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[2024] ZAECMKHC 62
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Wait v Strydom N.O and Others (389/2022) [2024] ZAECMKHC 62 (26 March 2024)
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IN THE HIGH COURT OF
SOUTH AFRICA
(EASTERN CAPE
DIVISION, MAKHANDA)
CASE
NO: 389 /2022
Reportable
No
In the matter between:
JEANE
WAIT
APPLICANT
and
PIETER
HENDRICK STRYDOM N.O
FIRST RESPONDENT
HAROON
ABDOOL SATAR
SECOND
RESPONDENT
DEON
MARIUS BOTHA
N.O
THIRD RESPONDENT
JUDGMENT
CENGANI-MBAKAZA AJ:
Introduction
[1]
This case concerns the rescission of the judgment which was granted
by
this court on 16 August 2022. The applicant is identified as a
businessman whose details of the business are unspecified. The first,
second and third respondent are liquidators who were duly appointed
by the Master of the High Court on 07 March 2019, to act as
the joint
liquidators of the company known as Free Agape Enterprises (Pty) Ltd
(Free Agape).
[2]
The application is opposed by the respondents. For consistency with
the
main action, the parties will be referred to as they were
previously. The first, second and third respondents will be referred
as ‘the plaintiffs’, and the applicant will be referred
as ‘the defendant’.
The background
facts
[3]
In March 2018, Mr Howick Kirstein and three others applied to the
High
Court of South Africa, Western Cape Division for the winding up
of Free Agape. On 12 June 2018 Free Agape was placed under
final liquidation. On 13 August 2019, the High Court of South Africa,
Western Cape Division issued the following order:
1. The investment scheme
conducted by the directors thereof under the name and style of Free
Agape Enterprise (Pty) Ltd (in liquidation)
and the respective
trading names under which the scheme was conducted, propagated and
marketed namely Choice Lifestyle change,
CLC, Belegginngtrust, Free
Agape, Choice Beleggingstrust and Induna Holdings, are declared to be
illegal, unlawful and void;
2. All investment
agreements and related agreements entered into between members of the
Public entities as investors with Free Agape
Enterprises (Pty) Ltd
(in liquidation), are declared to be null and void;
3. The cost of this
application are to be paid out of the insolvent estate of Free Agape
Enterprises (Pty) Ltd (in liquidation)
[4]
Between 24 February 2017 to 21 November 2017, Free Agape made
payments
to the defendant in the sum of R1 404 500. Additionally,
between 27 January 2017 to 02 October 2017, the defendant paid an
amount
of R1 250 000.00 to Free Agape. During September 2017 Free
Agape made payments to the defendant in the total amount of R478 250.
[5]
On 09 February 2022, the plaintiffs issued a combined summons against
the defendant for an order in terms of sections 26 (1) and 29 of the
Insolvency Act 24 of 1936 (the Insolvency Act). In the particulars
of
claim, the plaintiffs alleged that a sum of R154 500 constituted a
disposition and was thus liable to be set aside in terms
of section
26 of the Insolvency Act. Furthermore, an amount of R478 250
constituted a disposition as intended in terms of section
29(1), read
with section 2 of the Insolvency Act. The plaintiffs further alleged
that the dispositions made by Free Agape had the
effect of preferring
the defendant above the other creditors of Free Agape. On 25 February
2022, the sheriff served copies of the
combined summons, the
particulars of claim and annexures as well as the notice in terms of
Uniform Rule 41A at the defendant’s
residential address by
affixing a copy at the main access gate.
[6]
At the time, the defendant was represented by Mr Gouws an attorney
practicing
under the name and style of D Gouws Inc, situated at
Gqebera. On 07 March 2022, the defendant, through his
corresponding
attorney, Mr Nolte Smit, filed a notice of intention to
defend via an email address
t[...]
.
On 06 April 2022, the plaintiffs filed a notice calling upon the
defendant to file a plea within five days after receiving the
notice.
The ultimatum was that the defendant would be barred from delivering
the plea if he failed to do so during the stipulated
time frame. On
13 April 2022, the defendant’s attorney withdrew as attorney of
the record. This correspondence was sent to
the plaintiff’s
attorneys via email.
