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Administrative Law — Review — Tribunal’s refusal to rescind default decision —
Default decision given without notice ---- Failure to consider applicant’s defence —
Procedural fairness.
Rescission — Tribunal regulations — Requirement to consider evidence and ensure
proper service — Tribunal’s failure to exercise discretion judicially — Removal of
director without notice and without considering merits — Manifest procedural
irregularities.
Interim Relief — Rule nisi issued — Suspension of default order removing director —
Preservation of applicant’s rights pending determination of constitutionality of
Tribunal’s composition under s 71(8).
Summary:
The applicant, a 50% shareholder and co ‑director in a private company, sought to
review a Tribunal decision refusing to rescind a default order that had removed her as
director. The underlying default order had been granted without notice by a single
Tribunal member and notwithstanding that the applicant had delivered an answering
affidavit (albeit three days late).
Held - The Tribunal had failed to comply with the procedural requirements in the
Companies Regulations, particularly the obligation to consider evidence and ensure
notice and service before granting a default order. The rescission decision was thus
procedurally flawed.
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Held - The Tribunal was required to consider prospects of success and substantive
defences, particularly in a matter involving allegations of serious misconduct and it
failed to do so.
Held -On the papers, it appeared , prima facie, that the Tribunal, sitting as a single
member, lacked the statutory authority to adjudicate a removal application under s
71(8); section 195 of the Act permits a single member only where the Act expressly
provides for it, and section 71(8) contains no such authorisation.
Held - Matters concerning removal of directors, involv e significant legal questions
and potential High Court review under s 71(5) –(6); are intended to be heard by a
three‑member panel including at least one legally trained member.
Held – A rule nisi issued calling upon the parties to show cause why the Tribunal’s
decision to remove the applicant as director should not be declared ultra vires and set
aside.
Held - the Tribunal’s order removing the applicant as director suspended and her
rights preserved pending final determination of the scope of the Tribunal’s powers.
JUDGMENT
FISHER J
Introduction
[1] This application is framed as the review of a decision of the Companies Tribunal
of South Africa (the Tribunal) sitting as a single member in the guise of the third
respondent (the member).
[2] The impugned decision is the refusal by the Tribunal to rescind an order given in
an application (the main application) purportedly brought under section 71(8) of
the Companies Act of 2008 (the Act). In terms of the latter decision the applicant
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was summarily removed as a director in her absence. I shall refer to this latter
order as the main decision and to the order which is impugned in this application
as the rescission decision.
[3] The pleaded basis for the review is that the member made a series of errors in
the refusal to rescind, chief among these being the failure to consider the good
cause.
[4] The remedy sought in this application on the setting aside of the rescission order
is the referral back to the Tribunal for adjudication of the main application on the
application of proper principles.
[5] The allegations made by the first respondent as a basis for the removal of the
applicant are serious and involve charges against the applicant of embezzlement
and other serious accusations of misconduct.
[6] The result of the main decision has been to render the applicant unable to
conduct the business of a company in which she holds a 50% interest and from
which she previously derived an income.
[7] This has had profound consequences for the applicant. She has been deprived
of a livelihood and suffered reputational harm resulting from the serious
allegations of misconduct and criminality which have been allowed by the
Tribunal to stand unchallenged.
The proceedings in this court
[8] The Tribunal and the member presiding (I shall refer to them collectively as the
Tribunal respondents) do not oppose this application.
[9] The only opposing party is the first respondent , to whom I will refer as the
respondent.
[10] At the commencement of the hearing, counsel for the respondent sought a
postponement of the matter on the basis that the legal practitioner who had
represented her at the Tribunal hearings was not available because she was on
maternity leave.
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[11] The applicant had known for more than two months that any postponement on
the basis of unavailability of the legal practitioner would be opposed. This
notwithstanding, no substantive application was made for a postponement.
Instead, counsel was briefed on the Friday before the Tuesday hearing to appear
for the purposes of seeking a postponement only. He was not briefed on the
merits. The submissions made from the Bar were hearsay in nature and there
was no explanation tendered for why another practitioner could not have been
briefed to take the place of the long unavailable legal practitioner.
[12] What is more, the prejudice faced by the applicant if the matter were postponed
is extreme.
[13] Furthermore, t he case of the applicant is, on the merits of the rescission as
pleaded, unanswerable.
