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2012
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[2012] ZAKZDHC 103
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Mouritzen v Greystone Enterprises (Pty) Ltd & Another (2012 (5) SA 74 (KZD); [2012] 3 All SA 343 (KZD)) [2012] ZAKZDHC 103; [2012] ZAKZDHC 34 (8 June 2012)
IN
THE KWAZULU NATAL HIGH COURT, DURBAN
REPUBLIC
OF SOUTH AFRICA
(REPORTABLE)
CASE
NO. 10442/2011
In
the matter between:
KENNETH
HANSEN MOURITZEN APPLICANT
and
GREYSTONES
ENTERPRISES (PTY) LTD FIRST RESPONDENT
DIGBY
HALL MOURITZEN SECOND RESPONDENT
J
U D G M E N T
NDLOVU
J
Introduction
[1] This matter is brought in terms of
section 165(5) of the new Companies Act
1
(the Act) read with the related subsections thereof. It is opposed
only by the second respondent.
Factual Background
[2] The applicant, Kennneth Hansen
Mouritzen, and the second respondent, Digby Hall Mouritzen, are
brothers and the only directors
of the first respondent, Greystones
Enterprises (Pty) Limited (the company). The company has 198 shares
in issue, all of which
rank
pari passu
and 98 of these are
held by the Mouritzen Family Trust, which is a trust established for
the benefit of the Mouritzen family, that
is, the family of both the
applicant and the second respondent. The second respondent and his
wife, Agnes, each hold 49 shares
(a total of 98) and the remaining 2
are held by Shirley Johnston and Merle Larkan who are the sisters of
the applicant and the
second respondent. The trustees of the
Mouritzen Family Trust are the applicant and one Lance Kenneth
Cobrough.
[3] In
terms of the notice of motion the applicant seeks relief against the
respondents in the following terms:
“
The
Applicant is given leave to institute action in the name of
Greystones Enterprises (Pty) Limited against the Second Respondent
claiming the following relief:
“
1. Digby
Hall Mouritzen is ordered to render a full account of his expenditure
on his First National Bank Limited credit card? number
for a period
of three years prior to the date of this order;
2. such
account is to be delivered within ten days of the date of this order;
3. a
debatement of the said account;
4. payment
to the applicant of whatever amount appears to be due to the
applicant upon debatement of the account;
5. costs
of suit …”
[4] The applicant and the second
respondent, as co-directors, are paid equal monthly salaries by the
company. In addition to their
salaries an arrangement was put in
place in terms of which personal credit cards were issued in the
names of each one of them.
The credit cards were linked to the
company’s First National Bank account in the sense that all
credit card transactions
are automatically debited to, and paid by,
the company. To the extent that the applicant alleges gross abuse of
the personal credit
card used by the second respondent to the
detriment and prejudice of both the company and its shareholders,
particularly the Mouritzen
Family Trust, of which the applicant is
the trustee, the applicant now seeks an order granting him leave to
institute an action
in the name of the company against the second
respondent for the relief set out in the notice of motion.
Submissions and arguments
[5] It was common cause that the
applicant and the second respondent were at loggerheads and that the
relationship between them
has been strained for a long time. As a
result a number of disputes have arisen between them, some of which
have culminated in
court litigation. The second respondent alleges
that this application is only a ploy that the applicant is now
employing to further
his personal vendetta against the second
respondent, which the applicant denies.
[6] In his founding papers the
applicant alleges that in or about March 2010 a certain staff member
of the company drew to his attention
that several fee notes issued by
a firm of attorneys, namely Barkers Attorneys, in respect of
professional services rendered to
the second respondent in his
personal capacity had been paid for by the company. Upon receiving
this information the applicant
approached his attorneys of record
(Cox Yeats Attorneys) to investigate the matter, which the attorneys
did. A letter dated 19
March 2010 was addressed by the applicant’s
attorneys to Barkers Attorneys.
[7] In their email reply dated 23
April 2009 Barkers Attorneys (
per
Mr Julian Murdoch) explained
that since May 2009 the firm had from time to time acted for the
second respondent and that initially
the account for the services
rendered was addressed to the second respondent personally. However,
on 17 August 2009 the second
respondent had instructed the attorneys
to forward the accounts to the company for payment. In any event, Mr
Murdoch indicated
that “
Barkers will cause its records to be
amended so that Digby
(the second respondent)
is once again
reflected as the account holder for the entire period.”
This
reply did not satisfy the applicant but, instead, it only served to
motivate him to pursue the matter to a further level.
[8] The applicant further submits that
the expenses charged to the company by the second respondent for the
use of his personal
credit card have in recent months escalated out
of all proportion as to what might be regarded as reasonable
expenditure for a
director and have reached a point where they are
having an impact on the financial results of the company, a situation
which is
prejudicial to the company’s shareholders, more
especially the Mouritzen Family Trust.
[9] As a result, the applicant,
through his attorneys, delivered by post to the company a letter
dated 23 May 2011, which letter
served as a demand in terms of
section 165 of the Act (“the demand”)
2
.
The demand was responded to by the second respondent by an email
dated 30 May 2011 which he addressed to Mr Graham Cox, the
applicant’s
attorney
3
.
In the email the second respondent disputed any suggestion that he
was cheating the company and alleged that he had been
“paying
legitimate company expenses using the credit card”,
contrary
to the applicant whom he accused of being the culprit in that
regard. Concluding his email communication to the applicant’s
attorney, the second respondent said:
“I
suggest you ask your client to tell the truth.”
[10] It is after this email response
by the second respondent to the demand that the applicant has
instituted this application.
The applicant contends that he is acting
in good faith and in the best interests of the company.
[11] In his answering papers the
second respondent has set out a detailed background of the personal
conflicts and hostilities that
have been in existence and still
continuing between him and the applicant. According to him it has
been the applicant who has for
many years abused his credit card
facility by charging to the company many expenses which were not
related to the company’s
business. In this regard he quoted the
following instances in which he alleged the company was caused to pay
for the applicant’s
personal expenses:
Luxurious world travel, unrelated to
the company, undertaken by the applicant and his life partner, Jo
Ann Mellon.
Entertainment unrelated to the
company.
Payment of expenses on behalf of
entities other than the company in which the applicant had a direct
or indirect interest.
Purchase of spares on behalf of
entities in which the applicant or Jo Ann Mellon had a direct or
indirect interest.
Payment of general personal expenses,
including the dental and medical bills for the applicant and Jo Ann
Mellon.
[12] The second respondent has
insisted that every expense transacted through his personal credit
card and paid for by the company
was the expense which he incurred on
behalf of the company or whilst acting in his capacity as director of
the company. He denies
that the company paid for any expenses which
he incurred in his personal capacity for his own private purposes.
[13] A preliminary legal point was
taken by Mr
Harrison
,
who appeared for the second respondent, that the demand does not meet
the requirement envisaged in subsection (2) of section 165
of the Act
which prescribes that the demand has to be
served
on the company. Mr
Harrison
argued that, in
this context, the word “
serve
”
can only be understood to mean
service
on the company at its registered office or at its principal place of
business. He pointed out that in this instance the demand
was merely
posted by ordinary mail to a postal address. This was neither
service at the registered office of the company nor its
principal
place of business. In support of his proposition Mr
Harrison
referred me to the decisions in
Phase
Electric
4
and
Afric
Oil
5
.
