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[2010] ZALCCT 40
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Zeman v Quickleberge and Another (C45/2010) [2010] ZALCCT 40 (23 August 2010)
REPORTABLE
OF
INTEREST TO OTHER JUDGES
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD AT CAPE TOWN
CASE
NO:
C45/2010
In the matter between:
BERNADETTE ZEMAN
Applicant
and
ANTHONY CHARLES
QUICKELBERGE
THE RAILWAY SHED CC
First Respondent
Second Respondent
JUDGMENT
STEENKAMP J:
1.
This application concerns the vexed
question of lifting the corporate veil. It also addresses the
question of the appropriateness
of a costs award where the applicant
is represented on a
pro bono
basis.
2.
The Court is being asked to adjudicate on:
2.1
whether the Second Respondent (“the
CC”) carried on in a manner that was intended to defraud the
Applicant (“Zeman”);
2.2
alternatively, whether the CC carried on in
a manner that was grossly negligent;
2.3
alternatively, whether there was a gross
abuse by the First Respondent (“Quickelberge”) of the
CC’s separate corporate
personality, either under statute or
under common law.
3.
Zeman seeks an order that Quickelberge be
held personally responsible for the debts owed by the CC to Zeman, in
the amount of R39
000 with
mora
interest calculated from 21 December 2007.
4.
Bernadette Zeman is the Applicant
(“Zeman”), Anthony Charles Quickelberge is the First
Respondent (“Quickelberge”)
and The Railway Shed CC is
the Second Respondent (“The CC”).
5.
No notice of intention to defend or
answering papers were filed by either Quickelberge or the CC. The
matter is therefore heard
on an unopposed basis.
BACKGROUND FACTS
6.
Zeman worked for Sopranos Restaurant (“the
Restaurant”), a restaurant in Robertson that is owned by the
CC.
7.
Zeman was unfairly dismissed from her
employment as a manager of the Restaurant on 19 September 2007.
She started working
as head chef on 1 May, ironically as it turns
out, and worked her way up to manager.
8.
After her dismissal, she referred a dispute
to the CCMA. It was arbitrated on 13 November 2007.
The arbitrator
found the dismissal to have been both procedurally and
substantively unfair and awarded Zeman compensation of R39 000.00,
to be paid on or before 21 December 2007.
9.
The Respondent in the arbitration award was
the CC. The sole member of the CC at the time of the award was
Quickelberge. Neither
he nor anyone appointed to represent him
appeared at the arbitration. The Commissioner proceeded with the
arbitration nonetheless
because he was “satisfied that proper
notice of set down had been issued in terms of the CCMA rule 30(2)”
- (paragraph
1 of the arbitration award (“the award”)).
10.
On 15 January 2008, less than a month after
the date on which the CC had to pay Zeman the compensation as
ordered, Quickelberge
signed an agreement of sale authorising the CC
to “sell” its assets to the Quickelberge Family Trust
(“the Trust”).
11.
The assets so “sold” were dealt
with as follows, explained in a letter by Mr Falck, Quickelberge’s
attorney, to
Sheriff Koen:
11.1
the Trust paid no money for the assets,
supposedly because of a prior loan to the CC, conveniently
constituting an exact off-setting
of the debt;
12.2the
assets (essentially kitchen and restaurant equipment used to run a
restaurant) were never taken possession of by the Trust,
and were
simply left with the restaurant who had “the privilege to
utilise the attached assets”; and
12.3the
CC guaranteed that the assets are free of any security, or attachment
from claims from third parties.
EVIDENCE OF GROSSLY
NEGLIGENT OR FRAUDULENT CARRYING ON OF A BUSINESS OF A CLOSE
CORPORATION, ALTERNATIVELY, GROSS ABUSE OF THE
SEPARATE CORPORATE
PERSONALITY IN TERMS OF S 64(1) AND S 65 OF THE CLOSE CORPORATIONS
ACT, ALTERNATIVELY THE COMMON LAW
12.
Quickelberge knew about the arbitration and
he knew that an award could be made against him in his absence.
The Commissioner
was “satisfied that proper notice of set down
had been issued in terms of the CCMA rule 30(2)” on the CC, and
Quickelberge
was the CC’s sole member at the time. Despite
knowing about the award against the CC, or at the least, in
circumstances where
he should have known about the award,
Quickelberge, on behalf of the CC, signed an agreement of sale in
which the CC transferred
its assets to the Trust on 15 January 2008
divesting itself of all its assets, either knowing that a debt was
owed, or in circumstances
where it was reckless to do so.
