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document in compliance with the law and SAFLII Policy
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, JOHANNESBURG
Case Number: 2545/2022
In the matter between:
In the matter between:
SELECT M STORES (PTY) LTD APPLICANT
and
ADIDAS (SOUTH AFRICA) PTY LTD RESPONDENT
Delivered: This judgement was prepared and authored by the Judge whose name
is reflected and is handed down electronically by circulation to the Parties/their legal
representatives by email and by uploading it to the electronic file of this matter on
CaseLines. The date for hand-down is deemed to be 19 December 2024.
JUDGMENT
MANAMELA, AJ
(1) REPORTABLE: NO
(2) OF INTEREST TO OTHER JUDGES: NO
(3) REVISED: NO
XX/12/2024 _________________________
DATE SIGNATURE
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Introduction
[1] This is an opposed application for rescission of a default judgment granted in
terms of r ule 31(5) of the Uniform Rules of Court (“the Rules”). The application is
brought in terms rule 42(1) (a).
[2] Default judgment was granted by the Registrar of the High Court on 26 April
2022 in favour of the respondent. The order sought to be rescinded is in the following
terms –
“1. Payment of the amount of R 503 893.35.
2. Interest thereon at the rate of 24% per annum as from 29 February 2020
until date of final payment.
3. Costs on attorney and client scale.”
[3] The respondent seeks the dismissal of this application with punitive costs
including costs de bonis propriis against the applicant’s attorneys.
Factual Background
[4] The respondent, Adidas (South Africa) Pty Ltd, instituted legal action against
the applicant, Select Stores (Pty) Ltd for an amount of R 503 893.35 together with
interest, based on a contract for supply of goods sold and delivered to the applicant
based on a written contract concluded on 4 March 2008.
[5] As a result of failure to make payment of those goods, the respondent
instituted legal action against the applicant based on breach of contract. A written
demand was issued on 4 November 2021.
[6] Summons was issued on 25 January 2022 and served by affixing to the main
entrance of the registered address of the applicant on 17 February 2022, at 4[ …]
Q[…] Road, I […], Gauteng. The same address is noted on CIPC records as the
residential address of the applicant’s director Mr. Phashwana Stephen Ratlou (“Mr.
Ratlou”).
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[7] The time within which the applicant had to file a n otice to defend expired on 4
March 2022.
[8] The only common cause fact between the parties is that default judgment was
granted against the applicant.
Issues for Determination
[9] The main issue of determination is whether the applicant has made out a case
for rescission of judgment in terms of rule 42(1)(a) of the Rules.
[10] Secondly, whether summons was served properly by the respondent.
[11] Whether business rescue proceedings were deemed to commence in respect
of the applicant, and whether a moratorium on legal action against the applicant was
applicable.
The applicant’s case and grounds for rescission of judgment
[12] The applicant launched an application for rescission on 22 February 2024 and
contended it did not wilfully disregard the legal process by not responding to the
legal action. The applicant’s director states that he only became aware of the
judgment when he could not access the bank account held in the applicant’s name
around June 2022.
[13] The applicant relies on two grounds for rescission. The first is that the
respondent was not permitted to issue summons commencing action, take judgment
by default and proceed with execution steps against the applicant during the course
of business rescue proceedings by reason of the operation of section 133 of the
Companies Act.
1 The second ground is that the service of the summons does not
1 71 of 2008 (“the Companies Act”).
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comply with rule 4(1)(a)(v) of the Rules, in that the address of service was apparently
not the registered address or the principal place of business of the applicant.
[14] The applicant argues that the respondent relied on an outdated CIPC report
dated 29 September 2021 when commencing action, when the applicant’s address
was changed on 17 December 2021.
[15] Based on the above the applicant contend s that the default judgment was
erroneously sought and granted in favour of the respondent.
The respondent’s case for opposing rescission of judgment
[16] The respondent contend s that the applicant’s grounds for rescission lacks
merit in that –
a. firstly, the business rescue proceedings relied upon have not been
deemed to commence due to the applicant’s non- compliance with the
service and notification provision of the Companies Act;
b. secondly, that the applicant admitted liability towards the respondent’s
claim; and
c. thirdly, the respondent used the same address that was used by the
applicant in its business rescue application for service of the summons a
few days before changing the address.