He submitted that the fact
of the demand having come to the notice of the second respondent was
irrelevant, because he received
it in his personal capacity.
[14] Mr
Broster SC,
appearing for
the applicant, submitted that the demand was properly served on the
company. There was no dispute that the postal
address to which the
demand was forwarded was that of the company. Moreover, he observed
that in the last two lines of the document
it was reflected that
copies of the demand were sent to the email addresses of both the
then company’s attorneys (Barkers
Attorneys) and the applicant.
Mr
Broster
further argued that the sole purpose of service was to notify the
respondent to come to court and that once the court is satisfied
that
the company received the document it is immaterial how, in technical
terms, the document was served. He referred me to the
decision in
Odendaalsrus Municipality
6
in support of his argument.
[15] On the merits, Mr
Harrison
submitted that this application is not being instituted in good faith
and that the applicant has been driven by an ulterior motive
occasioned by the animosity which exists between them. He pointed
out, for instance, that in the auditors’ report for the
year
ended 31 January 2009 it was reported, amongst other things, that “
a
director of the company may have breached his duty to act in good
faith by enriching himself at the company’s expense by
causing
management fees of R720 000 in the 2008 year, payable by the joint
venture company, Greystones Cargo Systems (Pty) Ltd,
to be paid to an
entity other than the company.
”
7
He stated that the director referred to in the report was in fact
the applicant and that as a result of this accusation a civil
action
for the recovery of the management fees aforesaid was instituted
against the applicant. That matter was already part-heard
before this
Court, the next trial dates being on 11 to 15 June 2012. He
contended that this application was nothing more than
a
counter-charge which has no honesty in it.
[16] However, Mr
Broster
argued
that the sour relationship between the applicant and the second
respondent has nothing to do with this case. What has to
do with it
was the question whether or not the company was being cheated. He
pointed out that the second respondent was free to
request the
inspection of the applicant’s credit card account and that the
applicant was willing to accede to such a request.
Specifically, Mr
Broster
referred to the applicant’s founding papers
where the applicant stated, in part, as follows:
“
I
deny that I have refused to make details of the debits appearing on
my credit card available to the Respondent. In this regard
I tender
to supply to the respondents with whatever details they or either of
them may request in relation to transactions financed
through the use
of my credit card.”
8
The Issues
[17] I am satisfied that the issues
for determination can be defined as follows
9
:
1. Whether the demand dated 23 May
2011 was properly served on the company in compliance with section
165(2) of the Act;
2. Whether, in seeking to have
proceedings commenced against the second respondent –
2.1 the applicant is acting in good
faith; and
2.2 it is in the best interests of the
company that the applicant be granted leave to commence such
proceedings in the name of the
company.
Analysis and evaluation
[18] Under common law the director of
a company was entitled to institute legal proceedings either
personally or in the name of
the company in order to gain access to
the books of account and records of the company. In
Randfontein
Township Syndicate’s Directors
10
the Court (per
Innes CJ) said:
“No
one director is entitled to retain the books of the company of which
he is a director as against his colleagues, any more
than one trustee
in insolvency can hold the books of the insolvent estate as against
his co-trustees.
Prima
facie
the proper person to have the custody of the books of a company is
the secretary, and all directors have access to the books.
If any
director is impeded in the exercise of his right to such access he
may take action to establish it. The onus is on the
respondent to
show why the books should not be in the custody of the secretary”,
11
However, this common law position has
since been changed by the introduction of section 165 of the Act.
[19] The Act stipulates that its
provisions “
must be
interpreted and applied in a manner that gives effect to the purposes
set out in section 7”.
12
In turn, section 7 provides, in part, as follows:
“
The
purposes of this Act are to –
promote
compliance with the Bill of Rights as provided for in the
Constitution, in the application of company law;
promote
the development of the South African economy by –
…
.
;
…
.
;
encouraging
transparency and high standards of corporate governance as
appropriate, given the significant role of enterprises
within the
social and economic life of the nation;
(c)-(h) ….
;
balance
the rights and obligations of shareholders and directors within
companies;
encourage
the efficient and responsible management of
companies
….”
[20] In line with the principle of
transparency in the management and governance of companies the Act
seeks to enforce the right
of access to company records, financial
statements or related information by
“[any]
person who holds or has a beneficial interest in any securities
issued by a company
…”
13
[21] To the extent relevant, section
165 of the Act provides:
“
(1) Any
right at common law of a person other than a company to bring or
prosecute any legal proceedings on behalf of that company
is
abolished, and the rights in this section are in substitution for any
such abolished right.
(2) A
person may serve a demand upon a company to commence or continue
legal proceedings, or take related steps, to protect the
legal
interests of the company if the person –
(a) is
a shareholder or a person entitled to be registered as a shareholder,
of the company or of a related company;
(b) is
a director or prescribed officer of the company or of a related
company;
(c) is
a registered trade union that represents employees of the company, or
another representative of employees of the company;
or
(d) has
been granted leave of the court to do so, which may be granted only
if the court is satisfied that it is necessary or expedient
to do so
to protect a legal right of that other person.
(3) A
company that has been served with a demand in terms of subsection (2)
may apply within 15 business days to a court to set
aside the demand
only on the grounds that it is frivolous, vexatious or without merit.
(4) If
a company does not make an application contemplated in subsection
(3), or the court does not set aside the demand in terms
of that
subsection (3), or the court does not set aside the demand in terms
of that subsection, the company must -
(a) appoint
an independent and impartial person or committee to investigate the
demand, and report to the board on -
(i) any
facts or circumstances –
(aa) that
may give rise to a cause of action contemplated in the demand or;
(bb) that
may relate to any proceedings contemplated in the demand;
(ii) the
probable costs that would be incurred if the company pursued any such
cause of action or continued any such proceedings;
and
(iii) whether
it appears to be in the best interests of the company to pursue any
such cause of action or continue any such proceedings;
and
(b) within
60 business days after being served with the demand, or within a
longer time as a court, on application by the company,
may allow,
either –
(i) initiate
or continue legal proceedings, or take related legal steps to protect
the legal interests of the company, as contemplated
in the demand; or
(ii) serve
a notice on the person who made the demand, refusing to comply with
it.
(5) A
person who has made a demand in terms of subsection (2) may apply to
a court for leave to bring or continue proceedings in
the name and on
behalf of the company, and the court may grant leave only if –
(a) the
company –(i) has failed to take any particular step required by
subsection (4);
(ii) appointed
an investigator or committee who was not independent and impartial;
(iii) accepted
a report that was inadequate in its preparation, or was irrational or
unreasonable in its conclusions or recommendations;
(iv) acted
in a manner that was inconsistent with the reasonable report of an
independent impartial investigator or committee; or
(v) has
served a notice refusing to comply with the demand, as contemplated
in subsection (4)(b)(ii); and
(b) the
court is satisfied that –
(i) the
applicant is acting in good faith;
(ii) the
proposed or continuing proceedings involve the trial of a serious
question of material consequence to the company; and
(iii) it
is in the best interests of the company that the applicant be granted
leave to commence the proposed proceedings or continue
the
proceedings, as the case may be.”