The impugned
default judgment
[7]
On 28 May 2022, the plaintiffs applied for default judgment for an
order
in the following terms:
‘
Claim
in terms of Section 26:
1.1
That the dispositions made by Free Agape to
the defendant during the period 24 February 2017 to 21 November 2017
in the amount of
R154 500 be set aside in terms of
S26(1)
of the
Insolvency Act, 24 of 1936
.
1.2
That the defendant be ordered to pay the
sum of R154 500 to the plaintiffs, in their capacity as duly
appointed liquidators
of Free Agape.
1.3
Interest on the aforesaid amount at the
mora rate from date of judgment to date of final payment.
1.4
Costs of suit.
1.5
Further and/or alternative relief.
Alternative
claim:
1.1
That the dispositions made by Free Agape to the defendant during the
period 28 September 2017 to 21 November
2017 in the amount of
R478 250.00 be set aside in terms of
section 29
of the
Insolvency Act.
1.2
That
the defendant be ordered to pay the sum of R478 250.00 to
the plaintiffs, in their capacity as the duly appointed liquidators
of Free Agape.
1.3
Interest on the aforesaid amount at the mora rate from time of
judgment to the date of final payment
1.4
Costs of suit.
1.5
Further and/or alternative relief’.
[8]
On 05 August 2022, the notice of set down for the default judgment
was
served electronically to the defendant’s e-mail address at
j[...]
.
The defendant admitted to having received the notice of set down. On
the date of the hearing, the judgment was granted in favour
of the
alternative claim. The order sought to be rescinded reads as follows:
‘
1.
The dispositions made by Free Agape to the defendant during the
period 28
th
September 2017 to November 2017 in the amount of R478 250.00 be
and is set aside in terms of
section 29
of the
Insolvency Act.
2.
The
Defendant to pay a sum of R478 250.00 to the Plaintiffs, in
their capacity as the duly appointed liquidators of Free Agape.
3.
Interest in the amount at the
mora
rate from the date of judgment to date
of final payment.
4.
Costs of suit’.
[9]
On 10 March 2023, a writ of execution was re-issued by the registrar
of
this court. Upon becoming aware of the writ of execution, the
defendant promptly applied for an order for the stay of the writ of
execution pending the application for rescission of the judgment. The
order was granted on 19 May 2023.
Before this court
[10]
In his founding affidavit, the defendant asserted that throughout his
consultations
with either Mr. Scheffer or Ms. Kingwill, he was never
informed of his attorneys’ withdrawal from the case. Had he
been apprised
of this circumstance, he would have sought alternative
legal representatives as he was unable to represent himself, being a
lay
person. The defendant maintained that he paid all the legal fees
that were due to D Gouws Inc. and found no plausible reasons for
their withdrawal as his attorneys of the record. Upon receiving the
notice of set down of the default judgment he consulted with
his
attorneys and was assured that the matter would be resolved. He never
consulted with his attorney until the 3
rd
day of May 2023
when it was brought to his attention that the sheriff was at his home
to execute a writ of execution.
[11]
The defendant contended that he possesses a bona fide defence to the
action, in that,
he did not only invest an amount of R1 250 000.00 to
Free Agape but, there were additional amounts of R200 000, R10 000,
R90 000
and R120 000 which he also invested. He averred that the
amount of R200 000 alone would fully pay the plaintiffs’ claim
of
R154 500 and substantially reduce the alternative claim if
found valid on the merits. The defendant provided proof of payment
of
the funds he deposited from his bank account to Free Agape six years
ago. He further stated that due to the closure of his bank
account,
he was unable to retrieve the necessary information from his bank
account regarding the other payments made to Free Agape.
In essence,
the defendant contended that the funds he deposited to Free Agape
were made in the ordinary course of business and
were not intended to
favour one creditor over the other.
[12]
In the answering affidavit, the plaintiffs asserted that the
defendant was duly notified
of the notice of set down of the default
judgment and consciously elected not to oppose the application. The
plaintiffs continued
their argument by stating that the defendant
failed to provide a satisfactory explanation as to how it was
possible for him to
receive the notice of set down of the default
judgment and failed to receive the notice of withdrawal which was
sent to his e-mail
address.
