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[2013] ZAFSHC 165
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Smit and Others v Phumelela Local Municipality (5185/2011) [2013] ZAFSHC 165 (24 September 2013)
IN THE HIGH COURT
OF SOUTH AFRICA
FREE STATE
DIVISION, BLOEMFONTEIN
Case No. : 5185/2011
In the matter between:-
DANIEL JOHANNES
SMIT
...............................................
First
Applicant
ANDRIES JOCOBUS
KRUGER
..................................
Second
Applicant
PHILLIPUS STEFANUS
KRUGER
..................................
Third
Applicant
MARIA MAGDALENA DU
PLESSIS
.............................
Fourth
Applicant
and
PHUMELELA LOCAL
MUNICIPALITY
..................................
Defendant
_____________________________________________________
REASONS FOR
JUDGEMENT
_____________________________________________________
[1] The applicants sought
an order that the defendant/ respondent’s appearance to defend
in the main action be struck out
with costs, including the costs in
the main action by reason of respondent’s failure to make
proper discovery. After hearing
the application on 1 and 15 August I
made an order that the respondent pay the costs of this application.
The applicants now seek
the reasons for that order.
[2] In the main action
the applicants, accountants practising in partnership seek payment of
R2 932 109 in respect of
services rendered to the
respondent municipality. The defendant in its plea denied liability
and lodged a provisional counter claim
for damages in which it
demands R6 056 483,30 from the applicants.
[3] The present
application in which the applicant seeks an order striking out the
respondent’s notice of appearance to defend
was launched on 8
May 2013. The respondents filed an answering affidavit and
provisional counter application on 27 May 2013. On
30 May 2013
Mhlambi AJ afforded the applicants leave to file an opposing
affidavit and replying affidavit. On 28 February 2013
this court
ordered the respondent to serve and file before 20 March 2013 his
response to the applicants’ Rule 35(3) notice.
On 20 March 2013
the respondent replied to the Rule 35 notice, as per annexures PPJS 3
– PPJS 10 attached to the founding
affidavit in this
application.
[4] Plaintiffs’
Rule 35(3) notice reads as follows:
“
Kindly take
notice that the Defendant is hereby required to make available to the
Plaintiffs for inspection in accordance with Rule
35(6) the documents
set out below, or to state on oath within 10 (ten) days from receipt
of this notice, that such documents are
not in its possession and
which event the Defendant shall state its whereabouts:
1. The Defendant’s financial
statements for its financial year 2010/2011;
2. The Defendant’s monthly trial
balances for the financial year 2010/2011;
3. The Defendant’s general ledge
for the financial year 2010/2011;
4. All journal entries made by the
Defendant for the financial year 2010/2011;
5. Documentation in support of all
expenses and disbursements incurred by the Defendant for the
financial year 2010/2011;
6. The Defendant’s monthly Bank
reconciliations for the financial year 2010/2011;
7. The Defendant’s VAT
reconciliations for the financial year 2010/2011;
8. The Defendant’s asset
register as was made available to the Auditor-General for the
financial year 2010/2011;
9. The Defendant’s monthly
debtor control accounts for the financial year 2010/2011;
10. The Defendant’s monthly
creditor control account for the financial year 2010/2011;
11. All contracts and accepted tenders
in respect of capital expenses incurred by the Defendant during the
financial year 2010/2011;
12. The Defendant’s valuation
roll of properties for the year 2010/2011;
13. Minutes of meetings of the
trustees of the Krynaauwlust Trust for the financial year 2010/2011;
14. Financial statements for the
financial year 2010/2011 of the Krynaauwlust Trust;
15. All work documents and notes
compiled by Plaintiffs and handed to the Defendant at the termination
of Plaintiff’s mandate
and in respect of the financial year
2010/2011;
16. All correspondence between the
Auditor-General and the Defendant consisting of:
(i) Exceptions;
(ii) Management letters;
(iii) Final Auditor-General report;
and pertaining to the Defendant’s
audit for the financial year 2010/2011;
17. Minutes of meetings between
Defendant and Auditor-General pertaining to the Defendant’s
audit for the financial year 2010/2011.
DATED at JOHANNESBURG on 7
th
day of DECEMBER 2012.
”
The 1
st
response, dated 20 March 2013 is as follows:
“
2.