[22] The demand envisaged in section
165(2) of the Act is a precursor to an application instituted under
subsection (5) of that
section. In the present instance the demand is
in the form of a letter dated 23 May 2011 from the applicant’s
attorneys which
was sent by post to the company at its postal
address, namely, P.O. Box 22034, Glenashley, 4022 (Fax 031-5726099).
The demand is
worded as follows:
“Dear
Sirs
CREDIT
CARDS
We
act for one of your two directors, namely Mr KH Mouritzen. Your
other director, namely Mr DH Mouritzen, has been causing the
company
to pay significant debits appearing on his personal credit card
statements. The credit card in question is an FNB platinum
credit
card.
Our
client has reason to believe that some of the credit card liabilities
incurred by Mr DH Mouritzen which have been charged to
the company
should not have been paid by the company as they were not expenses in
respect of which the company was obliged to reimburse
Mr DH
Mouritzen. On the contrary they were personal expenses of Mr DH
Mouritzen which should have been discharged by him.
Mr
DH Mouritzen has refused to make his credit card records available to
Mr KH Mouritzen.
Acting
in terms of section 165 of the Companies Act our client hereby
demands that you commence legal proceedings against Mr DH
Mouritzen
to compel him to produce and make available for inspection by Mr KH
Mouritzen in his capacity as a director of the company-;
1. his
monthly credit card statements from January 1999 to date; and
2.
in respect of every debit appearing on those statements which has
been charged to and paid by the company, a supporting voucher
containing sufficient information to enable the company to determine
whether or not the debit in question was a legitimate charge
against
the company.
Your
failure to comply with this demand within a period of fifteen
business days of the date upon which you receive this letter
will
result in proceedings being instituted in accordance with the
provisions of section 165(5) of the Companies Act.
Yours
faithfully
GC
COX
COX
YEATS”
Direct Tel: 031 –
536 8519
E-mail
gcox@coxyeats.co.za
Cc Barkers,
jmurcoch@barkers.co.za
Mr K H Mouritzen,
ken@cargo.greystones.co.za
[23] It is obvious from the face of
the demand that copies thereof were sent to the email addresses of
Barkers Attorneys (who were
then representing the company) and the
applicant.
Whether the demand was properly
served on the company in compliance with section 165(2) of the Act
[24] The preliminary technical point
raised by Mr
Harrison
related to his challenge of the manner
of service of the demand on the company in that the service was not
effected at the company’s
registered office or at its principal
place of business. But before I deal with that specific point, it is
important to examine
section 165(2) with a view to clarifying what
may otherwise amount to an anomaly or absurdity. The section
provides:
“A person
may
serve a demand
upon a company …”
(Underlined for emphasis). The
use of the word ‘may’ has the potential of obscuring the
legislative intent in this
regard, to the extent that the Legislature
might be perceived to have intended to confer some degree of
discretion on the person
concerned. However, I observe that the
service of the demand on the company is an essential prerequisite for
the institution of
an application under section 165(5) and without
which such person is obviously barred from launching the application.
Given this
observation, it is imperative and compulsory that a
prospective applicant
must
comply with the service requirement
before proceeding in terms of section 165(5). On this basis, the
section ought, in my view,
to be understood in the context that an
applicant ‘must’ serve the demand on the company. It is a
peremptory provision.
[25] There is a long catalogue of
cases, to which I do not need to refer exhaustively, dealing with the
concept of “service”
in the particular context of
delivery of process or other documents to a party in legal
proceedings or contemplated legal proceedings.
In
Odendaalsrus
Municipality
14
,
above
,
the Court stated:
“I
shall at the outset deal with the phrase ‘serve notice upon’.
In my opinion the words, taken by themselves
signify no more than
that the subject-matter of the notice shall be communicated in
writing to the person intended to be affected
thereby. As the
section contains no express directions or indications to the
contrary, any informal mode of communication may
be employed. Even
personal notification is not essential provided only that the notice
reaches the person concerned and effectually
conveys to him the
information sought to be brought to his knowledge.”
[26] In both
Phase Electric
and
Afric
Oil,
above
,
the issue at point related
to
the
service of a demand contemplated in section 345(1)(a)(i) of the
Companies Act
15
and section 69(1)(a) of the Close Corporations Act
16
,
respectively. These provisions were basically and substantially
similar. In both cases the Court found that the provisions were
peremptory in that strict compliance therewith was essential and
prerequisite for an applicant to rely on the deeming provisions
that
the company or the close corporation, as the case might be, was
unable to pay its debts. However, in my view, these two decisions
are
distinguishable. In both those instances the Act concerned
particularly stipulated that the demand was to be served on the
company or close corporation, as the case may be,
“by
leaving the same at its registered office”
,
which particularity is absent in section 165(2) of the Act.
[27] To my mind, there is no legal or
logical basis to read into section 165(2) words to the effect that
service of the demand must
be made necessarily
‘at
its registered office or principal place of business’
when the ordinary grammatical reading of the section does not support
such suggestion. If the Legislature had intended that to
be the case
it would have clearly done so as it did in respect of section
345(1)(a)(i) of the Companies Act, 1973 and
section 69(1)(a)
of the
Close Corporations Act, 1984
. The rules of statutory interpretation
do not permit the insertion or addition into legislation by the Court
what is not there
provided, a
casus
omissus
, for it is the
function of the Legislature to do so, unless without such insertion
or addition the legislative instrument concerned
becomes meaningless
or results in absurdity, in which case the Court’s
interpretation amounts only to an expression of the
intention of the
Legislature.
17
In this regard, Kellaway
18
submits:
“
Although
the omission of certain words in a provision in an amending statute,
which were there before, may well appear to be an
oversight, a court
should
not
,
it is submitted, construe the provision as if the words were still
there, particularly if the inclusion would clearly conflict
with the
intention or purpose of the amending Act.”
I respectfully agree with the learned
author’s submission.
[28] In general terms, the purpose of
‘service’, in the present context, is clear: It is,
firstly, to notify the person
intended to be served of the nature,
contents and exigency of the process of court or other document
served upon such person and,
secondly, to return to the court proof
of such service in the manner prescribed by the law. Indeed, the
Appellate Division (now
the Supreme Court of Appeal) once observed in
S v Watson
19
that the term:
“‘Served’
… has the ordinary connotation of ‘legally delivered’,
i.e. delivered in accordance
with the law so as to notify the person
on whom it is served of its contents.”
20
[29] Rule 4 of the uniform rules
provides, to the extent relevant, as follows:
“
(1)(a) Service
of any process of the court directed to the sheriff and subject to
the provisions of paragraph (aA) any document
initiating application
proceedings shall be effected by the sheriff in one or other of the
following manners:
(i)-(iv)
….