13.
Apart from the transfer of assets
themselves in order to avoid a legal obligation, evidence can also be
found in the contents of
the “sale agreement” itself, the
agreement that transferred the assets of the CC to the Trust.
14.
The following parts of the “sale
agreement” as well as the letter by the CC’s and
Quickelberge’s attorney,
Mr Falck, are relevant and are quoted
below for ease of reference:
14.1
“
Purchase price
1.1
The purchase price is the sum of
R100 000.00 (One hundred thousand RAND) payable by the Purchaser
to the Seller as follows:
1.2
The full purchase price has already
been paid in terms of loans made fro [sic] the Purchaser to the
Seller.
14.2
Guarantees
The Seller guarantees
that it is the owner of the property and that it is free of any
security, attachment for claims from third
parties [sic].”
15.
For the sake of convenience I also note the
relevant paragraphs of Mr Falck’s letter to the sheriff:
“
Soprano’s
Restaurant is owned by The Railway Shed CC, CK Number 2006/188191/23.
The assets of The
Railway Shed CC were sold to the Quickelberge Family Trust 457/98 on
15 January 2008. The items that you
attached therefore does
[sic] not belong to Soprano’s Restaurant but in fact belongs to
a Trust from which Soprano’s
Restaurant has the privilege to
utilise the attached assets.”
16.
I agree with Mr
Ackermann
,
who appeared for the applicant, that, if regard is had to these
documents, the inference that the sale was done with a fraudulent
purpose, or at the very least as an abuse of corporate
personality, is inescapable:
16.1
This was a disposition without value. If
indeed there was a pre-existing loan no evidence to this effect was
produced. It is a hastily
concocted “Deed of Sale” put
together solely for the purpose of not having to pay Zeman the
compensation awarded to
her.
16.2
In addition the value of the attached
assets are R30 000.00. They were “sold” to the Trust
for R100 000.00.
Even discounting a conservative estimate
by the sheriff of the value of the assets the discrepancy of
R70 000.00 is large
enough to reasonably infer that either all
the assets were not pointed out to the Sheriff when he came to
attach,
or
that the “sale” of the assets to the Trust was a deal so
hastily cobbled together that a proper inventory and valuation
of the
assets was never made.
16.3
Quickelberge as a signatory to the “Deed
of Sale” guarantees that the assets are free from any
“attachment for
claims from third parties”. He does
so with full knowledge of the arbitration award against him, or at
the least with
gross negligence and recklessly, in circumstances
where he reasonably ought to have known that an attachment claim from
third parties
was extant in the form of an arbitration award against
him.
16.4
In addition regard must be had of the
arrangement between the CC and the Trust as it relates to the use of
the assets by the CC
(Soprano’s Restaurant):
The items that you
attached therefore does [sic] not belong to Soprano’s
Restaurant but in fact belongs to a Trust from which
Soprano’s
Restaurant has the privilege to utilise the attached assets
.”
17.
I agree with Mr
Ackermann
that this is a fraudulent attempt by Quickelberge, acting as a puppet
master, and using the separate corporate personality of the
CC, to
avoid paying the debts of the CC, while at the same time keeping the
CC operating the restaurant as though nothing had happened.
THE
APPLICABLE LEGAL PRINCIPLES
Section
64 (1) of the Close Corporations Act
[1]
- Liability for reckless or fraudulent carrying-on of business of
corporation
18.
In
Ebrahim
and another v Airport Cold Storage (Pty) Ltd
[2]
the Supreme Court of Appeal
held that:
"Acting
recklessly consists in an entire failure to give consideration to the
consequences of one’s actions, in other
words, an attitude of
reckless disregard of such consequences. In applying the
recklessness test to the running of
a close corporation,
the court should have regard to amongst other things the
corporation’s scope of operations, the members’
roles,
functions and powers, the amount of the debts, the extent of the
financial difficulties and the prospects of recovery,
plus the
particular circumstance of the claim and the extent to which the
member has departed from the standards of the reasonable
man in
regard thereto."
[3]
19.
The
court held further that the transfer to the CC of the plaintiff’s
debt from another CC without any
quid
pro quo
showed reckless disregard for the CC’s solvency, for its
ability to repay the debts it incurred and for its capacity as a
legal entity to accumulate and preserve assets of its own.
[4]
20.
