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[2013] ZAGPPHC 375
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Minaar v Van Rooyen N.O. (27788/04) [2013] ZAGPPHC 375 (20 November 2013)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
(REPUBLIC
OF SOUTH AFRICA)
Case No. 27788/04
Date: 20 November 2013
Reportable
In the matter of:
CASPER HENDRIK
MINAAR
……………………………………
Applicant
And
A W VAN ROOYEN N
O
………………………………………
.
Respondent
JUDGMENT
KEIGHTLEY AJ:
1.On the 23 February
2012, Van der Merwe DJP, granted an order against the applicant in
the following terms (“the Order”):
“
After reading the papers
filed and hearing counsel for the Plaintiff, the Court makes the
following order: (BY DEFAULT)
1.It is declared, pursuant to the
provisions of Section 424(1) of the Companies Act, number 61 of 1973
that the 1st Defendant is
personally liable without any limitation of
liability, for all the debts of the company, Askari Mining and
Equipment Ltd (In Liquidation)
2.The 1st Defendant shall pay the
costs, including the costs occasioned by the employment of two
counsel.”
2.The applicant is the
first defendant referred to in the Order. He seeks a rescission
thereof. Before I give consideration to the
rescission application,
it is necessary to set out certain background facts.
Background facts
3.In addition to the
applicant, there were four further defendants cited in the
proceedings that led to the Order being granted.
The applicant and
the second to fourth defendants had all been directors of the company
in liquidation referred to in the Order,
Askari Mining and Equipment
Ltd (“Askari”).
4.It is common cause that
the applicant had been a consultant with Askari from 1999, until he
was appointed as its financial director
in May 2000. He resigned with
effect from 1 November 2001. The fifth defendant, one De la Pierre,
was the CEO of another company,
Gilboa Investments Ltd (“Gilboa”),
which had entered into negotiations with Askari, and had subsequently
signed a “subscription
agreement” in terms of which it
was to become the majority shareholder in Gilboa. In his capacity as
CEO of Gilboa, the fifth
defendant also became involved in the
running of affairs of Askari.
5.Askari was
provisionally liquidated in June 2003, and finally liquidated in July
2008. On 11 March 2004, the Master appointed
retired Judge President
CF Eloff as Commissioner for purposes of an inquiry into the affairs
of Askari in terms of section 417
of the Companies Act, No 61 of 1973
(“the Companies Act”). I will deal with the relevant
findings of the Commissioner’s
report later. Suffice to say at
this stage that subsequent to the report, in May 2008, the
liquidators instituted an action against
the defendants in terms of
which they sought an order under section 424(1) of the Companies Act
holding the defendants personally
liable for all the debts of Askari
in liquidation. It was this action that ultimately led to the
granting of the Order. I should
clarify that a succession of
liquidators was involved over the years as plaintiffs in the action.
The current respondent is the
present incumbent.
6.The action took some
time to wend its way to court. The applicant and second to fourth
defendants appointed the same attorney
to represent them. This was
initially one Mr Roux and, subsequently, one Mr Assenmacher. The
applicant and second to fourth defendants
filed a joint plea in
August 2009 in which they denied the allegations against them.
7.Thereafter, the matter
was set down for trial on 22 February 2012. The possibility of a
settlement of the matter arose during
2011. The applicant confirms in
his founding affidavit that he recalls that settlement proposals were
“on the table”,
and he attaches a letter dated 2 April
2011 in this regard.
8.At the beginning of
October 2011, the applicant was informed, presumably by his attorney,
that he was required to attend a pre-trial
conference. The pre-trial
was scheduled for 30 November 2011.
9.The applicant held the
view at this stage that the other defendants wanted to settle the
matter by offering a settlement amount
to the liquidators. However,
he felt that he had not done anything wrong, or acted recklessly, and
that he did not have money for
a costly defence. He says that he
accordingly sought the advice of a member of his church congregation,
Mr Oosthuizen, who was
also an attorney. Mr Oosthuizen advised the
applicant to attend the pre-trial, and to “stay with” the
defendants’
joint attorney. In the meantime, Mr Oosthuizen
would informally, and not as an attorney of record, see if he could
negotiate a
possible withdrawal of the action against the applicant.
10.On 30 November 2011,
the day of the scheduled pre-trial, the applicant sent an email to Mr
Assenmacher. The content of the email
is important for purposes of
the rescission application, and I quote it in full (in the original
Afrikaans):
“
Ek verneem dat die “Pre
Trial” vandag plaasvind. Ook dat daar moontlik ’n
skikkingsvoorstel gemaak gaan word.
Ek wil graag op record
wees dat ek nie deel is van enige
skikking. Dit staan my kollegas vry om ’n skikking to reel, en
my standpunt benadeel hopelik
nie enige regte of optrede aan hulle
kant nie.
Indien julle ’n skikking
bereik en die Teenkant wil my steeds alleen verder in the Hof kry,
sal ek my
e/e verdediging
hanteer. Ek sal ssm (so spoeding moontlik) ’n nuwe prokureer
van rekord kry en jou laat weet.
My besluit is gebaseer op die feit
dat ek nie geld het vir ’n skikking (ook nie vir verdere
regskoste) en dus die saak na
die beste van my vermoed moet hanteer.