[17] The respondent argues that the applicant served this rescission application by
email on the respondent on 6 December 2022 – six months after obtaining
knowledge of the judgment without providing any explanation for the delay.
[18] The respondent points out that the applicant failed to demonstrate a bona fide
defence, and that the applicant’s intention is to frustrate and delay the respondent’s
lawful claim.
[19] The respondent argues that the applicant had the same director and the same
registered address since 2012, in terms of a company search report attached to the
business rescue application which the applicant uses to seek rescission of judgment,
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which report confirms the registered address of the applicant as the address at which
summons in this matter was served by respondent.
[20] Further, that the applicant relied on business rescue proceedings that have
not been deemed to commence due to the applicant’s non- compliance with the
service and notification provisions of the Companies Act.
Legal Framework
[21] Generally, a judgment is erroneously granted if there existed at the time of its
issue a fact of which the court was unaware, which would have precluded the
granting of the judgment and which would have induced the court, if aware of it, not
to grant the judgment.
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[22] In a rescission of judgment application in terms of rule 42(1)(a), a court may –
“[1] [i]n addition to any other power it may have, mero m otu or upon the
application of any party affected, rescind or vary;
(a) [a]n order or judgement erroneously sought or erroneously granted in
the absence of any party affected thereby.”
[23] The law governing rescission under r ule 42(1)(a) is trite. The applicant must
show that the default judgment or order had been erroneously sought or erroneously
granted.
3 It is based on two elements, namely, that the applicant must set forth a
reasonable explanation or show good cause for the default , and secondly that the
applicant must demonstrate a bona fide defence(s).
2 SeeVan Heerden v Bronkhorst [2020] ZASCA 147; see also Nyingwa v Moolman NO 1993 (2)
SA 508 (TK) at 510D-G; Naidoo and Another v Matlala NO and Others 2012 (1) SA 143 (GNP)
at 153C; Rossitter v Nedbank Limited [2015] ZASCA 196 at para 16 (“Rossitter”); Thomani and
Another v S eboka NO and Others 2017 (1) SA 51 (GP) at 58C -E; Occupiers, Berea v De Wet
NO and Another [2017] ZACC 18; 2017 (8) BCLR 1015 (CC) 2017 (5) SA 346 (CC) at 366E -
367A.
3 Rossitter above at para 16. See also Bakoven Ltd v GJ Howes (Pty) Ltd 1992 (2) SA 466 (E);
and Elia and others v Absa Bank [2023] ZAGPHJC 649.
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[24] In the matter of Chetty v Law Society,4 Miller JA clarified the test for rescission
that:
“The Appellant’s claim for rescission of judgment confirming the rule
nisi cannot be brought under Rule 31 (2) or Rule 42 (1), but must be
considered in terms of the common law, which empowers the Court to rescind
a judgment obtained on default of appearance, provided sufficient cause
therefor has been shown…
The term ‘ sufficient cause’ (or ‘good cause ’) defies precise or
comprehensive definition, for many and various factors are required to be
considered. (See Cairn’s Executors v Gaarn 1912 AD 181 at 186 per I nnes
JA) But it is clear that in principle and in the long-standing practice of
our Courts two essential elements ‘sufficient cause’ f or rescission of a
judgment by default are:
(i) that th e party seeking relief must present a reasonable and acceptable e
xplanation for his default; and
(ii) that on the merits such party has a bona fide defence
which, prima facie, carries some prospect of success.”5
[25] It is not sufficient if only one of these two requirements is met . For obvious
reasons a party showing no prospect of success on the merits will fail in an
application for rescission of a default judgment.
[26] Silber v Ozen Wholesalers (Pty) Ltd
6 remains authority for the proposition that
an applicant’s explanation must be sufficiently full to enable the court to understand
how the default came about and assess the applicant’s conduct.
Service of legal process
[27] Rule 4(1)(a)(v) provides that –
4 Chetty v Law Society, Transvaal 1985 (2) SA 756 (A) (“Chetty”); See also De Wet and Others
v Western Bank 1979 (2) SA 1031 (A) at 1042 and Childerly Estate Stores v Standard Bank
SA Ltd 1924 OPD 163.
5 Chetty above at 764J -765C, that court referencing PE Bosman Transport Works Committee
and Others v Piet Bosman Transport (Pty) Ltd 1980 (4) SA 799 (A) and Smith NO v Brummer
NO and Another; Smith NO v Brummer 1954 (3) SA 352 (O) at 357-8.