In
L
& P Plant Hire BK en Andere v Bosch en Andere
[5]
the Supreme Court of Appeal
elucidated the use of the terms “
reckless”
on
the one hand and “
gross
negligence”
on the other hand. Essentially the court held that reckless
conduct in Section 424 of the Companies Act (the equivalent Section
to Section 64 of the Close Corporations Act) has been interpreted to
mean gross negligence. Therefore when Section 424 of the Companies
Act is said to include conduct which evinces the lack of genuine
concern for the prosperity of the Company, such views can also
be
accepted as correct as regards to grossly negligent conduct in
Section 64 of the Close Corporations Act.
[6]
21.
In
Philatex
(Pty) Ltd and Others v Snyman and Others; Praitex (Pty) Ltd and
Others v Snyman and others
[7]
, after examining
authorities, the court held that the ordinary meaning of “
recklessly
”
includes gross negligence, with or without consciousness of risk
taking.
[8]
22.
The
effect of fraud or recklessness is that the person so guilty will be
personally liable for the debts of the CC.
[9]
23.
In
relation to the provisions of s 424 of the Companies Act our courts
have held that proof of a casual link between the relevant
conduct
and the debts or liabilities in respect of which a declaration of
personal liability is sought is not required.
[10]
24.
However,
in
Saincic
v Industro-Clean (Pty) Ltd
2009 (1) SA 538
(SCA)
,
at para 20
[11]
, Farlam JA
stated that the absence of such a link is a factor to be taken into
account by the court in the exercise of its discretion
whether to
grant the relevant declaration. In the same case, Harms JA, making
reference to the
dicta
in
L&P
Plant Hire BK v Bosch
(
supra
)
at paras 39 and 40 in relation to the provisions of s 64 of the Close
Corporations Act (“the Act”), drew a distinction
between
creditors and members of the corporation.
25.
The learned Judge was of the view that that
when it came to creditor’s claims the section should be
interpreted restrictively
so as to apply only where the result of the
relevant conduct is that it has a negative effect on the creditor’s
claim against
the corporation.
26.
The
interpretation by Henochsberg
[12]
is that in order to sustain a cause of action there must be at least
some link between the conduct complained of and the inability
of the
company to pay the debt claimed.
Piercing the
corporate veil
27.
Lifting
the corporate veil means disregarding the dichotomy between a company
and a natural person behind it and attributing liability
to that
person where he has misused or abused the principle of corporate
personality.
[13]
28.
The
law is not settled when it comes to the circumstances under which it
is permissible to pierce the corporate veil and each case
involves a
process of enquiring into the facts.
[14]
29.
The
courts will generally require an element of fraud or other improper
conduct before they will pierce the corporate veil.
[15]
In these circumstances a court will then be entitled to look to
substance rather than form in order to arrive at the true facts.
[16]
The court does not require “
unconscionable
injustice
”
for determining whether the veil should be pierced as formulated in
Botha
v Van Niekerk
[17]
and
found it perhaps too rigid a test.
[18]
The court opted for a more flexible approach allowing the facts of
each case ultimately to determine whether the piercing
of the veil is
called for.
30.
There
is no reason why piercing of the corporate veil should necessarily be
precluded if another remedy exists. As a general rule
if a person has
more than one legal remedy at his disposal he can select anyone of
them and he is not obliged to pursue the one
rather than the other.
If the facts of a particular case otherwise justify piercing the veil
the existence of another remedy
and the failure to pursue it
available remedy should not in principle serve as an absolute bar to
a court granting relief.
[19]
31.
Existence
of another remedy or the failure to pursue it may be a relevant
factor when policy considerations come into play but cannot
be of
overriding importance.
[20]
32.
Where
assets are transferred from one entity to another with an improper
purpose – evasion of legal obligations in mind -
the court has
shown its willingness to pierce the corporate veil.
[21]
33.
Smalberger
J A held
[22]
that
“
a company,
otherwise legitimately established and operated, is misused in a
particular instance to perpetrate a fraud, or for a
dishonest or
improper purpose, there is no reason in principle or logic why
its
D
separate personality
cannot be disregarded in relation to the transaction in question (in
order to fix the individual or individuals
responsible with personal
liability) while giving full effect to it in other respects. In
other words, there is no reason why
what amounts to a piercing of the
veil pro hac vice should not be permitted. “
34.
Agreements
can be declared invalid if they are in conflict with public
policy.
[23]
35.
The
case of
Footwear
Trading CC vs Mdlalose
[24]
,
before Nicholson JA in the Labour Appeal Court, is particularly
instructive and whereas the relief sought was different, the facts
are similar to the present case.
36.