Ek bly ook oortuig dat ek nie skuldig is nie, hoewel ek geensins die
bewyslas en kompleksiteit
van die saak onderskat nie.
Dankie vir die moeite tot nou en
sterkte vir jou en Barry met die “pre trial” an alles.”
11.The applicant did
nothing more about the trial pending against him, save that it is
common cause that after the pre-trial conference
Mr Oosthuizen
approached the liquidators’ attorney in an attempt to have the
case against the applicant dropped. It is also
common cause that Mr
Oosthuizen’s approach was not successful, and that the
liquidators’ attorney advised Mr Oosthuizen
that his client
intended to continue the proceedings against the applicant. The
applicant says that Mr Oosthuizen never advised
him of this.
12.On 17 February 2012,
the applicant received a telephone call from Mr Assenmacher advising
him that he was withdrawing as his
attorney. The applicant did not
seek any information from Mr Assenmacher as to what the status of
proceedings was as far as he,
the applicant, was concerned.
13.The applicant did not
attend the hearing on 22 February 2012 despite the fact that he knew
of the trial date. In his founding
affidavit, the applicant avers
that he was informed about the pre-trial meeting at the beginning of
October 2011 “because
the matter had been set down for trial
for 22 February 2012". On the applicant’s own version,
therefore, he had knowledge
of the trial date from at least early
October 2011, and his belated attempt to deny this knowledge in reply
must be rejected.
14.The case against all
the other defendants had been settled on 17 February 2012 after
protracted negotiations commencing on the
evening of the pre-trial
conference. On the scheduled day of the trial, counsel for the
liquidators moved that the settlement agreement
with second to fourth
defendants be made an order of court (there was an existing separate
settlement with De la Pierre). The liquidators
also moved for an
order against the applicant.
15.The learned Judge
indicated to counsel for the liquidators that he had problems with
the draft orders presented to him. One of
these problems was that he
was not prepared to grant a judgment sounding in money against the
applicant. He was of the view that
he could only grant declaratory
relief under section 424(1) of the Companies Act. The matter stood
down until the next day so that
the necessary amendments could be
made to the draft orders. On the following day after further issues
had been ironed out the learned
judge granted the Order against the
applicant.
16.The next point in the
narrative concerns what occurred after the Order was granted. The
applicant was served with a warrant of
execution on 30 July 2012. It
is not clear on what basis the warrant of execution was issued, given
the declaratory nature of the
Order. However, that is not an issue
presently before me. On being served with the warrant, the applicant
contacted Mr Oosthuizen
for his assistance. Over the next two months
the parties discussed the possibility of settlement: the liquidators
were prepared
to settle on an amount of R500 000. 00. On 29 October
2012, the applicant’s counter-offer of R100 000. 00 was
rejected.
17.It was only on 14
December 2012 that the applicant instituted the application for
rescission of the Order.
The rescission
application
18. The applicant relies
on Rule 42(1 )(a) and the common law as the legal bases on which he
founds his application for rescission.
He also relies, “if
necessary' on Rule 31(2)(b). This is not an appropriate legal basis
for rescission in the present matter.
Rule 31(2)(b) applies to
situations where a defendant fails to file a notice of intention to
defend or a plea.
[1]
The applicant filed both. Accordingly, in my view, the rescission
application is more properly founded on Rule 42(1 )(a) and the
common
law, and I will confine myself to the question of rescission on these
two bases.
19. Rule 42(1 )(a)
provides that:
“
The
court may, in addition to any other powers it may have, mero motu or
upon the application of any party affected, rescind or
vary ... (a)n
order or judgment erroneously sought or erroneously granted in the
absence of any party affected thereby".
20.In his founding
affidavit, the applicant avers that the Order was erroneously granted
because “if his Lordship Mr. Justice
Van der Merwe had been
aware of the facts as set out below, he would not have granted the
judgment'. The “facts set out below”,
to which the
applicant refers, comprise the entire substance of the founding
affidavit, covering (according to the headings in
the affidavit) the
relevant background, the judgment, the reasons for the applicant not
attending the trial date, the warrant of
execution and the
applicant’s alleged bona fide defence.
21.The applicant fails to
identify in his founding papers precisely what fact or facts were
critical such that they would have led
the learned Judge to refuse
the Order, had he been aware of them. Instead, the applicant’s
approach was to set out a long
narrative of facts on the assumption
that this Court would glean from them something that might lead to
the conclusion that the
order was erroneously granted. In my view, it
is improper to approach an application for rescission in this manner.
An applicant
bears the onus of satisfying the Court that he or she
has met the requirements for rescission under Rule 42(1 )(a).
Therefore,
it is incumbent on the applicant to specify with
sufficient particularity what fact or facts caused the alleged error
on the part
of the Court in granting the order in question. This duty
is not satisfied by setting out a long narrative of facts, as the
applicant
has done in this case.
22.In any event, even if
one has regard to the overall narrative of facts set out by the
applicant, I am unconvinced that they establish
a ground for
rescission under Rule 41(2)(a). As I indicate in dealing with the
applicant’s common law basis for rescission
later in this
judgment, his complaint focuses on the failure of his attorney to
communicate with him about the trial against him.
