 424 of the Companies Act.
The distinction, according to him, lies in the
words “or
otherwise ” in section 424(1) which do not occur in the
corresponding section of the Close Corporations Act.
Apart from the
fact that the Supreme Court of Appeal did not find a distinction
between the two situations, the words quoted and
the fact that in
terms of the section the remedy is also available to a creditor or a
contributory, both widen the applicability
of section 424 rather than
to restrict it. As already mentioned, the court a quo in Duet and
Magnum expressly found there is no
distinction in this respect
between the remedies offered by the two Acts and the SCA did not
differ from that view.
[35]
The second main issue in the trial before me was the question when
plaintiff had acquired the required knowledge, as contemplated
in
section 12(3)
of the
Prescription Act, “of the
facts from which
the debt arises.”
This
case differs from the normal situation in which a creditor attempts
to hold the directors of an insolvent company personally
liable for
the debts of the company, in the important respect that plaintiff had
a representative on the board of the Carewell
Group throughout. Mr
Farber attempted to put some distance between plaintiff and its
representative, with the evidence of Koyana
that he was not directly
employed by plaintiff but by INFINITY, which is referred to in
paragraph 3 above. I was told very little
about the exact arrangement
between plaintiff and Infinity, but Koyana’s evidence was that
Infinity was managing the investment
on behalf of Isibaya. Although
he attempted to minimize the part that he played in the management of
Carewell’s affairs with
his statement that he was a
non-executive director (the meaning of that term is not clear in the
context of this case), he stepped
into the shoes of third defendant
when the latter resigned as managing director at the end of August
1999. In any event, plaintiff
had the right to be represented on the
board and if the knowledge of its appointed agent could not be
ascribed to plaintiff, then
at least plaintiff could have acquired
all the necessary knowledge with the exercise of reasonable care, as
contemplated in
section 12(3)
of the
Prescription Act.
[36
]
Mr. Farber also relied on the reference in paragraph [28] of the
Magnum judgment to the need to identify the “last event”
that was required to have occurred for the particulars of claim not
to be excipiable and submitted that in the present case that
event
was the insolvency enquiry, “where sufficient and reasonable
knowledge was acquired”. That argument is with respect
based on
a misunderstanding of the SCA judgment. What is referred to is
knowledge of the occurrence of the last event that needs
to be
pleaded in the particulars of claim and not the acquisition of
further evidence to fortify his confidence in the strength
of his
case.
My
conclusion is that the plaintiffs claim has been extinguished by
prescription. The order that I make is that the special plea
of
prescription is upheld with costs.
FG
PRELLER
JUDGE
OF THE HIGH COURT