The respondent was dismissed. She referred her dispute to the
CCMA, obtained an award in her favour, and asked for her employer,
Fila (Pty) Ltd, to pay her the compensation as awarded. Fila
declared that it was dormant as a company and that Footwear
Trading
had taken over certain of its assets. The respondent sought an
order declaring Footwear and Fila to be co-employers
and as such
jointly and severally liable to comply with the award. Footwear filed
an answering affidavit stating that Fila was
a separate juristic
entity and that it merely performed administrative functions for
Fila.
37.
The court
a quo
found that Footwear was jointly and
severally liable with Fila for complying with the order.
38.
On
appeal the Labour Appeal Court upheld the principle that if
circumstances warrant it a court will be justified in regarding a
company as a separate personality in order to fix liability elsewhere
for what are extensively acts of the company.
[25]
This is referred to as lifting or piercing the corporate veil. In
determining whether or not it is appropriate to lift the
veil in the
given circumstances the court quoted with approval from
Dadoo
Ltd & Others vs Krugersdorp Municipal Council
[26]
,
where
the court confirmed the fundamental doctrine that the law in these
circumstances will have regard to the substance rather
than the form
of things.
39.
Nicholson
JA went on to say that the general principle underlying the lifting
of the corporate veil is that when a corporation is
the mere alter
ego or business conduit of a person it may be disregarded.
[27]
40.
While
the corporate veil is normally lifted to identify the shareholders or
individuals who are the true perpetrators of a company’s
acts,
the court extended the principle to situations where companies and
close corporations are juggled around like “
puppets
to do the bidding of the puppet master
.”
[28]
41.
The willingness of our courts, and in particular the
Industrial and Labour Courts, to pierce the veil is not new and there
have
been a number of decisions in the old Industrial Court as well
as more recently in the Labour Court that have upheld the principle:
41.1
Substance
and not form is determinative.
[29]
41.2
The
liquidation of a close corporation and the simultaneous creation of a
second one to take its place was a deceptive device used
to get rid
of the workforce without having to retrench them.
[30]
41.3
In
another instance it was held that the business of a close corporation
was so enmeshed with that of the respondent company that
the
respondent could be regarded as the real employer of the
applicant.
[31]
41.4
It
is not necessary for the purposes of establishing an employment
relationship formally to pierce the corporate veil.
[32]
APPLICATION OF THE
LAW TO THE FACTS
42.
Acting recklessly consists of a failure to
give consideration to the consequences of one’s actions.
Quickelberge acted recklessly,
and I am persuaded, fraudulently. He
knew, or ought to have known about the CC’s debt and
transferred assets in order to
frustrate the claim of a creditor
(Zeman).
43.
The effect of fraud or recklessness is that
the person so guilty will be personally liable for the debts of the
CC, and Quickelberge,
as the sole member of the CC and the signatory
on behalf of the CC for the “sale” to the Family Trust is
personally
liable. Knowing as he did of the debts, or in a context
where he should have known about the debts, he falls foul of s 64 of
the
Act as acting either fraudulently or carrying on the business of
the CC recklessly and should, as Mr
Ackermann
submitted, be held personally liable for its debts.
44.
The “sale” to the Family Trust
of the CCs assets was an abuse of the separate corporate personality
of the CC with the
intent to frustrate Zeman in her claim against the
CC. It was a disposition intended to defraud a creditor (Zeman), it
was without
value (the so-called “prior loan agreement”),
false guarantees were given by Quickelberge that no third party
claims
existed against the CC knowing that there were such claims or
where he ought to have known that there were such claims, and there
was a puppet master (Quickelberge) pulling the strings behind the
scenes (the “special” arrangement whereby the
CC/restaurant
could use the assets sold to the Trust). The result of
this conduct was that it had a negative effect on a creditor’s
claim
(Zeman) against the CC.
45.
There was a causal link between the conduct
complained of (the sale of assets by the CC to the Trust) and the
inability of the CC
to pay the debt.
46.
This Court is entitled to look at substance
and not form in exercising its discretion. The substance of the
agreement is to avoid
payment of a debt to a creditor. Where assets
are transferred from one entity to another with an improper motive
such as the evasion
of a legal obligation, our courts have shown
their willingness to pierce the corporate veil.
47.
Quickelberge knew that the attachment of
the CC’s assets were immanent because he had failed to satisfy
a court order. To
avoid his legal obligations he transferred assets
from one entity (CC) to another entity (the Family Trust).
48.
In these circumstances, I find that the
corporate veil should be lifted and Quickelberge must be held
personally liable for the
debt of the CC to the applicant – one
that it has steadfastly avoided, despite the existence of an
arbitration award in the
applicant’s favour.