He says that this
led to a bona fide belief on his part that the case against him was
not proceeding.
23.The Supreme Court of
Appeal consistently has rejected this type of complaint as founding a
proper case for rescission under Rule
42(1 )(b). The Appellate
Division set out the position as follows in
De
Wet & Others v Western Bank
:
[2]
“
The
appellants cannot avail themselves of the fact that their attorney
had not complied with all the requirements of Rule 16(4).
There is no
question of any irregularity on the part of the respondent. At the
stage when Lebos withdrew as the appellants' attorney,
the case had
already been set down for hearing on 16 August 1976 in accordance
with the Rules of Court, and there was no need for
the respondent to
serve any further notices or documents on the appellants in
connection with the resumed hearing. As far as the
trial Court
was concerned the Rules of
Court had been fully complied with and the notice of trial had been
duly given. When the case
was
called before Van Reenen J neither the appellants nor their legal
representative were present in Court, and, in the circumstances,
the
respondent's counsel was fully entitled to apply for an order of
absolution from the instance with costs in terms of Rule 39(3)
in
respect of the appellants' claims and to move for judgment against
the appellants under Rule 39(1) on the counterclaim. The
fact that
the appellants had not been advised timeously of the withdrawal
of their attorney is, of course, a factor to be
taken into account in
considering whether good cause has been shown for the rescission of
the judgments under the common law, but
it is not a circumstance on
which the appellants can effectively rely for the purpose of an
application under the provisions of
Rule 42(1 )(a).
”
24.The Supreme Court of
Appeal confirmed this approach in
Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape)
[3]
and held that:
“
The same reasoning applies
in this case. The defendant describes what happened as a filing error
in the office of his Cape Town
attorneys.
That
is not a mistake in the proceedings. However one
describes what occurred at the
defendant's attorneys' offices which
resulted
in the defendant's failure to oppose summary judgment, it
was
not
a procedural irregularity or mistake in respect of the issue
of the order. It is not
possible to conclude that the order
was
erroneously sought by
the plaintiff or erroneously granted by the
Judge
."
(emphasis added)
25.I
am of the view that the facts of the present case fall squarely
within the same category as the cases cited above. Even assuming,
for
present purposes only, as I deal with this issue in more detail
later, that the applicant’s attorney was remiss in
communicating
with him, this was not the kind of error at which Rule
42(1 )(a) is aimed.
26.Accordingly, I find
that the case for rescission based on Rule 42(1 )(a) made out in the
founding papers not warrant an order
of rescission.
27.However, counsel for
the applicant revealed an additional string to the applicant’s
bow in his submissions to court. In
his heads of argument, and his
oral submissions before me, counsel for the applicant, Mr Davis SC,
contended that an order under
section 424(1) of the Companies Act is
of such a nature that it cannot be granted by way of a default
judgment without the court
hearing evidence to substantiate the
claim.
28.In amplification of
this, Mr Davis SC submitted as follows:
28.1.A court may not
grant a declaration under section 424(1) merely on a prima facie
case. For this submission, he relies on
Joh-Air
(Ptv) Ltd v Rudman
[4]
and
Philotex
(Ptv) Ltd v Snyman
[5]
.
28.2.In order for a court
to grant a declaration under section 424(1) it must be able to make
an individual value judgment on a
particular defendant’s
knowledge, intent and involvement in the conduct under scrutiny.
28.3.A court cannot do so
without hearing evidence, even if a defendant does not appear at the
hearing.
28.4.The effect of a
court granting relief under section 424(1) without hearing evidence
is to make an order on nothing more than
a prima facie case.
28.5. A court is not
competent to do so, and such an order will be vulnerable to
rescission under Rule 42(1)(a) on the basis that
it was erroneously
sought and granted.
29.It
is common cause on the papers that no evidence was led before Van der
Merwe DJP. Accordingly, Mr Davis SC submits that the
Court was not
competent to grant the Order by default, and it falls to be rescinded
under Rule 42(1)(a).
Section
424(1) and whether it was competent for the Court to grant a
declaration without
hearing evidence
30.The issue of whether
it is competent for a Court, in an application for a declaration
under section 424(1) of the Companies Act,
to grant default judgment
without hearing evidence is a novel one. Mr Davis SC was unable to
direct me to any authority dealing
with the precise issue raised in
this case, nor was I able to find any such authority.
31.Section 424(1) of the
Companies Act deals with the liability of directors and others for
the fraudulent or reckless conduct of
the business of a company. It
provides that:
"When
it appears, whether it be in a winding-up, judicial management or
otherwise, that any business of the company was or
is being carried
on recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
Court may, on the application of the Master, the liquidator, the
judicial-manager, any creditor or member or contributory
of the
company, declare that any person shall be personally responsible,
without any limitation of liability, for all or any of
the debts or
other liabilities of the company as the Court may direct."
32.Rule 39(1) is also
relevant to the issue. It provides that:
“
If, when a trial is called,
the plaintiff appears and the defendant does not
appear,
the plaintiff may prove his claim so far as the burden of proof lies
upon him and judgment shall be given accordingly, in
so far as he has
discharged such burden. Provided that where the claim is for a debt
or liquidated demand no evidence shall be
necessary unless the court
otherwise orders."