(v) in
the case of a corporation or company, by delivering a copy to a
responsible employee thereof at its registered office or
its
principal place of business within the court’s jurisdiction, or
if there be no
such employee willing to accept service, by
affixing a copy to the main door of such office or place of business,
or in any manner
provided by the law; …
(aA)
Where the person to be served with any document initiating
application proceedings is already represented by an attorney of
record, such document may be served upon such attorney by the party
initiating such proceedings.
[30] As a precursor to the section
165(5) application, the demand qualified, in my view, to be treated
on the same basis as a
‘document initiating application
proceedings’
in the sense that, as the company was then
represented by Barkers Attorneys, the demand would, alternatively, be
validly served
upon those attorneys. The applicant’s attorneys
did not only post the demand to the company’s postal address
but they
also emailed a copy thereof to the company’s then
attorney, Mr Julian Murdoch of Barkers Attorneys, to what clearly
appears
to be his official email address. These attorneys had
subsequently proceeded to file, on behalf of the company, a notice to
oppose
the present application, which notice was served on the
applicant’s attorneys on 14 October 2011. Mr
Harrison
questioned the applicant’s purported reliance on the notice
of opposition for the reason that the applicant himself had, by
his
notice in terms of rule 7(1) dated 21 October 2011, disputed the
authority of Barkers Attorneys to act on behalf of the company.
[31] The authority of Barkers
Attorneys to act on behalf of the company was indeed challenged by
the applicant at the stage when
the application was launched. The
fact of the matter, however, is that I am dealing here with the stage
when service of the demand
was to be effected on the company. There
was no dispute by anyone, including the second respondent, to the
effect that the company
was, at that stage, represented by Barkers
Attorneys. Instead, in his answering affidavit the second respondent
simply confirmed
the apparent long-standing relationship between the
company and this law firm when he said:
“
The First Respondent has
used the services of Barkers Attorneys since early 2004.”
21
“
Barkers Attorneys rendered
invoices from January 2004 to December 2007 on behalf of the First
Respondent ….”
22
“
From January 2008 to August
2009, Barkers Attorneys rendered invoices in respect of work done on
the same basis to me personally,
because the Applicant suddenly and
out of the blue disputed Barkers Attorneys’ authority to act
on behalf of the First
Respondent.”
23
“
From September 2009 to
date, Barkers Attorneys has (sic) invoiced the First Respondent,
because Barkers Attorneys’ authority
to represent the First
Respondent was again confirmed at a shareholder level and conceded
by the Applicant.”
24
[32] I am not persuaded by Mr
Harrison’s
contention
that the second respondent received, and attended to, the demand in
his personal capacity when the second respondent
responded to the
demand by his email dated 30 May 2011.
25
It is significant to bear in mind that the demand was posted to the
company’s postal address and copies thereof emailed only
to
Barkers Attorneys (under circumstances alluded to above) and the
applicant.
Ex facie
the demand there was no copy delivered to the second respondent in
his personal capacity. Therefore, the second respondent could
only
have received and responded to the demand in his representative
capacity as the director of the company.
[33] Accordingly, I find that the
purposive interpretation of section 165(2) does not require that a
demand referred to in that
section must necessarily be served on a
company by delivering it at its registered office or its principal
place of business.
In my view, any legally recognizable manner of
service of any court process or document initiating application
proceedings shall
be adequate, provided that the court considering
the matter, in the exercise of its discretion, is satisfied that
the demand
was duly served on the company for which it was intended.
In the present instance, I am satisfied that the applicant’s
demand
was properly and validly served on the company in the manner
envisaged in section 165(2) of the Act.
[34] I have already found that when
the second respondent responded to the demand, by his email dated 30
May 2011, he did so in
his representative capacity as the director of
the company. I am also satisfied, from the context and tone of the
response, that
the response constituted a notice of refusal on the
part of the company to comply with the demand, as envisaged in
section 165(4)(b)(ii)
of the Act.
[35] I now turn to deal with the
merits of the application. I have indicated that section 165 of the
Act introduces a new regime
which has overhauled completely the
common law system governing the aspect of litigation by any person on
behalf, and in the name,
of a company. At the time of this judgment I
am not aware of any existing domestic case law authority on the
issue. As pointed
out earlier, the purposes of the Act include
promotion of compliance with the Bill of Rights and the development
of the country’s
economy by encouraging transparency and high
standards of corporate governance.
26
The Constitution of the Republic provides, amongst others, as
follows:
“34. Access
to courts
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court
or, where applicable, another independent and impartial tribunal or
forum.”
27
And:
“39. Interpretation
of Bill of Rights
(1) When interpreting the Bill of Rights, a court, tribunal or forum
-
…
must
consider international law; and
may
consider foreign law.”
28
Hence, guidance has been sought in
authorities from foreign jurisdictions.
[36] It appears that section 165 is a
typical model of section 237 of the Australian Corporations Act of
2001 which, in turn, derived
from section 165 of the New Zealand
Companies Act of 1993. The latter was itself a derivative of section
239 of the Canada Business
Corporations Act of 1985. I propose to
refer to these foreign legislations.
Section 239 of the Canada Business
Corporations Act, 1985
Commencing
derivative action
239.
(1) Subject to subsection (2),
a
complainant may apply to a court for leave to bring an action in the
name and on behalf of a corporation or any of its subsidiaries,
or
intervene in an action to which any such body corporate is a party,
for the purpose of prosecuting, defending or discontinuing
the action
on behalf of the body corporate.
Conditions
precedent
(2)
No action may be brought and no intervention in an action may be made
under subsection (1) unless the court is satisfied that
(a)
the complainant has given notice to the directors of the corporation
or its subsidiary of the complainant’s intention
to apply to
the court under subsection (1) not less than fourteen days before
bringing the application, or as otherwise ordered
by the court, if
the directors of the corporation or its subsidiary do not bring,
diligently prosecute or defend or discontinue
the action;
(b)
the complainant is acting in good faith; and
(c)
it
appears to be in the interests
of the corporation or its subsidiary that the action be brought,
prosecuted, defended or discontinued
.
(Underlined
for emphasis)
Section 165 of the New Zealand
Companies Act, 1993
165
Derivative actions
Subject
to subsection (3), the court may, on the application of a
shareholder or director of a company, grant leave to that
shareholder or director to—
(a) bring
proceedings in the name and on behalf of the company or any related
company; or
(b) intervene
in proceedings to which the company or any related company is a party
for the purpose of continuing, defending,
or discontinuing the
proceedings on behalf of the company or related company, as the case
may be.
(2) Without
limiting subsection (1), in determining whether to grant leave under
that subsection, the court shall have regard to—
(a) the
likelihood of the proceedings succeeding:
(b) the
costs of the proceedings in relation to the relief likely to be
obtained:
(c) any
action already taken by the company or related company to obtain
relief:
(d) the
interests of the company or related company in the proceedings being
commenced, continued, defended, or discontinued,
as the case may be.
(3) Leave
to bring proceedings or intervene in proceedings may be granted under
subsection (1), only if the court is satisfied
that either—
(a) the
company or related company does not intend to bring, diligently
continue or defend, or discontinue the proceedings,
as the case may
be; or
(b)
it
is in the interests
of the company or related company that the
conduct of the proceedings should not be left to the directors or to
the determination
of the shareholders as a whole. (Underlined for
emphasis.)