6 1954 (2) SA 345 (A) at 353.
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“(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:
…
(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 law.”
[28] Section 23(3)(b) of the Companies Act states that every company must
“register the address of its office, or its principal office if it has more than one office”.
In terms of notice 3 and 5 of Practice Note 2 of 2012: Interpretation and Application
of Section 23 of the Act and Regulation 43 of the Regulations
7 “a company's
registered address must be the address of an office maintained by the company and
not the office of a third party”.
Business rescue requirements
[29] In terms of section 132(1)(b) of the Companies Act, business rescue
proceedings commence when an affected person applies to the court for an order
placing the company under supervision in terms of section 131(1).
[30] Section 132 (1) stipulates that business rescue proceedings begin when –
“(a) the company—
(i) files a resolution to place itself under supervision in terms of section 129(3);
or
(ii) applies to the court for consent to file a resolution in terms of section
129(5)(b).”
7 Interpretation and Application of Section 23 of the Act and Regulation 43 of the Companies
Regulations, 2011: Sibakhulu Construction (Pty) Ltd V Wedgewood Village Golf and Country
Estate (Pty) Ltd: Practice Note 2 of 2012, GN R667 GG 35618 of 24 August 2012.
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[31] Section 133 of the Act regulates the institution of legal proceedings against
the company and the enforcement of any action against the company during
business rescue. This is commonly referred to as the “statutory moratorium” or “stay”
that is placed on a company from the moment that business rescue proceedings
commence.
[32] During business rescue proceedings, no legal proceedings (legal or arbitration
proceedings), including enforcement action (execution of a court or other order)
against the company or in relation to its property, that belongs to it , or which is
lawfully in its possession, may be commenced or proceeded with in any forum (court
or arbitral forum).
[33] There are certain instances in which one would be able to commence or
proceed with legal proceedings or enforcement action against the company, in terms
of section 133(1) (a) to (f), namely – (a) with the written consent of the practitioner;
(b) with the leave of the court; (c) as a set -off against any claim made by the
company in any legal proceedings, irrespective as to whether those proceedings
commenced before or after business rescue proceedings began; (d) the criminal
proceedings against the company or any of its directors or officers; or (e)
proceedings concerning any property or right over which the company exercises the
powers of a trustee; or (f) proceedings by a regulatory authority in execution of its
duties after written notification to the business rescue practitioner.”
Analysis
Erroneously sought and granted default judgment
[34] Before a person can be said to be in wilful default the following must be
shown - (a) knowledge that the action is being brought against him ; (b) a deliberate
refraining from entering appearance though free to do so; and (c) a certain mental
attitude towards the consequences of the default.
8 The applicant is obliged to
disclose the reasons for his default because it is relevant to the question whether the
applicant’s default was wilful or not.
8 Formulated IT Group CC v North Gauteng Mental Health Society [2021] ZAGPJHC 651.
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[35] The test for whether a default judgment may be granted in terms of rule
42(1)(a) or the common law was dealt with in Zuma v Secretary of Judicial
Commission of Injury into Allegations of State Capture, Corruption and Fraud in the
Public Sector Including Organs of State and Others. 9 Rescission under the common
law requires that good cause to be shown. To establish good cause, an applicant
must set forth a reasonable explanation for the default and a bona fide defence
relied upon.
[36] An order may be said to have been erroneously granted if at the time of its
issuing there was a procedural irregularity or error made during the proceedings
which is patent in the record.
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[37] In the Zuma case, the court summari sed the legal position and correct
approach as follows:
“[53] It should be pointed out that once an applicant has met the requirements
for rescission, a court is merely endowed with a discretion to rescind its order.
The precise wording of r ule 42, after all, postulates that the 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.”
[38] The Constitutional Court put the position as follows:
“Our jurisprudence is clear: where a litigant, given notice of the case against
them and given sufficient opportunities to participate, elects to be absent, this
absence does not fall within the scope of the requirement of rule 42 (1) (a).
And, it certainly cannot have the effect of having an order granted in absentia,
into one erroneously granted.”
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[39] An element of the explanation for the default is that the applicant must show
that he or she was not in wilful default. If the case the applicant makes out on wilful
9 [2021] ZACC 28 (CC); 2021 (11) BCLR 1263 (CC) (“Zuma”).