COSTS
49.
The
applicant asked for costs to be awarded on an attorney client scale.
In
support of that prayer, Mr
Ackermann
referred
me to
Cape
Pacific Ltd v Lubner Controlling Investments
where Smalberger JA awarded costs on an attorney and client
scale:
[33]
“…
.as
a mark of this Court's
disapproval
of his [defendant’s] conduct in refusing to give effect to the
judgment in the original action when he was in
a position to
do so, and thereby compelling the appellant to again come to Court in
order to enforce its rights, it would,
in my view, be appropriate and
just to award the appellant its trial costs on an attorney and client
scale.”
50.
Mr
Ackermann
submitted that the facts of this matter justify an order of attorney
client cost. He noted the following facts:
50.1
Quickelberge’s actions generally
speak of a man who considers himself above the law. The manner of
Zeman’s dismissal
was crass and without any regard to
Quickelberge’s obligations as the employer representative of
the CC. She was simply told
to get off his property. There was
not the slightest attempt to follow any sort of procedure as laid
down in law. As much
was stated in the arbitration award.
50.2
The Commissioner also found in the
arbitration award that Quickelberge had made unauthorised deductions
from Zeman’s salary
in the amount of R19 318, 00.
50.3
Zeman deposed under oath that she was
afraid to return to work after Quickelberge had her away from the
workplace because
she had previously witnessed him assaulting
an employee.
50.4
Quickelberge’s actions and in
particular his successful attempts to date at avoiding his legal
obligations have caused Zeman
money, trouble and distress.
51.
Finally Mr
Ackermann
submitted that regard should be had to
the fact that Quickelberge is a wealthy individual. The evidence
before me shows that he
owns property in excess of R20 million. And
if regard is had to the facts as a whole, his attempts at voiding
paying what for him
is a trifling some of money, makes his behaviour
all the more tractable for sanction by means of a punitive cost
order.
52.
As a general proposition, I was persuaded
by these arguments. It appeared clear to me that Quickelberge
fraudulently attempted to
evade his obligations to the applicant by
hiding behind a translucent corporate veil. But it bothered me that
the applicant was
being represented
pro
bono
. Would it, in law and fairness, be
proper to award costs generally, much less on an attorney and client
scale?
53.
I asked Mr
Ackermann
to present me with supplementary heads
of argument regarding this vexed question. I am indebted to him for
his assistance.
54.
There have been a number of contradictory
judgements in this regard but recently in an unreported judgment in
this Court, costs
were awarded to a
pro
bono
client.
55.
Cele
J in his judgment in
Lorna
Naude v BioScience Brands Ltd
[34]
held:
The
applicant was represented on a pro bono basis. The considerations of
law and fairness of this matter suggest that a costs order
should
issue against the respondent. There is no specific provision in the
rules of this court for the awarding of costs in these
circumstances.
Rule 40 of the High Court provides for a costs order for a
successful litigant in forma pauperis.
56.
In
this respect I respectfully agree with Cele J that, in appropriate
cases, a
pro
bono
litigant may be awarded costs, and disagree with the contrary view
taken in
Morkel
NO & others v CCMA & Others
[35]
. In litigation the
pro
bono
client is at a disadvantage. As between attorney and client, the
attorney for the
pro
bono
litigant can only claim such expenses from the client as are actually
incurred by the attorney. It has been argued that since his
client
has incurred no fees, the attorney acting
pro
bono
can claim no fees, only disbursements, from the losing party.
57.
The problem with this view is that it
enables the opposing party to litigate with impunity, discourages
settlement, and militates
against public interest.
58.
In addition it is unfair. Nothing
constrains the opposing party from obtaining a cost order against a
pro bono
client.
59.
The argument that because the
pro
bono
litigant has incurred no costs and
does therefore not need to be indemnified for his costs, is, as Mr
Ackermann
argued, ill-founded. As a point of departure it must be stated that
there is no rule or law that states that a pro bono litigant
may not
recover costs. In fact, the opposite is true.
60.
There is precedent, in the rules of court,
legislation, and comparative case law, that supports the contention
that a court can,
and in fact should, award costs to a
pro
bono
litigant.
Rule 40 of the High
Court
61.
Rule 40 of the High Court Rules dealing
with
in forma pauperis
instructions does make provision for cost orders in favour of a
litigant who is being represented free of charge. Rule 40(7) states
as follows:
“
If
upon the conclusion of the proceedings a litigant in forma pauperis
is awarded costs, his attorney may include in his bill of
costs such
fees and disbursements to which he would ordinarily have been
entitled…”
Magistrates Court
Rule 53 (5)
62.