33.The crux of Mr Davis
SCs’ submissions is based on the statement in Henochsberg
[6]
to the effect that the words “
when
it appears ... the Court may
’
in section 424(1) “
do
not import that the Court may make a declaration merely on a prima
facie basis; the onus is on the applicant to establish his
case on a
balance of probabilities
."
Henochsberg cites
Joh-Air
(Ptv) Ltd v Rudman
,
[7]
and
Philiotex
(Ptv) Ltd v Snyman
[8]
in support of his statement, and Mr Davis SC relies on these cases.
34.The statement of the
law in Henochsberg is correct. However, this does not mean that the
conclusion Mr Davis SC seeks to draw
from this is sound. To
understand properly the import of the Joh-Air and Philotex decisions
for purposes of the particular issue
raised in this case it is
necessary to place these cases in context.
35.The critical issue
raised in the
Joh-Air case
centred on a submission by the
applicant (appellant on appeal) that:
“
the
application contemplated in terms of section 424(1)
is
to be
distinguished
from any other form of application
and
that by failing to so distinguish the application
and in deciding the matter on a
balance
of probabilities
the
Judge
a quo
erred. It
was
further submitted that the applicant was required to establish
only
a prima
facie
case
to
entitle the applicant to the declaration ....”
[9]
(emphasis added)
36.It was in respect of
this submission that the court held that a prima facie case was
insufficient. This was confirmed by the
Supreme Court of Appeal in
the
Philotex
case, which held that:
“
The
onus is upon the party alleging recklessness to prove it and,
these
being civil proceedings, to establish the necessary facts
according to the
reouired civil standard, which is on a balance of
probabilities
.
”
[10]
(emphasis added)
37.It is clear from these
dicta that the court in both cases was dealing with the issue of the
requisite
standard of proof
to be applied in applications
under section 424(1). These cases establish that, as with any other
application in a civil matter,
the requisite standard of proof is a
balance of probabilities, and they reject the notion that a lower,
prima facie standard of
proof applies. Thus, when Henochsberg states
that a court may not grant a declaration on a prima facie case, it
means on the basis
of a prima facie standard of proof. It is not a
reference to the prima facie nature of the facts and evidence before
the court,
which means something different:
“
Prima facie evidence in its
usual sense is used to mean prima facie proof of an issue, the burden
of proving which is upon the party
giving that evidence. In the
absence of further evidence from the other side, the prima facie
proof becomes conclusive proof and
the party giving it discharges his
onus.”
[11]
38.As the learned authors
of the
The
South African Law of Evidence
[
12]
point out, with reference to the meaning of “a prima facie
case”: “The answer ... depends on what one means by
the
expression ‘
expression
prima facie
’
for ... it has been used to mean different things with different
effects.” Thus, the Courts’ references to the
insufficiency of a prima facie case in section 424(1) proceedings in
the
Joh-Air
and
Philotex
cases
must be understood with specific reference to the sense intended,
i.e. a reference to the standard of proof required. The
meaning of
the expression
“prima
facie case
”
in those cases cannot simply be transplanted into another case that
raises different issues.
39.Unlike the
Joh-Air
case
, the issue that is raised in the present matter does not
centre on the appropriate standard of proof. This case concerns the
basis
upon which a Court may competently decide, in a situation where
a defendant does not appear at the trial, that it is satisfied that
the plaintiff is entitled to succeed in its claim. Most critically,
it concerns the procedural options open to the court in making
this
determination, and its approach to the available facts and evidence.
40.Neither of the two
cases relied on by the applicant dealt with this issue. Both cases
were determined on a fully opposed basis,
and the question of default
did not arise. In addition, in both cases, the order that was sought
under section 424(1) included
a provision directing the respondents
or defendants concerned to pay a specified sum in respect of the
company’s debts. As
I have indicated, Van der Merwe DJP refused
to make such an order in this case. The relevance of this latter
point will become
more apparent below.
41.Accordingly, in my
view the
Joh-Air
and
Philotex
decisions are not
authority for Mr Davis SC’ contention that it is not competent
to grant a section 424(1) declaration by
default without hearing
evidence. In order to evaluate this contention, it is necessary to
widen the scope of inquiry.
42.The Constitution
expressly recognises the inherent power of the High Courts to protect
and regulate their own process.
[13]
The power to regulate the processes of court must be exercised within
the framework laid down by the Uniform Rules of Court and
any
relevant legislation.
43.Rule 39(1) provides
that where a defendant fails to appear at a trial the court may give
judgment in favour of the plaintiff
if the court is satisfied that
the plaintiff has discharged the burden resting on him or her. The
Rule goes further in providing
that the court may do so without the
necessity of evidence in a claim which is for a “
debt or a
liquidated demand’.
44.The Rules do not
define this term, although it has been held to be a claim for
something that is fixed, certain or an ascertained
amount.
[14]
A debt or liquidated demand is not limited to claims for the
repayment of a sum of money.
[15]
Claims for the transfer of property, cancellation of contracts,
ejectment, a declaration that a defendant had no right to occupy
a
farm and a perpetual interdict restraining him from trespassing on
the farm have all been treated as claims for debts or liquidated
demands.