10 Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape) [2003] ZASCA 36; 2003 (6)
SA 1 (SCA).
11 Zuma above n 9 at para 61.
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default is not persuasive, that is not the end of the enquiry – the applicant’s case
may be rescued if a bona fide defence is demonstrated.12
[40] In his founding affidavit the applicant’s director gave an account of events
leading to the legal action taken by the respondent up to becoming aware of the
existence of the default judgment. The applicant states that the respondent relied on
an outdated company search report to establish the applicant’s registered address.
Summons were served in February 2022 at Isando when the address was changed
to Lynnwood, on 17 December 2021.
[41] Some three days before the service of the summons, on 14 December 2021,
the applicant deposed to a founding affidavit attached to business rescue
proceedings. In that same application, the applicant used the Isando address.
[42] The respondent argues that the applicant fails to inform the court that the
same address w here summons was served has always been the deponent’s
residential address. The respondent argues that the place of business were all
invoices and delivery of good w as effected is the principal place of business of the
applicant, in Isando.
[43] It is trite law that a company’s registered address must be the address where
a company may be found and the place where it conducts business. Section 23 of
the Companies Act does not set out the requirements for such a registered office
and so one must look elsewhere in the Act for such requirements. However, this
section does use the word “office” which indicates that the registered office must at
least be a physical space which is capable of being occupied and that cannot be a
PO Box or empty piece of land somewhere.
[44] A material distinction between a “registered office” under the 2008 Act and its
predecessors, however, is that under the current Act the registered office must be
the company’s only office, alternatively, if it has more than one office, its “ principal
office”. The term “principal office” is not specially defined in the statute. It seems from
12 Harris v ABSA Bank Ltd t/a Volkskas 2006 (4) SA 527 (T) at paras 8–10.
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the context – more particularly, the requirements of what must be kept or accessible
there – that it is intended to denote the place where the administrative business of
the company is principally conducted, in the sense of being the place where the
company’s general administration is centred.13
[45] It is clear from the above that one must carefully consider the address of a
company’s registered office when registering a company, and that the company must
ensure that its registered office is kept up to date with the CIPC as it must maintain
the registered office in terms of section 23(3)(a) of the Companies Act. Using a
convenient address such as, for example, the incorporator’s residential address or
the company’s auditor’s address (as has in the past been common practice) is not
permitted under the Act. It is found that the use of the attorney’s address is a
complete breach of the Companies Act 71 of 2008 Regulations.
Whether business rescue proceedings were deemed to commence in respect of the
applicant, and whether a moratorium on legal action against the applicant was
applicable
[46] The applicant launched business rescue proceedings on 14 December 2021.
[47] The contention around commencement of business rescue proceedings can
be clarified as follows : the time or date referred to section 129 and section 131
respectively refers to the mode or process by which business rescue begins, being
either by means of a resolution of the board of directors of the company (section
129) or, alternatively, through successful application to the High Court by an affected
person (section 131). Of particular relevance to this application - an affected person
applies to the court when (a) a business rescue application is launched or presented
to the Registrar of the court to be issued, (b) a copy thereof served on the
Commission (CIPC), and (c) each affected person has been property notified of the
13 Sibakhulu Construction (Pty) Ltd v Wedgewood Village Golf Country Estate (Pty) Ltd [2011]
ZAWCHC 439.
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application, with the ultimate order placing the company in business rescue
operating retrospectively from the date of such defined application.14
[48] The respondent provided further evidence that the applicant failed to serve
the business rescue proceedings. The applicant also failed to effect service upon the
Commissioner of the CIPC, as the email was transmitted to an incorrect address,
and by way of a disappearing transmission ‘’we transfer” mode. It is evident that the
affected parties were not properly notified of the business rescue proceedings.
[49] This interpretation is challenged under section 131(4) of the Companies which
explicitly states that the business rescue proceeding begins upon the granting of a
court order by the c ourt. The determination of which section holds the judicial
determination ground was discussed in the cases such as Investec Bank Ltd v
Bruyns
15 and Taboo. However, in the Sundays River Citru s16 case the determining
clarity was sought and the court held that business rescue proceedings commence
on the granting of a court order and not when the initial application is lodged.