This rule, though not exactly the same as
the High Court rule, also places the indigent litigant on equal
footing with his opponent
by not depriving him of a cost order.
“
If the pro Deo
litigant succeeds and is awarded costs against his opponent he shall,
subject to taxation, be entitled to include
and recover in such costs
his attorney’s costs and also the court fees and sheriff’s
charges so remitted and if he
shall recover either the principal
amount, the interest or the costs, he shall first pay and make good
thereout pro rata all such
costs, fees and charges.”
63.
Clearly a
pro
bono
litigant cannot, by means of a
cost order, be placed in a better position than she was. She cannot
profit from litigating by means
of a cost order for costs she did not
incur. I am persuaded that the intention behind these rules of court
are to enable the attorney
to recover costs without, at the same
time, his
pro bono
client being out of pocket. The only way this can be done is if the
attorney invoices his
pro bono
client for the amount he, the attorney, actually recovers from the
other side. If for example, he is unable to recover anything,
he is
duty bound to write off the notional fees which he would ordinarily
have earned.
The Attorneys Act
64.
Law clinics, under the Attorneys Act, also
enjoy the advantage of being able to recover costs, even though their
clients are not
charged. Section 79A of the Act states as follows:
“
79A. Recovery
of costs by law clinics.
—(1) Notwithstanding
the provisions of
section
83 (6)
of this Act and
section
9 (2)
of the Admission of Advocates Act, 1964 (
Act
No. 74 of 1964
), whenever in any legal proceedings or any dispute
in respect of which legal services are rendered to a litigant or
other person
by a law clinic, costs become payable to such litigant
or other person in terms of a judgment of the court or a settlement,
or
otherwise, it shall be deemed that such litigant or other person
has ceded his or her rights to such costs to the law clinic.
…
(3) The costs
referred to in
subsection
(1)
shall be calculated and the bill of costs concerned, if any,
shall be taxed as if the litigant or person to whom legal services
were rendered by the law clinic, actually incurred the costs of
obtaining the services of the attorney or advocate acting on his
or
her behalf in the proceedings or dispute concerned.
[
S.
79A
inserted by
s.
20
of
Act
No. 62 of 2000
.]
65.
The notion therefore of awarding costs to a
litigant who is being represented free of charge, is not alien in our
law, and in fact
express provision, as illustrated above, has been
made in both legislation and the rules of court in order to level the
playing
field.
66.
The Legal Practice Bill, currently before
Parliament, envisages a similar provision. Although it is not yet law
and may not become
law in its present form, I do think it is
instructive. It provides (in draft form) as follows:
“
Whenever
in any legal proceedings or in any dispute in respect of which legal
services are rendered free to a litigant or other
person by a legal
practitioner, costs become payable to such litigant or other person
in terms of a judgment of the court or a
settlement, or otherwise,
such litigant or other person must be deemed to have ceded his or her
rights to the costs to that legal
practitioner or practice…
The costs … must
be calculated and the bill of costs, if any, must be taxed as if the
litigant or person to whom legal services
were rendered by the legal
practitioner actually incurred the costs of obtaining the services of
the legal practitioner acting
on his or her behalf in the proceedings
or dispoute concerned.”
Comparative case
law
67.
Jurisprudence in the United States has
developed to the point where
pro bono
awards are routinely made in favour of
pro
bono
litigants, even where there is no
fee arrangement between attorney and client.
68.
In
Jose
Henriquez v Anna S Henriquez
[36]
in the Appeal Court of
Maryland, the Court held as follows:
“
We
are aware that indigents are represented by legal services attorneys
in a large number of family relation matters. It would
be
unreasonable to allow a losing party in a family relations matter to
reap the benefits of free representation to the other party………...”
69.
In
coming to this conclusion the court relied not only on its own
interpretation of the relevant statute allowing for “reasonable
attorney’s fees” but quoted with approval from a Supreme
Court of Montana decision
[37]
in the matter of
In
re: Marriage of Malquist
.
In
Malquist
the court noted that the “
principle
of providing equal justice to all”
[38]
warrants the award of attorney’s fees to persons represented by
legal services organisations or a pro bono attorney.
70.
Instructive
is that the court held that “
whether
a party incurs debt is irrelevant…”
[39]
71.