(4) Notice
of the application must be served on the company or related company.
(5) The
company or related company—
(a) may
appear and be heard; and
(b) must
inform the court, whether or not it intends to bring, continue,
defend, or discontinue the proceedings, as the case
may be.
(6) Except
as provided in this section, a shareholder is not entitled to bring
or intervene in any proceedings in the name of,
or on behalf of, a
company or a related company.
Sections 236 and 237 of the
Australian Corporations Act, 2001
“
236(1
)
[Person
may bring proceedings on behalf company]
A person may bring proceedings on behalf of a company, or intervene
in any proceedings to which the company is a party for the
purpose of
taking responsibility on behalf of the company for those proceedings,
or for a particular step in those proceedings
(for example,
compromising or settling them), if:
the
person is:
a
member, former member, or a person entitled to be registered as a
member, of the company or of a related body corporate; or
an
officer or former officer of the company; and
the
person is acting with leave granted under section 237.
…
237(1) A
person referred to in paragraph 236(1)(a) may apply to the Court for
leave to bring, or to intervene in, proceedings.
(2) The
Court must grant the application if it is satisfied that;
(a) it
is probable that the company will not itself bring the proceedings,
or properly take responsibility for them, or for the
steps in them;
and
(b) the
applicant is acting in good faith; and
(c)
it
is in the best interests
of the company that the applicant be
granted leave; and
(d) if
the applicant is applying for leave to bring proceedings –
there is a serious question to be tried; and
(e) either;
(i) at
least 14 days before making the application, the applicant gave
written notice to the company of the intention to apply for
leave and
of the reasons for applying; or
(ii) it
is appropriate to grant leave even though subparagraph (i) is not
satisfied. (Underlined for emphasis)
(3) A
rebuttable presumption that granting leave is not in the best
interests of the company arises if it is established that:
(a) the
proceedings are:
(i) by
the company against a third party; or
(ii) by
a third party against the company; and
(b) the
company has decided:
(i) not
to bring the proceedings; or
(ii) not
to defend the proceedings; or
(iii) to
discontinue, settle or compromise the proceedings; and
(c) all
of the directors who participated in that decision:
(i) acted
in good faith for a proper purpose; and
(ii) did
not have a material personal interest in the decision; and
(iii) informed
themselves about the subject matter of the decision to the extent
they reasonably believed to be appropriate; and
(iv) rationally
believed that the decision was in the best interests of the company.
The
director’s belief that the decision was in the best interests
of the company is a rational one unless the belief is one
that no
reasonable person in their position would hold.
(4) For
the purposes of subsection (3):
(a) a
person is a third party if;
(i) the
company is a public company and the person is not a related party of
the company; or
(ii) the
company is not a public company and the person would not be a related
party of the company if the company were a public
company; and
(b) proceedings
by or against the company include any appeal from a decision made in
proceedings by or against the company.”
[37] It is common cause that prior to
the applicant instituting this application there had been a
long-standing serious personal
feud between him and the second
respondent. In fact evidence has shown that this is not the only
occasion in recent times that
they are involved in a legal tussle. As
already pointed out elsewhere, there is currently a protracted civil
trial in which the
applicant is being sued by the company for the
recovery of certain management fees. It is this admitted personal
animosity between
the parties which the second respondent seeks to
demonstrate to be the motive behind the applicant’s decision to
launch this
application.
[38] There are two main Australian
court decisions, the principles enunciated in which I have followed
in this judgment. It seems
to me apposite to set out a brief summary
of facts alleged and conclusions reached in each of those cases.
A brief outline of the decision in
Swansson v Pratt
29
[39] The parties were Ms Swansson (the
plaintiff/applicant), RA Pratt Properties (RAPP) (the first
defendant/respondent) and Mr
Peter Highland (the second
defendant/respondent). Swansson and Highland were formerly married
but divorced in May 1997. RAPP was
incorporated by Swansson’s
parents as a family investment company. Originally the directors of
RAPP were Swansson’s
parents, Mr and Mrs Pratt Snr, who
together with Swansson, and her brother Mr Ian Pratt, were equal
shareholders. In December 1992
Swansson and Highland became the sole
directors of RAPP. However, Swansson claimed that she was not aware
of the existence of RAPP
until in or about March or April 1999.
[40] The current RAPP’s
directors were Swansson and her brother Ian Pratt, whilst the
shareholders were Swansson’s mother
at 50% and the remaining
shares being held equally by Swansson and Ian Pratt at 25% each.
There were two other companies of which
Swansson and Highland were
shareholders and directors, during the subsistence of their marriage,
namely PHP Construction Pty Ltd
and Peter Highland Projects Pty Ltd
(collectively “the two companies”).
[41] At some point when both Swansson
and Highland were RAPP’s co-directors, RAPP sold its one-third
interest in a certain
property to a third party for the sum of
$800,000 by means of a Memorandum of Transfer dated 28 October 1994
duly signed by Swansson
in her capacity as the director. In terms of
the Memorandum of Transfer at least $420,580 of the purchase price
was payable to
the two companies.
[42] Swansson later claimed that she
was not aware when she signed the Memorandum of Transfer that the two
companies were to receive
at least $420,580 as stated and that she
discovered about this transaction through an investigation by her
solicitor, Mr Symonds,
in or about June or July 2001. She alleged
that Highland had a habit of making her sign documents without her
knowing and understanding
the contents and implications thereof.
[43] Accordingly, Swansson submitted
that Highland, as RAPP’s director at that time, had breached
both his statutory duties
under sections 180 and 181 of the then
equivalent Corporations Act and his fiduciary duties under the
general law of Australia
and, on this basis, he was liable to
compensate RAPP. She then sought RAPP to commence legal proceedings
against Highland. However,
Swansson’s mother and Ian Pratt did
not support her idea. Hence, Swansson approached the Court, in terms
of section 237 of
the Corporations Act of 2001, seeking leave to
commence proceedings in the name of RAPP against Highland.
[44] Ian Pratt, who was a chartered
accountant, filed an affidavit supporting Highland’s case. He
stated that he was engaged
by Swansson to advise her in relation to
her property settlement with Highland during their divorce
proceedings. He said he also
investigated the financial affairs of
Highland and advised both Swansson and Symonds accordingly. The full
background surrounding
the payment of $420,580 to the two companies
was clearly explained to Swansson which, according to Pratt, she
understood and accepted.
As a result, that payment of $420,580 was
taken into account in working out the provisions of the deed of
divorce settlement between
Swansson and Highland, which was
ultimately approved by the Family Court
30
on 3 September 1996.
[45] The Supreme Court of New South
Wales took into account, amongst others, the following factors and
evidence in determining whether
or not to grant the application under
section 237:
The majority of shareholders (75%
held by Swansson’s mother and Ian Pratt) did not approve of
Swansson’s idea for
RAPP to commence legal proceedings against
Highland.