[13]
Regarding the defences raised, the plaintiffs alleged that Free Agape
will never
return to its position of solvency. They emphasized that
the defendant is one of the investors who received preferential
treatment
through dispositions, unlike other investors who received
no payments from Free Agape.
The legal framework
and the evaluation by the court
[14]
In the present case, the defendant did not specify whether the
application was made
in terms of Uniform Rules 31(1)(b), 42 or in
terms of the common law. Nonetheless, it is well-established that
rescission of the
judgment in the High Court can be based on Rule 31,
Rule 42 (1) or common law
[1]
.
The purpose of Uniform Rule 42 is to correct expeditiously an obvious
wrong judgment or order
[2]
.
In the absence of evidence presented or arguments posited to
demonstrate that at the time the judgment was granted, there
were
irregularities in the proceedings, or the judgment was erroneously
granted, I will accept that the judgment was correctly
granted.
[15]
The next issue for determination pertains to whether the defendant
has made a case for the rescission
of the judgment under uniform Rule
31 or the common law. Uniform Rule 31(1)
(b) provides:
‘
A defendant may
within 20 days after acquiring knowledge of such judgment apply to
court upon notice to the plaintiff to set aside
such judgment and the
court may, upon good cause shown, set aside the default judgment on
such terms as it deems fit’.
[16]
In
De
Wet and Others v Western Bank Ltd
[3]
Trengrove
AJA
,
(as he then was)
,
deliberated on the common law provisions concerning the rescission of
the judgment. The learned judge remarked as follows:
‘
Under the common
law, the Courts of Holland were, generally speaking, empowered to
rescind judgments obtained on default of appearance,
on sufficient
cause shown
. This power was entrusted to the discretion of the
Courts. This discretion extended beyond, and was not limited to, the
grounds
provided in Rules of Court 31 and 42 (1) and those
specifically mentioned in
Childerley Estate Stores v Standard Bank
of SA Ltd
1924 OPD 163
’.(my underlining)
[17]
In
Zuma
v
the
Secretary of the Judicial Service Commission of Inquiry into
Allegations of State Capture, Corruption and Fraud in the Public
Sector including Organs of the State and Others
[4]
,
the Constitutional Court restated the requirements for the rescission
of the judgment in terms of the common law as follows:
‘
[71] The
requirements for rescission of a default judgment are two-fold.
First, the applicant must furnish a reasonable and
satisfactory
explanation for its default. Second, it must show that on the
merits it has a bona fide defence which prima
facie carries some
prospect of success. Proof of these requirements is taken as
showing that there is sufficient cause for
an order to be rescinded.
A failure to meet one of them may result in refusal of the request to
rescind.’
‘
Thus,
the existing common law test is simple: both requirements must be
met’.
[18]
In deliberating upon whether the defendant was in wilful default, I
bear in mind
what was stated in the case of
Harris
v ABSA Bank (Pty) LTD Volksas
[5]
,
‘
Headnote:
Before an applicant in a rescission of judgment application can be
said to be in 'wilful default' he or she must bear knowledge
of the
action brought against him or her and of the steps required to avoid
[E] the default. Such an applicant must deliberately,
being free to
do so, fail or omit to take the step which would avoid the default
and must appreciate the legal consequences of
his or her actions. A
decision freely taken to refrain from filing a notice to defend or a
plea or from appearing will ordinarily
weigh heavily against an
applicant required to establish sufficient cause. However, it is not
correct [F] that, once wilful
default is shown, the applicant is
barred; that he or she is then never entitled to relief by way of
rescission as he or she has
acquiesced. The Court's discretion in
deciding whether sufficient cause has been established must not be
unduly restricted. The
mental element of the default, whatever
description it bears, should be one of the several elements which the
Court must weigh
in determining whether sufficient or good cause has
been shown to exist’.