[16]
Claims for damages generally are not treated as being a claim for a
liquid demand, as the quantum of damages claimed must be proved.
45.What is clear is that
there is a wide spectrum of claims that potentially fall within the
category of debts or liquidated demands
for purposes of Rule 39(1).
The decision as to whether a claim falls within this category, and
can be dealt with effectively without
the necessity for leading
evidence, is a matter left to the discretion of the court in each
particular case.
[17]
46.Unfortunately, because
the applicant did not raise this particular ground of rescission in
his founding papers, the facts pertaining
to the hearing before Van
der Merwe DJP are not fully traversed in the papers. However, there
is sufficient evidence, in my view,
to support the conclusion that
the learned Judge was alive to the issues raised by Rule 39(1), and
that he applied his mind as
to how best to proceed in dispensing with
the issues before him. Indicative of this is the fact that he had
clearly deliberated
over the case before the trial commenced. He told
counsel for the plaintiff that he had various problems with the
orders that were
sought. One of these was that he was not prepared to
grant an order against the applicant in the form of a money judgment,
but
was only prepared to grant it in the form of a declaration.
47.This is consistent
with the general practice of the High Courts, described above, in
terms of which orders sounding in money
will not be granted by
default without evidence being led if the quantum of the claim must
be proved. As I have indicated, declarations
of rights or
obligations, on the other hand, can be dealt with as debts or
liquidated demands for purposes of default judgment,
rendering it
unnecessary in such cases to lead evidence in support of the claim.
In my view, the learned Judge’s insistence
on a declaration,
rather than granting an order in the form of a money judgment
demonstrates that he dealt with the matter as a
claim involving a
debt or liquidated demand in respect of which it was not necessary
for him to require the leading of evidence.
48.The question to be
decided for purposes of these rescission proceedings is not whether
the learned Judge was incorrect in doing
so, in the sense that
another judge might have done things differently. Rule 42(1 )(a)
permits a rescission only in circumstances
where there is an
irregularity in the judicial process. The Supreme Court of Appeal
dealt with the question of the
appropriate
ambit of this Rule in Colyn v Tiger Food Industries Ltd t/a Meadow
Feed Mills (CapeV)
[18]
.
In this judgment, with regard to the foundations of rescission in our
law, the Court said the following:
“
The
guiding principle of the common law is certainty of judgments. Once
judgment is given in a matter it is final. It may not thereafter
be
altered by the Judge who delivered it. He becomes functus officio and
may not ordinarily vary or rescind his own judgment. That
is the
function of a Court of appeal. There are exceptions. After evidence
is led and the merits of the dispute have been determined,
rescission
is permissible only in the limited case of a judgment obtained by
fraud or, exceptionally, justus error. Secondly, rescission
of a
judgment taken by default may be ordered where the party in default
can show sufficient cause. It is against this common-law
background,
which imparts finality to judgments in the interests of certainty,
that Rule 42
was introduced.
The Rule caters for mistake. Rescission or variation does not follow
automatically upon proof of a mistake. The
Rule gives the Courts a
discretion to order it, which must be exercised judicially. Not every
mistake or irregularity may be corrected
in terms of the Rule,”
[19]
49. The Court further
noted that there was a trend in the Courts over the years not to give
a more extended application to the Rule
to include all kinds of
mistakes or irregularities.
[20]
50. I am satisfied that
this case does not give rise to a mistake or irregularity that falls
within the ambit of Rule 42(1 )(a).
51. I have already
expressed the view that the available facts concerning the
proceedings before Van der Merwe DJP demonstrate that
in granting the
Order without requiring that evidence be led, he exercised his
discretion to treat the case as one falling within
the proviso in
Rule 39(1). The Order states expressly that it was granted after
"reading the papers filed and hearing counsel
for Plaintiff.”
52.I cannot find that it
was irregular for the learned Judge to proceed on the basis that he
did: the particulars of claim were
explicit in the averments against
the defendants on their alleged reckless conduct; the applicant and
second to fourth defendants
had elected to rely on a common defence
by filing a joint plea; thereafter, all of the defendants, bar the
applicant, elected to
enter into settlement agreements with the
liquidators rather than attempt to sustain this defence at trial;
this fact was known
to the learned Judge, and he was requested
to make the agreement with the applicant’s co-defendants an
order of court;
the applicant did not appear at the trial, and nor
did he communicate with the plaintiff or its attorneys before the
trial. In
these circumstances, it was entirely appropriate for the
learned Judge to proceed on the basis that it was not necessary for
the
plaintiff to lead evidence for purposes of obtaining a
declaration by default.
53.I am fortified in my
view by the judgment in the case of Abraham v City of Cape Town.
[21]
In this case a similar point was raised to the one before me, albeit
not involving section 424(1) of the Companies Act. In that
case,
judgment by default had been granted against the applicant in a
delictual claim involving a motor vehicle accident. At the
trial, the
Court accepted an affidavit dealing with the aspect of damages, but
no evidence was led on the merits of the claim.