[14] Aside from the se pleaded merits there is, to my mind, a further and more
fundamental problem which requires ventilation: the procedure adopted by the
Tribunal and the respondent from the outset has, prima facie , been
unsustainable and untenable in that the Tribunal , as constituted by the single
member, acted ultra vires. This point is central to the determination of this matter
and to the broader approach taken by this court
[15] Unfortunately, the approach taken in the matter by all parties misses this issue
central.
[16] The procedure adopted by the Tribunal from inception , on the face of it ,
represents, such a deviation from that prescribed by the Act and regulations that
it is impossible for this court to accede to the remedy sought by the applicant
which a referral back to the Tribunal for the re -adjudication of the main
application.
[17] A finding on the rescission application in the absence of the consideration of the
ultra vires point, even if this were competent, would leave the applicant in limbo
as far as the main application is concerned. This is not in the interests of justice.
as far as the main application is concerned. This is not in the interests of justice.
The applicant has already been substantially prejudiced by the general approach
taken in this matter
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[18] From a public interest perspective, I am advised on behalf of the applicant that
for the Tribunal to sit as a single member for the purposes of adjudicating
applications under section 71(8) is routine. Reference to the Tribunal website
confirms this to be the case.
[19] Applications under 71(8) are an important function of the Tribunal, perhaps one
of its most important. Whist not squarely raised, the ultra vires point is implicated
in the decision necessary to be taken by this court in relation to remedy and the
further conduct of this matter and matters such as these in the Tribunal.
[20] I intend , thus, to deal finally with th e impugned rescission decision, but, in
relation to remedy , I will deal, prima facie, with the applicable legal principles
relating to section 71(8) applications to the Tribunal . I will then issue a rule nisi
calling upon the parties to appear and show cause as to why it should not be
declared that the decision in the main application was taken ultra vires in that the
Tribunal was not properly constituted. This would, ultimately, have the effect that
the applicant’s directorship remains intact.
[21] The position pending the final determination of this point is, to my mind, properly
dealt with by way of interim order which preserves the applicant’s rights . This
serves the interests of justice.
[22] The Tribunal respondents may make submissions on the issue of the correct
procedural approach to the composition of the Tribunal in section 71(8)
applications should they join issue with this court’s prima facie approach . The
respondent ,also, is thus provided with an opportunity to be heard in relation to
this aspect should she so wish. The respondent will also have an opportunity, in
due course , to bring the application before the Tribunal in a manner that is
procedurally sound in the event that she wishes to persist with the removal of her
sister as co-director.
sister as co-director.
[23] I now set out the relevant background before dealing with the applicable legal
framework.
Relevant facts including procedural background in the Tribunal
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[24] The applicant and the respondent are sisters. They formed Amogelang Mpho
Cleaning Services (Pty) Ltd (the company) during 2014.
[25] The applicant and the respondent were and remain the only shareholders (each
holding 50%). Both were directors before the applicant’s removal.
The main application
[26] On 08 August 2023 the respondent applied to the Tribunal in terms of section
71(8)(b) of the Act read with regulations 142 to 145 of the Companies
Regulations 2011 for the removal of the applicant as director.
[27] The respondent alleged that the applicant had misappropriated company funds,
unfairly dismissed employees, confiscated company assets and generally
misconducted herself in carrying out her role a director.
[28] The application was delivered to the applicant on 14 August 2023, and the
member was appointed by the chairman of the Tribunal to deal therewith.
[29] The Tribunal, thus constituted, dealt with the matter under the procedural rules
of the Tribunal. The procedure entails the delivery of answering and replying to
affidavits.
[30] In her answer ing affidavit, the applicant denied the misconduct and criminality
complained of by the respondent and made accusations of misconduct of her
own against the respondent.
[31] The respondent made application for default judgment on 13 September 2023
notwithstanding the filing of this answering affidavit because the affidavit was
three days late.
[32] Because of this lateness , the member took the decision to treat the answering
affidavit as pro non scripto and he duly granted his default decision which he
signed on 30 October 2023.
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[33] The decision entailed the granting of the relief sought by default including the
removal of the applicant as a director of the company purportedly in terms of
Section 71(8) of the Act, followed up with an order that the Companies and
Intellectual Property Commission (CIPC) deregister the applicant as director of
the company within ten days.
[34] The respondent was surprised to receive the decision from the Tribunal. She had
been given no notice that there would be an application for a default decision
despite of the filing of her answering affidavit.
[35] Reference to the legislative scheme under section 71 shows that it does not
provide for a determination of an application under section 71(8) in the absence
of a consideration of the merits. The Tribunal’s determination of the matter by
default led to confusion.