[19]
An argument was raised that the defendant was unaware that his
attorneys had withdrawn
and in his further consultation he was given
an undertaking that the matter would be resolved. The averments made
by the defendant
at paragraphs 9-10 of his founding affidavit are
puzzling. They read as follows:
‘
After
my consultation with Ms Sheffer, I had no further contact with her
and assumed that she indeed sorted the matter out on my
behalf. I was
surprised when I received an email on the 5
th
of August 2022 where (to) sic a notice of set down of an application
for default judgment against me was attached. I immediately
forwarded
same to Ms Sheffer and made an appointment with her. I consulted with
Ms Scheffer, if my memory serves me correct, the
following day. Ms
Scheffer again assured me that she would give the matter the
necessary attention and sort it out of my behalf.
Thereafter
I
again
had no contact with Ms Sheffer’ (my underlining.
[20]
Incontrovertibly, the defendant received the summons along with the
particulars of
claim and the accompanying attachments. The
defendant’s attorneys filed a notice of intention to defend the
matter but neglected
to file a plea resulting in an application for
default judgment. Despite being served with the application for
default judgment,
the defendant consulted his attorney but failed to
make a follow-up until the application for the default judgment was
heard. Additionally,
despite being consistently disappointed by his
attorneys, the defendant failed to undertake reasonable measures to
mitigate further
disappointment and defend the action. He never
appeared in court or took reasonable steps until the writ of
execution was enforced.
[21]
I concur with the sentiment raised in
De
Wet’
case
[6]
,
that since the defendant is the author of his misfortune, it would be
unjust to hold the other party accountable for the harm
and
difficulty that resulted from his action.
When
a default judgment had been entered against a party due to his
failure to remain in communication with his attorney or
agent
regarding the progress of the case, they cannot absolve themselves of
this responsibility and complain against the other
party to the
action, alleging negligence on the part of their appointed
representatives
[7]
.
Upon
careful consideration of the facts presented in this regard, I find
the defendant’s explanation of his default unsatisfactory
and
unreasonable.
[22]
In
Chetty v
Law Society
[8]
,
the court held a view that given the fact that the appellant's
explanation was unsatisfactory and unacceptable, it was therefore,
strictly speaking, unnecessary to make findings or to consider the
arguments relating to the appellant's prospects of success.
Nevertheless, in the interests of fairness to the appellant, the
court found it desirable to refer to certain aspects of the merits
of
the defence submitted. I shall now adopt a similar approach.
[23]
The default judgment was granted in terms of
section 29
(1) of the
Insolvency Act which
provides,
‘
Every
disposition of his property made by a debtor not more than six
months before the sequestration of his estate which has
had the
effect of preferring one of his creditors over the above another may
be set aside by the court if immediately after the
making of such
disposition the liabilities of the debtor exceeded the value of the
assets, unless the person in whose favour the
disposition was made
proves that the disposition was made in the ordinary course of
business and that it was not intended thereby
to prefer one creditor
above another but subject to the provisions of sub-section 2’.
[24]
Section 29
of the
Insolvency Act addresses
voidable preferences and
stipulates a time frame of six months. The provision serves to
protect the interests of the general body
of creditors, ensuring that
no party demonstrates a bias towards specific creditors at the
expense of others
[9]
. To
establish voidable preferences, the plaintiff must demonstrate the
following: that a disposition was made by the insolvent;
of his or
her property; that the disposition took place not more than six
months before the liquidation; that the disposition had
the effect of
preferring one of the creditors over the another; that immediately
after the making of the disposition the liabilities
of the debtor
exceeded the value of the assets; and that the requirements of
section 340(1) of the Companies Act were met.
[10]
The goal of Free Agape’s investment program was to collect
deposits from investors and use them to pay back the investors.
Drawing from the evidentiary record, the plaintiffs collated all the
financial information of the insolvent thereby ensuring transparency
and obviating any ambiguity regarding the discharge of their burden
of proof. Mr Jacob Jan Dekker, an auditor and forensic
accountant was appointed and instructed to analyse and advise on the
financial and related affairs of Free Agape. According to
the
quantification report, the defendant invested an amount of R5 000
between 02 October 2017 and 21 November 2017 around the same
period
he was paid an amount of R478 250 by Free Agape. The
dispositions made to the defendant by Free Agape resulted in
the
liabilities of the debtor exceeding the value of its assets.