The improbability of Swansson’s
version that she discovered only in March 1999 of the existence of
RAPP (despite the fact
that she was its director since December
1992) and, in any event, as to what it was, on the part of Swansson
and Symonds, that
prompted the said discovery.
The improbability that Ian Pratt
would not have advised Swansson and Symonds of the results of his
(Pratt’s) investigation
of Highland’s financial affairs,
particularly about the payment aforesaid made by RAPP to the two
companies.
It was clear that Symonds was
involved in one way or the other in the settlement of the sale of
RAPP’s interest in the property
and, therefore, it was
improbable that he knew nothing at all about the facts and
circumstances underlying the sale and his client’s
(Swansson’s) right to participate in its proceeds.
Swansson was entitled to apply to the
Family Court
31
for an order revoking the Court’s approval of the deed of
settlement dated 3 September 1996 on the ground that it had been
fraudulently obtained. In other words, an application under section
237 was not the only remedy that she had.
[46] On these and other reasons, the
application under section 237 by Swansson, was dismissed.
A brief outline of the decision in
Ragless v IPA Holdings
32
[47] An application was made under
section 237 of the Australian Corporations Act of 2001, whereby leave
was sought to commence
proceedings in the name of the defendant
company, IPA Holdings (the company) for the recovery of certain
assets, earnings and profits
belonging to and due to the company. For
some 12 years, since 1970, Mr Clive Lindsay Ragless and Mr Daron Jon
Carnie engaged in
a partnership business whose operation was to
manufacture and sell pyrometers. A pyrometer was a device for
measuring and controlling
temperature in an industrial environment
and it consisted of two parts, namely, ‘the sensor’ and
‘the controller.’
The partnership’s business only
manufactured sensors to which controllers had been fixed.
[48] On 30 June 1982 the partnership
was dissolved when Ragless and Carnie incorporated the company, which
then took over the partnership’s
business operations. Ragless
and Carnie were the only directors of the company. On 1 July 1982
they established a business trust
known as the IPA Trust which issued
two units, one of which was held by a Ragless-controlled company, IPA
Manufacturing Pty Ltd
(“Manufacturing”) as trustee of the
Ragless Family Trust. The other unit was held by a Carnie-controlled
company, Onetemp
Pty Ltd (“Onetemp”) (which was formerly
known as Carnie Nominees Pty Ltd and later Industrial Pyrometers
(Aust) Pty
Ltd) as trustee of the Carnie Family Trust. The terms of
the IPA Trust included the wishes and intentions of Ragless and
Carnie
in relation to the running and destiny of the company. Amongst
others, the IPA Trust provided that its vesting day was to be 1 June
2003 when both Ragless and Carnies would retire after attaining the
age of 60 years. On vesting day the IPA Trust would terminate
and the
company would be wound up. The assets and goodwill of the company
business would be sold and the proceeds distributed to
the unit
holders.
[49] Late in 1990 an oral agreement
was concluded between Ragless and Carnie whereby the company
operation was restructured and
separated into two divisions, namely,
the manufacturing division which fell under the control of
Manufacturing and the sales division
which fell under the control of
the then Industrial Pyrometers (Aust) Pty Ltd (later Onetemp). The
manufacturing division was responsible
for manufacturing sensors and
the sales division responsible for selling sensors and controllers.
The 1990 agreement was executed
in February 1991.
[50] On 25 June 1999 a written
agreement (the 1999 Deed) was concluded between the company, Ragless,
Carnie and others, whereby
the manufacturing assets and sales assets
(together with operating licences thereof) of the company were
leased by the company
to Manufacturing and Industrial Pyrometers
(later Onetemp) respectively, on an annual consideration of $75,000
payable to the company.
The goodwill of the business was, however,
retained by the company.
[51] The 1999 Deed provided that the
arrangement in terms thereof was to remain in force for a period of
two years with effect from
1 July 1997. Further, that upon the
expiration of the two year period either the company, Manufacturing
or Industrial Pyrometers
(later Onetemp) was entitled to terminate
the agreement on three months’ written notice.
[52] Significantly, it transpired
subsequently that no provision was made either in the IPA Trust or in
the 1999 Deed in relation
to how the assets of the company, including
the assets leased to Manufacturing and Industrial Pyrometers, would
be disposed of
in the event of termination of the 1999 Deed and the
IPA Trust prior to the vesting day of the IPA Trust. In the meantime,
on 8
December 1999, just over five months after the 1999 Deed had
expired, Carnie and Industrial Pyrometers served a notice terminating
the agreement. The disputes between Ragless and Carnie then started.
The notice expired on 3 March 2000. Since then the acrimony
between
Ragless and Carnie gained momentum. Ragless asserted that, in terms
of the 1999 Deed, they had agreed that the assets were
to be leased
to each division and thus, on termination of the agreement, the two
divisions would merge in order that the business
would be sold as a
whole, unless the parties agreed otherwise. On the other hand, Carnie
averred that, with the exception of the
goodwill, all assets of the
company were transferred to each division. As a result of this
misunderstanding each division continued
to operate on its own
without regard to what was due and payable to the company by each
division.
[53] On 1 June 2003 the IPA Trust
vested but the company was not wound up due to the disputes between
Ragless and Carnie. However,
on 28 November 2005 and at the instance
of Ragless, the company was wound up by the Court. A liquidator, Mr
John Hart, was appointed
to conduct the winding up process. In due
course Mr Hart, as liquidator, considered that there might be
potential claims which
the company was entitled to institute against
either or both divisions. On 4 September 2006 the liquidator’s
solicitor notified
the solicitors for both Ragless and Carnie that
the liquidator was proposing to sell the company and that an offer
was being made
to them to purchase the assets. In his reply of 6
September 2006 Ragless stated his intention to seek leave of the
Court, in terms
of section 237, to bring an action on behalf of the
company for the recovery of assets, earnings and profits (plus
interest) acquired
by any party, including Manufacturing and Onetemp,
consequent upon any unauthorized use of the company’s assets.
On 3 November
2006 the application was filed. Carnie was granted
leave to intervene on 12 December 2006.
[54] On 2 July 2007 the Master of the
Court granted leave to Ragless to commence proceedings in the name of
the company in terms
of section 237. Carnie appealed the decision of
the Master, hence the matter appeared, as an appeal, before the South
Australia
Supreme Court.
[55] The Court referred to various
authorities and, in particular referred extensively, in approval, to
Swansson v Pratt
, above. For instance, on the requirement of
‘good faith’ the Court had the following to say, in part:
“
In
Swansson at [38] to [41] Palmer J considered the kinds of conduct
that might or might not satisfy the requirement of good faith.
One
instance of conduct which would satisfy the requirement is where the
application is made by a current shareholder of a company
who has
more than a token shareholding and the derivative action seeks the
recovery of property so that the value of the applicant’s
shares would be increased.”
33
[56] In considering the appeal the
Court took into account the following evidence and factors:
1. The Master had accepted the
liquidator’s explanation that the company would not itself
commence proceedings due to the
fact that it had no funds. That
explanation satisfied the requirement in s.237(2)(a).
2. The letter from the liquidator’s
solicitor dated 13 June 2006 indicated that the liquidator had
investigated and considered
that there were potentially valid claims
which the company had against both Manufacturing and Onetemp pursuant
to the 1999 Deed.