In a subsequent
rescission application, the applicant contended that the Court had
acted erroneously (for purposes of Rule 42(1
)(a)) in not applying
its mind to the question of whether or not it was appropriate that
evidence should be led to prove negligence
on the part of applicant
and to confirm that there was no contributory negligence on the part
of respondent.
54.In rejecting this
contention and refusing to grant rescission under Rule 42(1 )(b), the
Court stated the following:
“
This
Court's
point of departure should in my view be that it is for each presiding
officer to decide for him- or herself, dependent on
the facts of each
case, whether to hear oral evidence or not. I am unpersuaded that the
mere theoretical possibility that there
may have been contributory
negligence on the part of a plaintiff would be sufficient cause for a
Court to insist rigidly that oral
evidence should be led in every
such case where a default judgment based on delict is sought. I use
the word 'theoretical' advisedly,
because ex facie the pleadings or
evidence concerning the damages sustained by a plaintiff, the
possibility may be apparent that
such contributory negligence may be
present.
In such a
case the Court
may
well in the exercise of its discretion decide to call for oral
evidence
.
However, where such a contention is not raised by a defendant nor
evident ex facie the pleadings, the mere fact that the Court
has the
power to apportion damages where contributory negligence is proved
does not seem to me to be a valid reason for fettering
the discretion
of the Court in the manner contended for."
[22]
(emphasis added)
55.In the
Abraham
case the defendant, unlike the applicant in this case, had not filed
a plea. Despite this difference, in my view the principle
stated by
the Court in the dictum cited above is applicable in a case such as
the one before me. The salient point made is that
when it comes to
default judgments and the proviso under Rule 39(1) comes into
consideration, each presiding judge has the discretion
to decide for
him- or herself whether or not it is necessary for the plaintiff to
lead evidence. The Judge retains this discretion
even in
circumstances where the pleadings or facts of the case may raise a
particular issue. In granting the Order without requiring
the
plaintiff to lead evidence, Van der Merwe DJP was doing no more than
exercising his discretion to do so.
56.Mr Davis SC sought to
persuade me that an application for relief under section 424(1) is of
a special nature and should not be
treated in the same manner as
other claims that are covered by the proviso in Rule 39(1). He
pointed to the fact that a court is
required to make a value judgment
before granting an order under section 424(1), and suggested that a
court cannot properly do
so unless it hears evidence.
57.It is so that a court
must exercise a value judgment. The Supreme Court of Appeal described
this as follows in
Fourie
v Newton
:
[23]
“
What is required is not the
application of the exact science of hindsight, but a value judgment
bearing in mind what
was known,
or ought reasonably to
have
been known, by individual directors at the time the decisions were
made.”
58.However, the standard
by which a director’s conduct must be measured under section
424(1) is an objective one. As the Supreme
Court of Appeal held in
Philotex:
“
The test for recklessness is
objective insofar as the defendant's actions are measured against the
standard of conduct of the notional
reasonable person and it is
subjective insofar as one has to postulate that notional being as
belonging to the same group or class
as the defendant, moving in the
same spheres and having the same knowledge or means to knowledge:
S
v Van As
1976
(2) SA 921
(A) at 928C-E.
"
[24]
59.To the extent that
there is a subjective element to the assessment of a director’s
conduct, it is limited to this extent
and does not alter the inquiry
into a subjective one. In addition, the conduct envisaged is not
limited to the taking of positive
steps in connection with the
conduct of the company’s’ business. It may also include
support for, or concurrence in
such conduct. It must also be borne in
mind that a director has a duty to observe the utmost good faith
towards the company and
to exercise reasonable skill and diligence,
and has an affirmative duty to safeguard and protect the affairs the
company. A director
may be held to be a party to reckless conduct
“
even
in the absence of some positive steps by him in the carrying on of
the company’s business.
"
[25]
These factors are all indicative of the fact that liability under
section 424(1) is not dependent on establishing active, individual
conduct, and actual knowledge and intent on the part of a particular
director in every case.
60.Taking all of this
into account, I cannot accept Mr Davis SC’ submission that the
value judgment a court must make before
it grants an order under
section 424(1) requires, in every case, that evidence must be led.
Nor can I accept his submission that
it was irregular for the learned
Judge to grant the Order without hearing evidence to establish the
applicant’s individual
knowledge and intent.This is not what
section 424(1) requires.
61.As I have pointed out,
there were sufficient facts before the learned Judge to allow him to
exercise his discretion on whether
it was necessary for the plaintiff
to lead oral evidence in order to satisfy him that the plaintiff had
made out its case. There
is nothing in section 424(1) to indicate
that the Legislature intended default judgments in respect of this
section to be dealt
with any differently than other civil cases. As
this Court has already found in the Joh-Air case, with reference to
the question
of the applicable standard of proof, section 424(1)
proceedings are to be treated like all other civil proceedings.
62. I conclude,
therefore, that it was competent for the learned Judge to make the
Order in the manner that he did, and that there
was no irregularity
or error in the process to support a rescission under Rule 42(1 )(a).
63.The applicant’s
claim for relief under Rule 42(1 )(a) must fail.
64.The remaining issue to
consider is whether the applicant is entitled to relief under the
common law.
Is the applicant
entitled to relief under the common law?
65.In order to succeed
under the common law an applicant for rescission of a judgment taken
against him by default must show good
or sufficient cause.