Consequently, the defendant received preferential treatment above
all
other creditors. The quantification report is uncontroverted.
[25]
Counsel for the defendant argued that the defendant made numerous
other transactions
with Free Agape. These transactions, so he argued,
were made in the ordinary course of business without favouring any
particular
creditor. Counsel acknowledged that once the plaintiff has
discharged its onus, the burden of proof shifts to the defendant to
substantiate these assertions. This notwithstanding, the defendant
claimed that some of his financial records could not be obtained
from
his bank account. Despite the fact that his bank account was closed,
he managed to retrieve records of certain sums of money
that he
deposited to Free Agape six years ago. This is incomprehensible.
Notably, the amount of R200 000, which is a matter of
common
knowledge between the parties, relates to a claim in terms of Section
26(1) of the Insolvency Act. The claim in terms of
Section 26(1)
of
the
Insolvency Act is
not the subject matter of the default judgment
that was granted by this court.
[26]
It is crucial to bear in mind that a bona fide defence necessitates
full disclosure
of the nature, grounds and material facts relied upon
to support the defence. In this instance, the account given by the
defendant
seems to be more general than specific. The material facts
upon which his defence is likely to be based are missing and
therefore
no bona fide defence was exhibited. Consequently, the
application for the rescission of the default judgment cannot
succeed.
Order
[27]
The following order is issued:
1.
The application for the rescission
of the default judgment is dismissed with costs.
N CENGANI-MBAKAZA
ACTING JUDGE OF THE
HIGH COURT OF SOUTH AFRICA
APPEARANCES:
Counsel
for the plaintiffs:
Adv
M Somandi
Instructed
by:
BANARD
INCOPORATED
PRETORIA
C/o
DE JAGER LORDAN INC
2
Allen Street
MAKHANDA
Tel:
046 622 2799
E-mail:
stuart@djlaw.co.za
Counsel
for the defendants:
Adv
I Lambrechts
Instructed
by:
GREVENSTEIN
INC.
GQEBERHA
C/o
HUXTABLE ATTORNEYS
26
New Street
MAKHANDA
Ref: O Huxtable
/cl/02GOO3052
Email:
law1@huxattorneys.co.za
Date
heard:
22 February 2024
Date
delivered:
26 March 2024
[1]
De Wet and Others v Western Bank Ltd
1977 (4) SA p770
(T) at para-E.
[2]
Colyn v Tiger Food Industries Ltd ta Meadow Feed Mills (Cape)
2003
(6) SA 1
(SCA) at para 5. In Zuma v the Secretary of the Judicial
Service Commission of Inquiry into Allegations of State Capture,
Corruption
and Fraud in the Public Sector including Organs of the
State and Others
[2021] ZACC 28
, at para 53, the importance of
Uniform
Rule 42
was explained as follows,’ It should be
pointed out that once an applicant has met the requirements for
rescission, a court
is merely endowed with the discretion to rescind
its order. The precise ruling of
rule 42
, after all, postulates that
a court ‘may’, not ‘must’, rescind or vary
its order-the rule is merely an
‘empowering’ section and
does not compel the court ‘to set aside or rescind anything’.
This discretion
must be exercised judicially.
[3]
1979
(2) SA 1031
at para-F.
[4]
Supra
fn
2.
[5]
2006(4)
SA 527 T
[6]
De
Wet
supra
fn. 3 (para 3)
[7]
De Wet
supra
fn. 1
at paragraph G.
[8]
1985(2) SA 756
[9]
Strydom N.O AND Another v Snowball Wealth (Pty) Ltd and others
(356/2021)[2022] ZASCA 91(15 June 2022) at para 31.
[10]
See Case number: 4028/19 Pieter Hendrik Strydom and 2 Others v
Coernelius Grundling delivered on 18 May 2021 page 12 paragraph[
23];
Section 340(1)
, Companies Act61 of 1973 provides, ‘every
disposition by the company of its property which , if made by an
individual could
for any reason, be set aside in the event of the
insolvency, may, if made by a company, be set aside in the event of
the company
being wound up and unable to pay its debts, and the
provisions of the law relating to insolvency shall mutatis mutandis
be applied
to any such disposition.