3. It was not in dispute that Ragless
had, through his solicitor, stated to the Master in open court
“that
he was ready, willing and able to account to Holdings for the assets
of Manufacturing but believed that he should not
have to do so until
the claim by Holdings against Onetemp and Carnie had been resolved.”
34
4. Ragless honestly believed that he
had a good cause of action and reasonable prospects of success. He
was therefore acting in
good faith and in compliance with the
requirement of s.237(2)(b)
35
.
5. The differences between Ragless and
Carnie had frustrated the liquidator in his assignment of winding up
IPA Holdings. The proposed
action was aimed at resolving the
stalemate thus created by the said differences and that the action
would, in the circumstances,
be in the best interests of IPA
Holdings.
36
6. Counsel for Carnie “
did
not demonstrate any error on the part of the Master”
when
the Master granted leave to Ragless to commence action in the name of
IPA Holdings.
For these and other reasons the Court
dismissed the appeal.
[57] It is clear from these two
Australian cases that although the Court in
Ragless
dismissed the appeal (which
was a decision essentially in favour of granting leave under section
237, contrary to the decision in
Swansson
)
the principles enunciated in
Swansson
were followed and applied in every respect in
Ragless
.
The reason for this was simply because the facts in
Ragless
were distinguished from those in
Swansson
.
It seems to me that the facts in the present case are rather
comparable to those in the former decision than in the latter.
Whether the applicant is acting ‘in
good faith’ as envisaged in section 165(5)(b)(i) of the Act
[58] It is necessary to determine
whether, on the facts of this case, the acrimony between these two
brothers was the cause of the
applicant seeking to have proceedings
instituted against the second respondent in the name of the company.
It is important that
there must be a demonstration of good conscience
and sincere belief on the existence of reasonable prospects of
success in the
proposed litigation and, therefore, absence of
ulterior motive, on the part of an applicant. In
Swansson
v Pratt
the leaned Judge
stated:
37
“
[I]n
my opinion, there are at least two interrelated factors to which the
Courts will always have regard to in determining whether
the good
faith requirement of s.237(2)(b) is satisfied. The first is whether
the applicant honestly believes that a good cause
of action exists
and has a reasonable prospect of success. Clearly, whether the
applicant honestly holds such a belief would not
simply be a matter
of bald assertion: the applicant may be disbelieved if no reasonable
person in the circumstances could hold
that belief. The second factor
is whether the applicant is seeking to bring the derivative suit for
such a collateral purpose as
would amount to an abuse of process.
These
two factors will in most, but not all, cases entirely overlap: if
the Court is not satisfied that the applicant actually
holds the
requisite belief, that fact alone would be sufficient to lead to the
conclusion that the application must be made for
a collateral
purpose, as to be an abuse of process. The applicant may, however,
believe that the company has a good cause of action
with a reasonable
prospect of success but nevertheless may be intent on bringing the
derivative action, not to prosecute it to
a conclusion, but to use it
as a means for obtaining some advantage for which the action is not
designed or for some collateral
advantage beyond what the law offers.
If that is shown, the application and the derivative suit itself
would be an abuse of the
Court’s process:
Williams
v Spautz
[1992] HCA
34
;
(1992) 174 CLR 509
, at 526. The applicant would fail the
requirement of s.237(2)(b).”
[59] In my view, factual proof of any
pre-existing personal animosity between the parties, such as in the
present instance, does
not
per se
serve as conclusive proof
that any person referred to in section 165(2) of the Act is not
acting in good faith in serving a demand
under that subsection, or
instituting an application under section 165(5). However, personal
animosity between the opposed parties
is
an important factor which the Court will always take into account
together with other relevant evidentiary material presented before
the Court in a given situation, in determining whether or not an
applicant has, on a balance of probabilities, satisfied the ‘good
faith’ requirement. In
Swansson v Pratt
the Court
pointed out:
“
To
take another example: a derivative action sought to be instituted by
a current shareholder for the purpose of restoring value
to his or
her shares in the company would not be an abuse of process even if
the applicant is spurred on by intense personal animosity,
even
malice, against the defendant: it is not the law that only a
plaintiff who feels goodwill towards the defendant is entitled
to
sue: see eg Dowling v Colonial Mutual Life Assurance Society
[1915]
HCA 56
;
(1915) 20 CLR 509
at 521-2;
21 ALR 425
at 433; IOC Australia
Pty Ltd v Mobil Oil Australia Ltd
[1905] HCA 28
;
(1975) 11 ALR 417
,
at 426-7. On the other hand, an action sought to be instituted by a
former shareholder with a history of grievances against the
current
majority of shareholders or the current board may be easier to
characterize as brought for the purpose of satisfying nothing
more
than the applicant’s private vendetta. An applicant with such a
purpose would not be acting in good faith.”
38
[60] Indeed, there is no requirement
in law that the directors of a company need to be friends or even to
be in talking terms. What
is of utmost fundamental importance,
amongst others, is the fiduciary duty which they individually owe to
the company of which
they are the directors. This aspect of a
director’s responsibility
vis-à-vis
his or her company is equally relevantly important in relation to
this application, in that such fiduciary duty entails, on the
part of
every director, the same duty as required of an applicant under
section 165(5)(b), namely, to
‘act
in good faith’
and
‘in the best interests of the company’.
Recently,
in
Da Silva v CH Chemicals
39
the Supreme Court of Appeal
(
per
Scott JA) reminded all concerned that
“[i]t
is a well-established rule of company law that directors have a
fiduciary duty to exercise their powers in good faith
and in the best
interests of the company.”
40
[61] I further take regard of the fact
that the applicant has himself offered to have his own credit card
account examined in the
same way as he seeks to be done to the second
respondent’s account. Therefore, on this basis, the applicant
is demonstrating
that he has nothing to hide. Generally, such
conduct would be consistent to a person who is acting in good faith.
41
Accordingly, I find that the applicant has succeeded to demonstrate
on a preponderance of probabilities that he is acting in good
faith.
Whether the proposed legal action
is in the best interests of the company as envisaged in section
165(5)(b)(iii) of the Act
[62] The Act requires the Court to be
satisfied that granting leave to commence the proposed proceedings
“is in the best
interests of the company …”.
42
The learned Judge in
Swansson v Pratt
43
made an observation which
obviously equally applies in relation to section 165(5)(b)(iii):
“
At
the outset, it is important to note that s.237(2)(c) requires the
Court to be satisfied, not that the proposed derivative action
may
be, appears to be,
or
is likely to be,
in
the best interests of the company but, that it
is
in
the best interests. In this respect, s.237(2) differs significantly
from its counterpart in the Canadian legislation, which requires
the
Court to be satisfied that the proposed derivative action “appears
to be” in the interests of the company, and
from s.165(3) of
the New Zealand Act which requires that the Court “have regard
to … the interests of the company.
These provisions seem to
have led the Courts of those countries to the view that the best
interests of a company need to be considered
only in a prima facie
way: see e.g.