[36] The determination of the matter should prope rly have been directly to a review
by this court. The scheme provides for an automatic review to the High Court but
a review under PAJA would have been competent as well. I deal later with the
automatic review procedure.
[37] The circuitous and confu sed process adopted has, ultimately, ended up as a
review before this court. To my mind, the fact that the matter has made its way
to the court via a route that is procedurally unsound should not render the
opportunity to consider the real issue a wasted one. As I have said, it is important,
in the public interest, that there be some clarification of the Tribunal’s process in
relation to these matters.
The application for rescission
[38] As it was, and faced with a default order, the applicant’s attorneys took what they
thought to be the next procedural step. They sought rescission of the default
decision on 29 February 2024 together with condonation for the late filing of the
answering affidavit.
[39] The respondent opposed the applications for rescission and condonation . She,
[39] The respondent opposed the applications for rescission and condonation . She,
however, omitted to plead over to deal with the substantive joinder of issue in the
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answering affidavit. Instead, she merely attacked the attorney’s explanation for
the three-day lateness.
[40] The respondent also complained that the application for default judgment was
brought too late.
[41] The applicant explained and, her attorney confirmed, that this alleged lateness
was due to the applicant being out of funds. This is unsurprising as her source of
income had been cut off.
[42] The hearing of the rescission application which had been set down for 05 June
2024 was postponed because of the absence of an application for condonation
for the late filing of the application. The applicant had, by this stage, been subject
to the default order removing her as director for more tha n six months. This
position still maintains.
[43] The Tribunal, ultimately, heard the application for rescission on 01 July 2024 and
on 03 July 202 4 the member handed down his decision on the rescission
application. In terms thereof, he upheld the application for the late filing of the
application for rescission on the basis that the alleged three-month delay in
bringing the rescission application was not unreasonable, but he refused the
rescission application on the basis that the three-day delay had not been properly
explained. This, to my mind, is a curious stance under circumstances where the
applicant’s attorney set out in some details that the lapse was his and due to a
miscounting of the dies.
[44] The Tribunal was, in any event, at this stage already embarked on a process
which was neither procedurally competent nor fair.
[45] The basis for the decision of the rescission application is, essentially, contained
in paragraph 5.6 of the rescission decision which reads as follows:
“In this case before the Tribunal Applicants reply to the Application were three days late.
Hence, they were not considered by the Tribunal. The Applicant was aware that they
were late as the Application was made by an attorney. The Applicants attorneys
were late as the Application was made by an attorney. The Applicants attorneys
admitted that he was at fault for misdiarising the dates. The Applicant failed to make a
condonation application but instead blamed the Tribuna l. There is no obligation on the
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Tribunal to inform the Applicant who is legally represented that they should make a
condonation application. The Applicants’ reasons for the lateness are unacceptable. The
Tribunals decision was thus made without the Applicants submissions since the
Applicants submissions were not put before the Tribunal timeously and the Applicant
also failed to make a condonation application.” ( Emphasis added)
[46] On a consideration of the merits alone the refusal of the recission is manifestly
assailable on a number of fronts , including that the application for default order
could be brought without notice; that the answering affidavit could be ignored
because it was out of time; that it was not necessary to consider the applicant’s
version and the prospects of success when determining the rescission; that the
applicant’s attorney’s explanation on oath for the three days lateness due to him
miscounting the dies was “unacceptable.”
[47] The decision ignores the fact that the regulations relating to the bringing of
applications require notice to be given and that the Tribunal was not entitled to
grant the order without considering evidence and without being satisfied that
there has been service.1
The applicable legal framework
[48] The Tribunal is established as a juristic person and agency of the Department of
Trade and Industry in terms of section 193(1) of the Act. It is independent, and
subject only to the Constitution and the law. It must exercise its functions in
accordance with the Act. Each organ of state has the duty to assist it to maintain
its independence and impartiality and to perform its functions effectively. It
comprises a chairperson and not less than 10 other women or men appointed by
the Minister on a full or part-time basis.2
1 Tribunal regulation 142; regulation 153.
2 Section 193(4)
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[49] The Tribunal deals primarily with Company‑law disputes relating to governance,
compliance and enforcement matters , alternative dispute resolution processes,
exemptions, statutory approvals and reviews of certain administrative decisions
under the Act. Several of its functions do not engage company law or other legal
principles directly.
[50] The Tribunal sits either as a member acting alone or as a panel of three3.