[50] Despite considering various factors, the court’s decision ultimately hinged on
a purposive interpretation of the Companies Act, the sequence of events following
the commencement of business rescue, and the business rescue practitioner’s role.
The primary purpose of business rescue proceedings is to provide a legislative
framework for a business rescue practitioner to assist financially distressed
companies, following their appointment subsequent to the initial order of court. Thus,
interpreting the proceedings as commencing only on a court order aligns with the
Act’s purpose, ensuring proper supervision from the outset. Treating the proceedings
as commencing on the date of application, when no practitioner could yet be
appointed, appeared to be in conflict with this purpose.
[51] A business rescue application is thus only to be regarded as having been
commenced with once the application has been lodged with the Registrar, duly
14 Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC; Joubert v Pro Wreck Scrap Metal
CC 2013 (6) 141 (KZP) at para 11.4 (“Taboo”).
15 2012 (5) SA 430 (WCC).
16 Sundays River Citrus Company (Pty) Ltd and Another; In re: Bouwer v Lonetree and Another
[2024] ZAECPEHC 59.
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issued, a copy thereof served on the Commission, and each affected person has
been properly notified of the application and the order is granted by the court.
Conclusion
[52] Having considered the applicant’s case, particularly the explanation leading to
the default and the grounds for rescission, I find that the applicant failed to
demonstrate a bona fide defence and does not have prima facie prospect of success
on the merits, and as such, the applicant has failed to prove necessary elements and
the requirements for rescission of judgment
Costs
[53] I now turn to consider the aspect of costs. The respondent seeks a punitive
cost order against the applicant including cost de bonis propriis based on the fact the
application is premised on legal principles.
[54] The respondent’s counsel argues that the entire application is premised upon
either the inability or refusal to properly construe or abide by the relevant principles
of the Companies Act regarding the issues surrounding “ the commencement of
business rescue proceedings ” and “moratorium on legal proceedings ”. That if one
accepts that the process of reasoning upon which this application is based vis -à-vis
the business rescue provisions of the Companies Act, then there has been a
reckless failure by the applicant’s attorneys to properly consider the legal position
before advising their client to launch and persist with an entire rescission application
which is a waste of court resources and an abuse of process.
[55] A party incurs wasteful costs when their attorneys cause them to spend
money they should not have to. Cost de bonis propriis applies when the party’s legal
representative are ordered to bear the costs of the legal proceedings.
[56] In support of an argument for costs de bonis propriis against the applicant’s
attorneys, the respondent’s counsel argues that the applicant’s attorneys have
implicated themselves by participating in the applicant’s breach of company laws and
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regulations of South Africa, in allowing the applicant to change its registered address
from Isando, to the attorneys address, some few days, after deposing to an affidavit
disclosing the same address, in support of a business rescue application. The
respondent argues that the attorneys remained silent despite this issue being raised
more than once.
[57] The respondent further points out that since filing of the replying affidavit , the
applicant has not taken any step to advance its rescission application.
[58] The respondent relied on CB v HB
17 at where it was stated that it is settled
law that generally a court would only grant a costs order de bonis propriis against an
attorney in cases that involve gross incompetence or gross disregard of professional
responsibilities, dishonesty, wilfulness, or negligence of a serious degree.
[59] It is common cause that a written agreement between the parties
contemplates costs to be paid on an attorney and client scale in the event of a
breach of the agreement. I am of the view that this costs scale is sufficient to
penalise the wrong party in this case.
[60] It is trite law that that the basic notion underlying an award of costs de bonis
propriis is a material departure from the responsibility of office including negligence
in a serious degree, a want of bona fides or unreasonable conduct. It comes as a
last resort when the court exerts a displeasure about the conduct of an attorney, and
not necessarily when such attorney simply enables its client to evades the law. I find
that there is no need to extend the hammer to the attorneys in this case.
Order
[61] Consequently, I make the following order:
a. The application for rescission of judgment is dismissed with costs on
attorney and client’s scale.
17 [2020] ZASCA 178; 2021 (6) SA 332 (SCA) at paras 19–21.
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P N MANAMELA
ACTING JUDGE OF THE HIGH COURT,
JOHANNESBURG
Hearing: 11 September 2024
Judgment: 19 December 2024
Appearances:
For the Applicant : CA Kriel
Instructed by: Machobane Kriel Inc. Attorneys
For the Respondent: R Blumenthal
NVDB Attorneys