ADD PARAGRAPH 1
The 2010/2011 sets of the annual
financial statements is provided as requested by the plaintiff’s
attorney.
3.
ADD PARAGRAPH 2
Smit Chartered Accountants had
unlimited access in the Municipality’s Financial System
(Abakus) during the preparation of
the 2010/11 financial statements
and they are in possession of the Trial Balance.
4.
ADD PARAGRAPH 3
Smit Chartered Accountants had
unlimited access in the Municipality’s Financial System
(Abakus) during the preparation of
the 2010/11 financial statements
and they are in possession of the General Ledger.
5.
ADD PARAGRAPH 4
All journal entries were prepared and
captured in both the financial statements (CaseWare) and Financial
System (Abakus) Trial balance
by Smith Chartered Accountants.
6.
ADD PARAGRAPH 5
The Defendant did not compile the
financial statements for 2010/11 and this service was rendered by
Smit Chartered Accountants and
documentation in support of all
expenses is in their possession.
7.
ADD PARAGRAPH 6
It was expected from Smit Kruger
Chartered Accountants to ensure that daily and monthly bank
reconciliations were performed as they
were in the municipality every
day from 8h00 until 16h30 and they should be able to provide the
reconciliation.
8.
ADD PARAGRAPH 7
Refer paragraph 6 above. The same
response is applicable to paragraphs 8 to 11.
9.
ADD PARAGRAPH 12
The valuation roll is provided.
10.
ADD PARAGRAPH 13
The Municipality officials were not
the Trustees of this Trust and therefore did not attend any meeting.
11.
ADD PARAGRAPH 14
The financial affairs of the Trust
were handled by their own Accountants and the plaintiff must request
the financial statements
from the Trustees.
12.
ADD PARAGRAPH 15
The Plaintiff handed over both hard
and soft copies of the financial statements to the Defendants and the
Auditor General for audit
and these statements are provided (refer
paragraph 5).
13.
ADD PARAGRAPH 16
The final management letter and audit
report for the year ending 30 June 2011 are provided. Exceptions are
included in the final
management letter.
14.
ADD PARAGRAPH 17
The Plaintiff is at liberty to
approach the office of the Auditor General and request copies of the
minutes of meetings held.”
[5] The applicants’
attorney found the response inadequate and addressed a letter to the
respondent’s attorney seeking
due compliance with the court
order. On 26 April 2013 the respondent served a supplementary reply
to the Rule 35(3) notice. PPJS
13 – 19. The reply reads as
follows:
“
AD
PARAGRAPH 2 up and including 9 thereof:
5. The documentation referred to in
the items under reply are too voluminous to identify or contain in a
schedule and/or to append
as annexures to this reply. The Applicants/
Plaintiffs are herewith advised, in terms of the provisions of Rule
35(3) read with
(6), that they and/or their attorney are entitled to
inspect the said documents and make copies of relevant documents
against tender
of the reasonable costs pursuant thereto, at the
Respondent’s premises, on Tuesday, 30 April 2013, at 10h00.
Should more
time be needed, the Respondent will accommodate the
Applicants.
AD PARAGRAPH 11 thereof:
6. The documentation referred to in
the items under reply are too voluminous to identify or contain in a
schedule and/or to append
as annexures to this reply. The Applicants/
Plaintiffs are herewith advised, in terms of the provisions of Rule
35(3) read with
(6), that they and/or their attorney are entitled to
inspect the said documents and make copies of relevant documents
against tender
of the reasonable costs pursuant thereto, at the
Respondent’s premises, on Tuesday, 30 April 2013, at 10h00.
Should more
time be needed, the Respondent will accommodate the
Applicants.
AD PARAGRAPH 13 and 14 thereof:
7. As far as the Defendant is aware,
it is not in possession of the said documents and are referred to.
The said trust and or their
accountants should be in possession of
the documents.
AD PARAGRAPH 15 thereof:
8. The items requested are vague to
such an extent that the Defendant cannot reasonably be expected to
know what documents it needs
to discover. Defendant however invites
the Applicants and/or their attorney to its offices on Tuesday, 30
April 2013, at 10h00
to inspect the documents which were handed over
by the Plaintiff to the Defendant. Copies can be made against tender
of the reasonable
costs pursuant to such copies and a schedule can
then be drawn up.