In
the case of
Benavides
v. Benavides
[40]
the court added further policy considerations for allowing attorney’s
fees for pro bono counsel:
“…
It
would be unreasonable to allow a losing party in a family relations
matter to reap the benefits of free representation to the
other
party. A party should not be encouraged to litigate under the
assumption that no counsel fee will be awarded in favour of
the
indigent party represented by public legal services…Furthermore
a realization that the opposing party, although poor,
has access to
an attorney and that an attorney’s
fee
may be awarded deters non-compliance with the law and encourages
settlements.”
[41]
72.
The
Court in the
Henriquez
matter
based its decision on a line of similar matters.
[42]
The Court held that where a party is represented by a non-profit
legal services organisation or a pro bono attorney, he is entitled
to
recover costs irrespective of whether a fee agreement exists between
the client and the attorney.
Arguments against
the notion of awarding a pro bono litigant costs
73.
One of the arguments generally taken is
that an attorney who agrees to act
pro
bono
should not be entitled to recover
fees for his services, as it would nullify his
pro
bono
service, and possibly incentivise
attorneys to take on matters on a contingency (no win-no fee) basis
under the guise of performing
pro bono
service.
74.
Mr
Ackermann
proffered two answers to this objection. Firstly, it is to be
encouraged if attorneys can recover fees from the losing party in
matters where they agreed initially to act without any prospect of
recovering fees. It would promote
pro
bono
service rather than detract from
it. That in fact was one of the very reasons the Contingency Fees Act
(Act 66 of 1997) was passed.
Secondly, there is little risk that
attorneys will act
pro bono
in the hope of recovering fees by stealth, as it were, on
successfully concluding a matter.
75.
If a losing litigant pays the legal costs
occasioned by the lawsuit, it may make it easier for attorneys to
take on more
pro bono
matters, and indeed encourages them to do so.
76.
Legal costs are usually recovered from the
losing party on a scale as between party and party, and it is common
knowledge that the
prescribed tariff of fees is well below what
attorneys actually charge their (paying) clients. Attorneys are
unlikely to take on
pro bono
cases in the hope of winning costs on a scale as between
party-and-party. In any event, even if this happened, the purpose of
pro bono assistance will still be served in that an indigent client
will have been afforded access to justice. The point of
pro
bono
service is to provide access to
justice to those who cannot afford it otherwise, not to focus on
whether the legal representatives
of the
pro
bono
client profits or not. It is this
misplaced focus that has bedevilled the issue of whether a pro bono
litigant can recover costs.
77.
In my view, access to justice to indigent
clients should be encouraged, especially in a court of equity such as
this one. Should
a successful
pro bono
litigant be awarded costs, the unsuccessful party is no worse off
than would otherwise be the case. The obverse is also true: A
pro
bono
litigant still runs the risk of an
adverse costs order against him or her. The knowledge that a losing
party – usually the
employer – would never run the risk
of an adverse costs order, would have a chilling effect on the
willingness of legal practitioners
to provide their services
pro
bono.
CONCLUSION
78.
I make the following order:
78.1
It is declared that the business of
the second respondent was, and continues to be, carried on in a
manner which was intended to
defraud the applicant within the meaning
of section 64 of the Close Corporations Act, Act 69 of 1984.
78.2
The first respondent is personally
liable for the debt owed by the second respondent to the applicant.
78.3
The first respondent is ordered to
pay the applicant the sum of R39 000, 00 together with
mora
interest thereon calculated from 21 December 2007 until date of
payment.
78.4
The first respondent is ordered to
pay the applicant’s costs on an attorney and client scale.
__________________________
AJ STEENKAMP
Judge of the Labour
Court
Cape Town
Date
of hearing:
13 August 2010
Date of judgment:
23 August 2010
For the applicant:
LW Ackermann
Edward
Nathan Sonnenbergs
[1]
“
64.
Liability for reckless or fraudulent carrying-on of business of
corporation
(1)
If it at any time appears that any business of a corporation was or
is being carried on recklessly,
with gross negligence or with intent
to defraud any person or for any fraudulent purpose, a Court may on
the application of the
Master, or any creditor, member or liquidator
of the corporation, declare that any person who was knowingly a
party to the carrying
on of the business in any such manner, shall
be personally liable for all or any of such debts or other
liabilities of the corporation
as the Court may direct, and the
Court may give such further orders as it considers proper for the
purpose of giving effect to
the declaration and enforcing that
liability.”
