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[2015] ZALCJHB 10
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Baloyi v Malherbe and Another (JR 2661/2007) [2015] ZALCJHB 10; [2015] 2 All SA 20 (GJ) (21 January 2015)
REPUBLIC
OF SOUTH AFRICA
LABOUR
COURT, JOHANNESBURG
CASE
NO: JR 2661/2007
DATE:
21 JANUARY 2015
Not
Reportable
In
the matter between
CHARLES
BALOYI
...................................................
Applicant
And
JD
MALHERBE
.............................................
First
Respondent
UNITED
SECURITY
SERVICES
(PTY) LTD
...............................
Second
Respondent
Heard:
12 September 2013
Delivered:
21 January 2015
Summary:
Application to pierce the corporate veil of the close corporation.
The principles applicable in piercing the corporate
veil restated.
JUDGMENT
MOLAHLEHI
J
Introduction
[1]
There
has regrettably been an excessive delay in finalising this judgement
which was occasioned by an error in what was recorded
on the Court
file cover. It is recorded on the file cover that the matter was
postponed
sine
die
on 12 September 2013 to afford the respondents the opportunity to
file a condonation application for the late filing of their response.
This occurred in the context where the applicant’s counsel was
insisting that the Court should not consider the respondent’s
paper because no condonation application was made by the respondents.
After making the order postponing the matter
sine
die
the Court accepted the plea of the applicant’s counsel that the
matter should not be postponed because there has been an
excessive
delay in finalising this matter.
[2]
This
is an application in terms of which the applicant seeks a declaratory
order to have the first respondent held jointly and severally
liable
for the indebtedness of the second respondent towards him.
[3]
The
respondents have also applied for condonation for the late filing of
their statement of response. The applicant had initially
opposed the
condonation application. The respondents were two days late in filing
their statement of response and this occurred
in circumstances where
there had been a request in writing to the applicant for an
indulgence with regard to the delay in filing
the same. .
[4]
In
the circumstances of this case I accepted the application for
condonation from the bar made by counsel for the respondents. In
considering the application I am of the view, taking into account the
period of the delay that it is in the interest of justice
that the
delay should be condoned.
Background
facts
[5]
The
applicant is the former employee of the second respondent who
subsequent to his dismissal instituted unfair dismissal proceedings
against the second respondent. He was successful in his unfair
dismissal claim and was accordingly awarded compensation in the
amount of R16 390,00 in terms of the arbitration award made
under case number GAPT2627-07.
[6]
The
second respondent, a company registered in terms of the company law
of South Africa challenged the outcome of the arbitration
award by
filing a review application. The review application was dismissed due
to unreasonable delay on the part of the second
respondent.
[7]
The
applicant sought to enforce the arbitration award but was
unsuccessful because the second respondent was deregistered.
Thereafter,
the applicant launched proceedings in the High Court in
terms of section 73(
5) of the repealed Companies Act of 1973. The
application was withdrawn because according to the applicant the
second respondent
was re-registered.
[8]
The
applicant instituted the present proceedings because the second
respondent has failed to effect payment of the amount as ordered
by
the arbitration award. The applicant alleges that the second
respondent is unable to comply with the arbitration award because
it
does not own any assets capable of attachment neither does it have a
bank account.
[9]
The
applicant contends that the delay by the first respondent in
complying with the arbitration award is nothing but a stratagem
intended to frustrate the enforcement of the award and is also an
abuse of the juristic personality of the second respondent by
the
first respondent.
[10]
The
issue which the Court is required to determine is whether the
corporate veil of the second respondent should be pierced and
that
the first respondent be held personally liable for the indebtedness
of the second respondent.
[11]
In
seeking to persuade the Court to pierce the corporate veil the
applicant’s counsel argued that an inference should be drawn
from the following facts that the conduct of the respondents was
reckless:
a.
The
delay and failure to comply with the arbitration award made in favour
of the applicant.
b.
Failure
by the respondents to comply with the tax law which resulted the
de-registration of the second respondent.
c.
The
second respondent does not have a bank account or assets.
The
legal principles
[12]
It
is trite that a company or a close corporation have a distinct and
separate personality in law from its directors. Thus the directors
are not held personally liable for the debts of the company or the
close corporation. The exception to this general rule applies
where
the Court pierces the corporate veil.
[13]
As
stated in
Zeman
v Quikelberge and Another
,
[1]
the piercing of the corporate veil “means disregarding the
dichotomy between the company and the natural person behind it
and
attributing liability to that person where he has
misused
or abused of corporate personality.”
[14]
Whilst
it is accepted that a Court does not have a general discretion to
disregard the separate corporate identity of a company
or closed
corporation from the individuals responsible for its running, it is
trite
that
in piercing the corporate veil the Court exercises a discretion. It
has also been generally accepted that the piercing of the
corporate
veil is "an exceptional procedure."
[2]
There is however no definite test as to the circumstances under
which a Court can exercise the discretion to pierce
the corporate
veil.
[3]
The Courts have however
over the years developed guidelines to follow in considering an
application to pierce the corporate veil.
[15]
In
Cape
Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others
,
[4]
Smalberger JA held that:
“
The
law is far from settled with regard to the circumstances in which it
would be permissible to pierce the corporate veil. Each
case involves
a process of enquiring into the facts, which, once determined, may be
of decisive importance…I do not deem
it necessary or advisable
in the present appeal to attempt to formulate any general principles
with regard to when the corporate
veil may be pierced.”