AD PARAGRAPH 17 thereof:
9. The Defendant does not presently
have the minutes of the meetings between it and the Auditor General
in its possession. The minutes
should be in possession of the Auditor
General.”
[6] When the matter
served before me on 1 August 2013 I was of the view that the matter
could be resolved if the applicants sent
representatives to look for
the documents under supervision of and with the help of a
representative of the respondent. I therefore
made the following
order:
“
IT IS
ORDERED THAT:
1. The matter is postponed to
15
AUGUST 2013
to be placed before Honourable Judge Kruger;
2. The respondent to ensure that Mr
Moremi is present as from
Monday
,
5 August 2013
at
10:00
at offices of the respondent in order to assist the
applicants to identify and find the appropriate documents and make
those available
to the applicants;
3. Applicants are to file an affidavit
setting out details of the inspection by
Monday
,
12 August
2013
at
12:00
;
4. Costs of today are reserved to
15
August 2013
.”
[7] The applicants filed
an affidavit giving details of the visit to the respondent’s
offices on 5 August 2013. It appeared
that although the respondent’s
municipal manager, Mr Moremi, was initially not very co-operative, he
did later co-operate
and also his staff. As the applicants’
attorney puts it:
“
Although the
personnel were found to be accommodating and friendly they
unfortunately did not know where to find the required documentation”.
His affidavit continues:
“
3.4 The
applicants were referred to the rooms (safes) which allegedly
contained all the documents. Photographs were taken of these
rooms
and the contents thereof and I annex hereto five photographs marked:
3.4.1 Office in front of safe at the
respondent’s offices;
3.4.2 Part of the safe at the
respondent’s offices;
3.4.3 The other part of the safe at
the respondent’s offices;
3.4.4 The shed at the respondent’s
offices where, I have been informed, the old documents are stored;
3.4.5 Another part of the shed where
allegedly the old documents are stored.”
[8] The photographs
attached to the affidavit show files stacked haphazardly in various
places or rooms without any apparent filing
system.
[9] Mr Cilliers, for
applicants referred me to
Copalcor Manufactures (Pty) Ltd and
Another v FDC Hauliers (Pty) Ltd (formerly GDC Hauliers CC)
2000 (3) SA 181
(W) at 194C-F from which it appears that where a
party has a large volume of documents in its custody it should
arrange those documents
in proper chronological order and properly
number the documents. Mr Cilliers did not refer to a reported case in
which a court
set aside a notice of appearance to defend or dismissed
an action after finding discovery of a large volume of documents
inadequate.
[10] Mr Snellenburg for
respondent contended that Rule 35(3) only requires a party to make
documents available for inspection in
accordance with rule 35(6). Mr
Snellenburg pointed out that the respondent is neither obstructive
nor unwilling to comply with
the court order to make discovery. There
are practical difficulties. There are large volumes of documents and
respondent has difficulty
to identify them.
[11] It seemed to me to
be a relevant consideration that the applicants were the auditors of
the respondent. They had therefore
worked with the documents now
required. It appeared to me that this was a case in which the
applicants would be able to point out
to the respondent’s
representatives the documents they required. That was the reason for
my order on 1 August 2013. Mr Snellenburg
pointed out that documents
which have not been discovered could also not be used by the
respondent.
[12] After hearing
argument on 15 August 2013 I was of the view that respondent could do
no more to find the documents. At the trial
applicants will probably
be able to show that some documents are not available due to the
fault of the respondents, and seek an
adverse inference against the
respondent. The respondent’s filing system was inadequate, and
that was the reason why respondent
was ordered to pay the costs.
[13] It is not the
function of the court or the intention of Rule 35(3) to penalize a
defendant for its defective filing system
by means of an order for
dismissal of its defence.
[14] It was ordered that:
1. Respondent pay the
costs of this application, including the costs incurred on 30 May
2013.
____________
A. KRUGER, J
On
behalf of Applicants: Adv H.J. Cilliers
Instructed
by:
Hill
McHardy and Herbst Inc.
BLOEMFONTEIN
On
behalf of Defendant: Adv N Snellenburg
Instructed
by:
Bahlekazi
Attorneys
BLOEMFONTEIN
/wm