[26]
66.The Courts generally
expect an applicant to show good cause (a) by giving a reasonable
explanation of his default; (b) by showing
that his application is
made bona fide\ and (c) by showing that he has a bona fide defence to
the plaintiffs claim which prima
facie has some prospect of
success.
[27]
67.The two essential
elements of sufficient cause under the common law are, firstly, a
reasonable and acceptable explanation for
the default, and, secondly,
a bona fide defence which prima facie carries with it some prospects
of success. An applicant must
satisfy both of these elements, and it
is not sufficient if only one of them is met.
[28]
68.As regards the
applicant’s explanation for his failure to attend the trial to
pursue his defence, he states that he “
assumed
with a bona fide belief and with right that this matter has been
settled and that no further action will be taken against
the
Defendants, including myself.”
In amplification of this, he says that he was told by one of his
fellow defendants that the matter had been settled. He had always
been called upon by the other defendants or their joint attorney to
attend to the matter, but he did not receive any such request
after
30 November 2012, which was the day of the pre-trial and the
applicant's email to his attorney referred to earlier. Even
when his
attorney phoned the applicant on 17 February 2012 to advise him that
he was withdrawing as his attorney, the applicant
says he was not
informed that the respondents intended to proceed with the action
against him. The applicant says that he always
intended to defend the
case against him.
69.In short, the
applicant relies on the alleged failure by his attorney or anyone
else to advise him expressly that the matter
was proceeding against
him, and his alleged bona fide belief that it was not to proceed.
Unfortunately for the applicant, the following
salient facts refute
the case he puts up in this regard:
69.1.He knew of the trial
date.
69.2.He had been advised
to attend the pre-trial conference by Mr Oosthuizen but elected not
to do so. He gives no explanation for
this.
69.3.He had expressly
indicated in his email of 30 November 2012 that he would not be part
of any settlement, and that he would
continue to defend himself in
the matter, even if this necessitated obtaining the services of a new
attorney. In the circumstances,
it is difficult to understand how the
applicant could have held the bona fide belief that the settlement of
the matter with the
other defendants included a decision not to
proceed against him.
69.4.Furthermore, Mr
Oosthuizen had approached the liquidators’ attorney after the
pre-trial was held with a view to attempting
to have the case against
the applicant withdrawn. The applicant knew that this had not been
successful. The undisputed evidence
of the respondent’s
attorney in the rescission application is that he had told Mr
Oosthuizen that the liquidators intended
proceeding against the
applicant.
69.5.The applicant fails
to advance any evidence of any steps he took, between 30 November
2012 until the warrant of execution was
served on him in July 2012,
to ascertain the status of the case against him.
69.6.Even after he
learned of the Order when the warrant of execution was served on him
in July 2012, it took a further five and
a half months before the
applicant instituted the rescission proceedings. During this time he
explored settlement with the liquidators,
but he took no steps, as a
person with a bona fide intent to defend himself would do, to
institute rescission proceedings as a
matter of caution and without
delay.
70.In the face of these
facts, I cannot find that the applicant’s explanation for his
default was reasonable and acceptable.
On the contrary, it appears to
me that the applicant deliberately adopted a supine approach to the
litigation once it became clear
that his co-defendants were intent on
pursuing a settlement with the liquidators. Although he says that he
always intended to defend
himself, this statement is not consistent
with his subsequent conduct. A defendant who bona fide intends to
defend an action against
him does not sit supine, waiting for others
to inform him of what is transpiring with his case, and irrationally
assume, when he
is not so informed, that the case has miraculously
gone away.
71.This Court has held,
in
De
Wet & Others v Western Bank Ltd
that defendants have a responsibility to communicate with their legal
representatives and that they "cannot divest themselves
of their
responsibilities in relation to the action and then complain
vis-á-vis
the
other party to the action that their agents, in whom they have
apparently vested sole responsibility, have failed them.”
In that case the Court
rejected the defendants’ explanation that they took it for
granted that their attorney would protect
their interests. It held
that they had demonstrated a complete lack of interest in the
proceedings and were the authors of their
own conduct
[29]
.It strikes me that similar conclusions can be drawn with regard to
the applicant’s conduct in the present case.
72.Accordingly, I find
that the applicant has failed to satisfy this Court on the first of
the two essential elements for rescission
under the common law.
73.Strictly speaking,
this means that I do not have to consider whether the respondent has
established that he has a bona fide defence
that has prospects of
success. I proceed to do so in order to demonstrate that this is not
the kind of case where a very strong
defence may outweigh any defect
in an applicant’s explanation for his or her default.
74.In this regard, it is
significant that the claim against the applicant and his
codefendants was instituted after the inquiry
by the
Commissioner under section 417 of the Companies Act. The
Commissioner’s report made, among others, the following
findings:
74.1.“
Your
Commissioner considers that the enquiry achieved the purpose of
identifying and establishing conduct on the part of the erstwhile
directors of the company which could found an action under section
424. Experience tells one that actions of that sort are often
difficult to proceed to success, but at least enough
was
brought to light to enable the legal advisors of the creditors to
advise whether such an action should be instituted."