[2]
2008
(6) SA 585 (SCA)
[3]
Supra
,
para 14
[4]
Supra
,
para 18 at 593b
[5]
2002
(2) SA 662 (SCA)
[6]
Supra
,
para 39 at 677 F-H; see also Henochsberg, Commentary on the Close
Corporations Act, Vol 3, Com-187, Note 64.1
[7]
1998
(2) 138 (SCA)
[8]
Supra, p143 at paras C - F
[9]
Ebrahim
supra at para 15 where Cameron JA stated: “[T]he section
retracts the fundamental attribute of corporate personality…with
its corollary of autonomous and independent liability for debts…”
[10]
Philotex
supra at 142, para H;
Nel
NNO v McArthur
2003 (4) SA 142
(T)
at 155-156;
Kalinko
v Nisbet
[2002] 3 All SA 294
(W)
at
303.
[11]
2009
(1) SA 538
(SCA), at para 20
[12]
Henochsberg at Com-188(2), 64.3, middle of the paragraph
[13]
Cape
Pacific Ltd v Lubner Controlling Investments (Pty) Ltd
1995
(4) SA 790 (A)
[14]
Supra,
p802, para H
[15]
Ibid,
p803, paras D-G, where the court quoted with approval from
The
Shipping Corporation of India Ltd v Evdomon Corporation &
Another
[1993] ZASCA 167
;
1994
(1) SA 550
(A)
per
Corbett
CJ at 566C-F:
'It seems to me that,
generally, it is of cardinal importance to keep distinct the
property rights of a company and those of its
shareholders, even
where the latter is a single entity, and that the only permissible
deviation from this rule known to our law
occurs in those (in
practice) rare cases where the circumstances justify "piercing"
or "lifting" the corporate
veil. And in this regard it
should not make any difference F whether the shares be held by a
holding company or by a Government.
I do not find it necessary to
consider, or attempt to define, the circumstances under which the
Court will pierce the corporate
veil. Suffice it to say that they
would generally have to include an element of fraud or other
improper conduct in the establishment
or use of the company or the
conduct of its affairs. In this connection the words "device",
"stratagem",
"cloak" and "sham" have
been used. . . .'
[16]
Ibid,
p803, paras I-J.
[17]
1983
(3) SA 513
(W) at 525 F
[18]
Ibid, p805, para E
[19]
Ibid, p805 G – I.
[20]
Ibid
[21]
Ibid,
page 804 F – I/J.
[22]
Ibid, page 804 C-D
[23]
Sasfin
(Pty) Ltd v Beukes
1989
(1) SA 1
(A
)
at 8A – C.
[24]
[2005]
5 BLLR 452 (LAC),
[25]
Footwear
supra at 457J – 458B
[26]
1920 AD
530
[27]
Footwear
s
upra
at 459D
[28]
Ibid, at 459E
[29]
Camdons
Reality (Pty) Ltd & Another v Hart
(1993)
14
ILJ
1008 (LAC)
[30]
PPWAWU
v Lane NO. as trustee of Cape Pallet CC (in liquidation) &
Another
(1993)
14
ILJ
1366 (IC).
The
court in this case was prepared to hold the reconstituted close
corporation liable for the dismissal of the employees, imputing
to
it the responsibilities of Section 197.
[31]
Viljoen
v Wynberg Travel (Pty) Ltd NH
11/29388 (unreported – referred to in Current Labour Law)
(1993)
at 8.
[32]
Board
of Executors Ltd v McCafferty
[1997]
7 BLLR 835 (LAC)
[33]
Cape
Pacific
supra
at p807, paras C-D
[34]
C
842/08, 11 March 2010, unreported at paragraph 89
[35]
C397/07,
11 November 2008, unreported.
[36]
No. 1774 September term 2007, in the Court of Special Appeals of
Maryland.
[37]
In
re: Marriage of Malquist
880 P2D1357, 1364 (MONT. 1994)
[38]
Ibid,
at 1364
[39]
Ibid.
[40]
526 A.2d 536
, 537 (Conn. App. Ct. 1987).
[41]
Ibid, at 154-155.
[42]
Ward
,
3 Cal. App. 4
th
at 624;
In
re Marriage of Swink
,
807 P.2d 1245
, 1248 (Colo. Ct. App. 1991);
Lee
v Green
,
574 A.2d 857
, 860 (Del. 1990);
Brockett
,
474 N.E.2d at 756;
Hale
v Hale
,
772 S.W.2d 628, 630 (Ky. 1989);
Gaddis
,
632 S.W..2d at 329;
Miller
v. Wilfong
,
119 P.3d 727, 730 (Nev. 2005).