[16]
The
same approach was adopted in
ADT
Security (Pty) Ltd v Botha and Others
,
[5]
where the Court held that:
“
Much
will depend on a close analysis of the facts of each case,
considerations of policy and judicial judgment. Nonetheless what,
I
think, is clear is that as a matter of principle in a case such as
the present there must at least be some misuse or abuse of
the
distinction between the corporate entity and those who control it
which results in an unfair advantage being afforded to the
latter.”
[17]
In
The
Shipping Cooperation of India Ltd v Evdoman Corporation and
Another
,
[6]
Cobett CJ after indicating that he did not find it necessary to
attempt to define the circumstances in which the Court would pierce
the corporate veil, held that those circumstances will include where
there is, “fraud or other improper conduct in the establishment
own use of the company or the conduct of its affairs.''
[18]
The
general approached to adopt when dealing with an application to
pierce the corporate veil has been summarised by Steenkamp J,
in
Zeman
Quicklberge and Another
,
[7]
in the following terms:
“
[29]
The courts will generally require an element of fraud or other
improper conduct before they will pierce the corporate veil.
In these
circumstances a court will then be entitled to look to substance
rather than form in order to arrive at the true facts.
The court does
not require
unconscionable
injustice
”
for determining whether the veil should be pierced as formulated in
Botha
v Van Niekerk
and
found it perhaps too rigid a test. 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.
[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.”
[19]
In
the recent case of
Ex
Parte: Gore NO and Others
[8]
(in their capacities as the liquidators of 41 companies comprising
King Financial Holdings Ltd (in liq.) and its subsidiaries),
in
the Cape High Court case number: 18127/2012,
the
Court held that:
“
[28]
A consideration of the South African authorities shows that despite
the repeated affirmation that the courts enjoy no general
discretion
to do so merely because it would be just and equitable, courts will
ignore or look behind the separate legal personality
of a company
where justice requires it, and not only when there is no alternative
remedy. The involvement of fraud or other improper
conduct has
generally been present in the cases in which the veil has been lifted
or pierced”.
Evaluation
[20]
It
is common cause that the first respondent is the sole director of the
first respondent. The amount due and owing to the applicant
is also
common cause.
[21]
The
applicant’s case in the present matter is that the first
respondent abused the juristic personality of the second respondent
by de-registering it when an attempt was made to enforce
the arbitration award. He further contends that the
first
respondent re-registered the second respondent when confronted with
the High Court application.
[22]
It
is common cause that the second respondent was de-registered. The
first respondent in his answering affidavit says deregistration
was
not initiated by him and that it took place without his knowledge.
This was not disputed by the applicant.
[23]
The
respondent has disputed that the re-registration was done to
circumvent the High Court litigation which the applicant had
instituted.
There is in my view insufficient evidence to conclude
that the motive for re-registering the second respondent was to avoid
the
case which the applicant had instituted in the High Court. On the
papers before me the probabilities support the version of the
respondents that the re-registration was done soon after compliance
with the tax requirements.
[24]
I
do accept however that failure by the second respondent to comply
with the arbitration award made in favour of the applicant is
unacceptable. I do not however believe that it provides a sufficient
basis to take the exceptional step of piercing the corporate
veil. It
should be noted that the arbitration award has not been made an order
of the Court in terms of section 158 (1) (c) or
certified as an order
of the Court in terms of
section 143
of the
Labour Relations Act 66
of 1995
.
[25]
The
circumstances of this case are different to those in
Zeman
v Quickelberge and Another
,
[9]
which was submitted in Court by counsel of the applicant. In
that case the matter served before the Court on an unopposed
basis.
The facts upon which the Court drew an inference from, revealed that
the sale of the close corporation, in that case, was
done with a
fraudulent purpose or as an abuse of the corporate personality. In
this respect the Court found that sale of the close
corporation was
done as a disposition without value.
Conclusion
[26]
In
my view, having considered the facts and the circumstances of this
case, the applicant has failed to make out a case justifying
the
piercing of the corporate veil. There is insufficient information
before this Court to warrant the piercing of the corporate
veil
particularly when regard is had to the fact that the case of the
applicant was based mainly on the de-registration of the
second
respondent. In this regard there is no evidence of fraudulent or
reckless conduct on the part of the respondents or any
other person
responsible for the running of the affairs of the second respondent.
Accordingly the applicant’s application
stands to fail. It
would however not be fair in the circumstances of this case to allow
costs to follow the results.
Order
[27]
In
the premises the applicant’s application is dismissed with no
order as to costs.
E
MOLAHLEHI
Judge
of the Labour Court Johannesburg
Appearances:
For the Applicant
: NP Voyi from Ndumiso Voyi Incorporated.
For
the Respondent : Saunders Te Boekhorst Inc.
[1]
(2011)
32 ILJ 453 (LC).
[2]
See
Airport Cold Storage [pty] ltd v Ebrahim and others 2008 [2] SA 303
[C].
[3]
See
Amlin
(SA) Pty Ltd v Van Kooij
2008
(2) SA 558
(C), quoting from
Briggs
v James Hardie & Co Pty Ltd
(1989)
16 NSWLR 549
(NSWCA), where the Court held that: ‘
(T)here
is no common, unifying principle, which underlies the occasional
decision of the courts to pierce the corporate veil.
Although an ad
hoc explanation may be offered by a court which so decides, there is
no principled approach to be derived from
the authorities.
’
[4]
(1995)
2 SA 543
(A).
[5]
[2010]
ZAWCHC 563
, at para.17.
[6]
1994
[1] SA 550 [A] at page 566 F-C.
[7]
See
footnote 1 above.
[8]
(2013)
2 SA 437
(WCC)
[9]
See
footnote 6 above.