74.2.“In the opinion of your
Commissioner the evidence adduced in the enquiry affords at least
prima facie proof of the involvement
of Messrs Hoon,
Minaar.
van Bergh, Bensh, Van Straaten,
Oosthuizen and de la Pierre in the reckless management of the
Company."
(emphasis
added)
75.It is clear from the
report that in the Commissioner’s estimation, there was shared
responsibility by all of the directors,
and other named individuals,
for the reckless management of the company. It would have been
surprising had the Commissioner excluded
the applicant from this
list, as he was the Financial Director.
76.The applicant includes
in both his founding and replying affidavits, his version of events,
in an attempt to show that whatever
the position of the company and
the conduct of other directors and players may have been, he was not
responsible for the reckless
management of Askari. In view of the
position the applicant held in the company, and the nature of the
claims of reckless management
included in the particulars of claim,
it is difficult to find any merit in the applicant’s
contention. The respondent refuted
these contentions in its answering
affidavit. Critically, the deponent to the respondent’s
affidavit, who is the respondent’s
attorney, stated that “
I
am in possession of approximately five boxes full of Lever Arch files
and in every one of them there are documents damning to
the case of
the Applicant
.” Astoundingly, the applicant’s
response to this averment in his replying affidavit is.“
Noted
'.
He went on to say that there may have been errors of interpretation
after all the time that had elapsed.
77.In the face of the
findings in the Commissioner’s report, and the applicant’s
acceptance that the respondent had
five boxes of files damning to the
applicant’s case, I cannot accept that the applicant has a bona
fide defence to the case
of any real merit.
78.In addition, it is
important to refer back to the underlying principle of finality of
judgments. This principle promotes certainty
in the law and
ultimately serves the broad objectives of the interests of justice.
In a case like the present, the interests of
justice would not be
served by accepting without due reserve, that the applicant may have
a defence to the case against him. The
interests of Askari’s
creditors, and the importance of ensuring that liquidation processes
are finalised, would be severely
prejudiced if I were to order
rescission on the outside chance that the applicant might be able to
mount a defence.
79.I accordingly find
that the applicant has failed to persuade this Court on the second
essential element for rescission under
the common law.
80.The applicant’s
alternative claim for relief under the common law must also fail.
Order
81.I make the following
order:
81.1.The application is
dismissed.
81.2.The applicant is
ordered to pay the respondent’s costs.
R.M KEIGHTLEY AJ
Acting Judge of North
Gauteng High Court
HEARD
ON: 20 NOVEMBER 2013
FOR
THE APPLICANT: N DAVIS SC
INSTRUCTED
BY: THERON, JORDAAN & SMIT INC
FOR
THE RESPONDENT: C.J VAN COLLER
INSTRUCTED BY: VEZI &
DE BEER INCORPORATE
[1]
Athmaram
v Singh
1989 (3) SA 953
(D);
Hardroad
(Ptv) Ltd v Oribi Motors (Ptv) Ltd
1977 (2) SA 576
(WLD) at 578C;
Bakoven Ltd v GJ
Howes (Ptv) Ltd
1992 (2) SA 466 (E)
[2]
1979
(2) SA 1031
(A) at 1038D-F
[3]
2003
(6) SA 1
(SCA) at G-H
[4]
1980
(2) SA 420
(T)
[5]
[1997] ZASCA 92
;
1998
(2) SA 138
(SCA)
[6]
Henochsberg
on the Companies Act
. Vol 2, APPI-293
[7]
Above, n4
[8]
Above,
n5
[9]
At 424G-H
[10]
At
142H-I
[11]
Ex parte Minister of Justice:
In re V V Jacobson and Levy
1931 AD 466
at 478
[12
]
Zeffert,
Paizes & Skeen
The South
African Law of Evidence
(2003) p123
[13]
Constitution
of the Republic of South Africa, 1996, section 173
[14]
Fatti's
Engineering Co Ltd v Vendick Spares Ltd
1962 (1) SA 736 (T)
[15]
Erf
1382 Sunnvside (Edms) Bpk v Die Chipi BK
1995 (3) SA 659
(T)
at 662A
[16]
Cillers
et al
Herbstein & Van
Winsen The Civil Practice of the High Courts of South
Africa
(5ed) pg 749 and the authorities cited there;
Farlam
et al
Erasmus Superior Court
Practice
B1-198 to B1-200 and the authorities
cited there.
[17]
Fatti’s
Engineering Co Ltd v Vendick Spares Ltd
. n9 above at 739G
[18]
Above, n3
[19]
At
5J-7B, references omitted
[20]
At
IE
[21]
1995 (2) SA 319(C)
[22]
At 324J-325B
[23]
[2011]2 All SA 265 at para 45
[24]
Above, n3 at p143G
[25]
Henochsberg,
n3 above, APPI - 302(1) and the authorities cited there
[26]
Colyn
v Tiger Food Industries Limited t/a Meadow Feed Mills
(Cape),
n3 above at
9C; De___
Wet
& Others v Western Bank 1977 (4) SA 770 (T)
[27]
Colyn
,
op cit, at 9E and the authorities cited there.
[28]
Chetty v Law Society. Transvaal
1985 (2) SA 756
(AD) at 765B-F
[29]
Above n26, at 780B-G