Re Bellman and Western Approaches Ltd
(1981) 130
DLR (3d) 193,at 201;
Vrij v Boyle
(1995) 3 NZLR 763
, at 765;
Techflow (NZ) Ltd v Techflow Pty Ltd
(1996) 7 NZCLC 261
, 138.”
[63] In most, but not all, instances
this requirement will overlap with the requirement of good faith. An
instance where a person
does not act in good faith but is driven by
an ulterior motive, such as personal vendetta, will generally not be
in the best interests
of the company. Of course, as indicated above,
this assertion is made in the context and understanding that personal
animosity
per se
is
not conclusive proof of lack of good faith towards a respondent in
the 165(5) application
44
.
[64] The applicant is a trustee of the
Mouritzen Family Trust which has the majority shareholding in the
company. Any financial
maladministration and mismanagement of a
company will naturally adversely affect the financial condition of
that company. Therefore,
as a representative of the majority
shareholder, the applicant is entitled to call for a proper
investigation of any suspected
irregularities and abuse of the
company’s assets. The Mouritzen Family Trust has a direct and
substantial interest in the
success and prosperity of the company in
that if the allegations against the second respondent are proven,
that would have a direct
negative impact on the value of the
Mouritzen Family Trust’s shareholding in the company.
[65] There is no dispute that in a
period of 14 months (between May 2010 and July 2011) the second
respondent has run up on his
credit card 49013688665000 with First
National Bank debits in the amount of R1,178,326.03.
45
The second respondent insists that all these expenses, charged to
the company from his credit card account, were expenses rightfully
incurred by him on behalf of the company or in his capacity as the
director of the company. However, besides his say so
,
there is no proof that the expenses were indeed incurred on behalf of
the company and for its benefit.
[66] The second respondent has not
launched any counter-application in this matter. However, he is at
liberty to demand similar
information from the applicant in relation
to the applicant’s credit card account. If the applicant does
not co-operate,
as he has undertaken he will, then the second
respondent may institute his own suit under the same statutory
provisions. In my
view, an order in terms of section 165(5) would be
the most effective and expeditious way to resolve this matter in the
best interests
of the company.
[67] For the aforementioned reasons I
find that the applicant has made out a case for the relief that he
seeks. On the question
of costs, it seems to me appropriate that
costs be reserved for determination by the Court hearing the action
which the applicant
seeks leave to institute.
[68] Accordingly, the following order
is made:
The applicant is given leave, in terms
of
section 165(5)
of the
Companies Act 71 of 2008
, to institute
action in the name of Greystones Enterprises (Pty) Limited against
the second respondent, claiming the following
relief:
1. Digby Hall Mouritzen is ordered to
render a full account of his expenditure on his First National Bank
Limited credit card number
4901368288665000 for a period of three
years prior to the date of this order.
2. Such account is to be delivered
within ten days of the date of this order.
3. A debatement of the said account is
to be conducted.
4. Payment is to be made to the
applicant of whatever amount appears to be due to the applicant upon
debatement of the account.
5. The costs of this application shall
be reserved for determination by the Court hearing the action
referred to above.
____________________________
Application heard on : 18 May 2012
Counsel for the applicant : Mr LB
Broster SC
Instructed by : Cox Yeats
Counsel for the first respondent : No
appearance
Counsel for the second respondent : Mr
GM Harrison
Instructed by : Sanan & Watts
Judgment handed down on : 8 June
2012
1
Act 71 of 2008. The Act came into effect on 1 May 2011.
2
Annexure “D” to the applicant’s
founding affidavit.
3
Annexure “E” to the applicant’s
founding affidavit.
4
Phase Electric Co (Pty) Ltd v Zinman’s
Electrical Sales (Pty) Ltd
1973 (3) SA
914
(W).
5
Afric Oil (Pty) Ltd v Ramadaan Investments CC
2004 (1) SA 35 (N).
6
Odendaalsrus Municipality v Odendaalsrus Gold,
General Investment and Extensions Ltd
1959 (1) SA 374
(A).
7
See the Auditor’s Report dated 15 May 2009,
at p90 of the indexed papers.
8
See para 20 thereof, at p9 of the indexed papers.
9
See also 2
nd
respondent’s Practice Note, at para 3.
10
Randfontein Township Syndicate’s
Directors v De Kock
1910 TH 30.
11
Randfontein Township,
at 32.
12
Section 5(1) of the Act.
13
Section 26 . See also section 31 of the Act.
14
At 380 B-D.
15
Act 61 of 1973.
16
Act 69 of 1984.
17
See:
Union Government (Minister of Mines) v
Thompson
1919 AD 404
at 425;
Osaka
Mercantile Steamship Co Ltd v
South
African Railways and Harbours
1938 AD
146
at 180;
Walker v Carlton Hotels
(SA) Ltd
1946 AD 321
at 330;
Minister
van Waterwese v Von During
1971(1) SA
858 (A) at 876E-F
; Joint Liquidators of
Glen Anil Development Corporation Ltd (in Liquidation) v Hill Samuel
(SA) Ltd
1982 (1) SA 103(A)
;
Stafford
v Special Investigating Unit
1999 (2)
SA 130
(E) at 140H-I.
18
Kellaway,
Principles
of Legal Interpretation: Statutes, Contracts and Wills,
at
144.(footnote omitted)
19
1969 (3) SA 405
(A).
20
Watson
,
at 410 A-C.
21
Para 28 of the 2
nd
respondent’s answering affidavit.
22
Para 34.1 of the 2
nd
respondent’s answering affidavit.
23
Para 34.2 of the 2
nd
respondent’s answering affidavit.
24
Para 34.3 of the 2
nd
respondent’s answering affidavit.
25
Annexure “E” to the applicant’s
founding affidavit.
26
Section 7(a) and (b)(iii) of the Act.
27
Section 34 of the Constitution of the Republic of
South Africa Act 108 of 1996 (the Constitution).
28
Section 39(1)(b) and (c) of the Constitution.
29
[2002] NSWSC
583
(3 July 2002) (
per
Palmer J).
30
In terms of section 87 of the Family Law Act,
1975 (Cth).
31
In terms of section 87(8)(a) of the Family Law
Act.
32
Ragless v IPA Holdings Pty Ltd (In
Liquidation)
[2008] SASC 90
(Sulan J
and Vanstone J concurred in the judgment of Debelle J).
33
Ragless v IPA Holdings
,
para 29.
34
Ragless v IPA Holdings
,
at para 30.
35
Ragless v IPA Holdings
,
at para 31.
36
Ragless v IPA Holdings,
at
para 36.
37
Swanson v Pratt,
Par 36-37.
38
Swansson v Pratt
,
para 41.
39
Da Silva and others v CH Chemicals (Pty) Ltd
2008 (6) 620 (SCA).
40
Da Silva
, para
18.
41
Compare
Ragless v IPA Holdings
, at para 30. (See footnote 34
above).
42
Section 165(5)(b)(iii).
43
Swansson v Pratt
,
at para 55.
44
Swansson v Pratt
,
para 41;
Ragless v IPA Holdings
,
para 29.
45
See paragraph 16 of the applicant’s founding affidavit.