[51] In terms of 194(3) it is required that the Tribunal comprise (a) persons with
suitable qualifications and experience in economics, law, commerce, industry or
public affairs; and (b) sufficient persons with legal training and experience to
satisfy the requirements of section 195 (3)(a) - which provides that when a panel
is appointed there must be a legally trained person on it.
[52] The chairperson is responsible to manage the caseload of the Companies
Tribunal, and in terms of section 195(2) must assign each matter referred to the
Tribunal to-
“(a) a member of the Tribunal, to the extent that this Act provides for a matter to be
considered by a single member of the Tribunal; or
(b) a panel composed of any three members of the Tribunal, in any other case .”
(Emphasis added)
[53] Section 195(3) provides that “[w] hen assigning a matter to a panel in terms of
subsection (2)(b) (i.e. a panel of three), the chairperson must- (a) ensure that at
least one member of the panel is a person who has suitable legal qualifications
and experience; and (b) designate a member of the panel to preside over the
panel's proceedings. (Emphasis added.)
[54] It seems to me, prima facie, that properly construed, section 195 means that the
chairman can appoint a single member to determine a Tribunal matter only if the
Act provides for it to be so dealt with; where it does not make such a provision
3 Section 195(1)
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the default position is a panel of three members, at least one of which is required
to have suitable legal qualifications and experience.
[55] In sum, to be a candidate for appointment to the Tribunal one need not have legal
qualifications and experience. Accordingly, a single member need not be legally
trained; but if the matter requires a panel of three there must be, at least, one
lawyer serving on the panel.
[56] It seems that it is the intention of the legislature that matters requiring the
determination of legal issues or when the Tribunal sits in a quasi-judicial capacity
should be dealt with by a panel, which includes lawyers.
[57] With respect, the me mber appointed in this case appears not to be legally
trained.
[58] Partnership style companies such as the company in issue are based on co -
operation and equal participation. The participants in such companies are at risk
of deadlock bringing down their substratum . This position has been dealt with
extensively in our law in relation to the winding up of solvent companies.
[59] In terms of section 71 (3), If a company has more than two directors, and a
shareholder or director has alleged that a director of the company has becom e
ineligible or disqualified or incapacitated to the extent that the director is unable
to perform the functions of a director, and is unlikely to regain that capacity within
a reasonable time; or has neglected, or been derelict in the performance of, the
functions of director (the removal grounds) “the board, other than the director
concerned, must determine the matter by resolution, and may remove a director”
whom it has determined are guilty of or subject to one or more of the removal
grounds.” This is majority rule.
[60] Where there are fewer than three directors, Section 71(8) of the Act provides a
mechanism for the determination of an allegation that the other director is guilty
of or subject to one or more of the removal grounds. In this case resort is had to
of or subject to one or more of the removal grounds. In this case resort is had to
the Tribunal acting in what seems to be a quasi -judicial role.
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[61] In terms of s ection 71 (8), if a company has fewer than three directors ,
subsections 71 (4) to (6) which apply where there are more than two directors
apply with the necessary changes in this application to the Tribunal.
[62] These subsections provide for automatic review of the determination of the
existence of the grounds or the finding that such grounds are not established to
the High Court.
[63] This automatic review process was never reached in this case. This was because
of the unlawful and procedurally unfair default procedure imposed by the Tribunal
in the main application.
[64] The process is obviously co rporate law laden, and the result of such an
application has serious implications for the directors the company as well a third
parties such as creditors or associated entities.
[65] The scope of such an order is wide. Section195(8) provides that an order of
Tribunal may be filed in the High Court as an order of the court, in accordance
with its rules. This has the potential to have consequences for future business
relationships and other directorships of the director who has been removed.
[66] It is thus hardly surprising that section 71(8) does not provide that an application
under that section may be dealt with by a single member of the Tribunal.
[67] But, even accepting that there is no final determination of the ultra vires point at
this stage , and putting this point aside for the moment, on the merits of the
rescission decision applying general principles, it falls to be set aside, and this
can be and should be done now.
[68] In the interim, it seems to me that fairness dictates that the default order in the
main application should be suspended.
Order
[69] I grant an order which reads as follows:
1. The Tribunal’s decision dated 1 July 2024 and issued under case number
CT01711ADJ2023 [ ie the refusal to rescind] is reviewed and set aside.
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Appearances:
Attorneys for the applicant: Ebersohns Attorneys
Attorneys for the first respondent: T.A. Dipudi Attorneys
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