Brief Summary

Master of the High Court — Rescission of default judgment — Application by the Master of the High Court for rescission of a default judgment obtained by liquidators of a company in liquidation — Applicant required to provide a reasonable explanation for default and demonstrate a bona fide defence with prospects of success — Court held that the applicant met the requirements for rescission, as the delay was due to a combination of administrative issues and personal circumstances affecting the applicant's representative.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned an application by the Master of the High Court, Cape Town (the applicant) for the rescission, at common law, of an order that had been granted by default on 31 January 2022. That default order was obtained by three joint liquidators of Brick Art Construction (Pty) Ltd (in liquidation), namely Steven Malcolm Gore N.O., Jurgens Johannes Steenkamp N.O., and Eugene Januarie N.O. (the respondents), acting in their capacities as liquidators.

The procedural history, as relied upon by the court, began with the company’s provisional liquidation on 20 February 2020 and final winding-up on 6 March 2020, followed by the confirmation of the respondents as final liquidators and the administration of the insolvent estate. A dispute then arose regarding remuneration: the first respondent sought an increase in remuneration beyond the statutory tariff. The Master refused that request, whereafter the liquidators instituted a review application challenging the Master’s decision. When the Master did not timeously oppose the review, the liquidators obtained the default order on 31 January 2022. The present proceedings were the Master’s attempt to have that default order set aside through rescission.

The subject-matter of the dispute was therefore procedural and remedial in character—whether the default review order should stand—while also implicating underlying issues about the regulation of liquidators’ remuneration, including whether additional remuneration could be justified and whether litigation should proceed given the public-interest role of the Master and the consequences of adverse costs orders against a public office.

Material Facts

The company was provisionally liquidated on 20 February 2020 and finally wound up on 6 March 2020. It was common cause that the respondents were appointed as joint provisional liquidators on 20 February 2020 and were confirmed as final liquidators at the first meeting of creditors held on the same date. At that first meeting, claims totalling R14 004 185.69 were proved.

On 24 March 2021, the liquidators lodged their first liquidation and distribution account, reflecting recoveries of R2 214 751.34. On that basis, the liquidators’ remuneration under the applicable tariff at that stage was R496 573.65.

In conjunction with the account, the first respondent applied to the Master, purportedly under section 384(2) of the Companies Act 61 of 1973, to increase his remuneration by R564 894.57 (excluding VAT) above the prescribed tariff, motivated as a “special” or additional fee linked to asserted forensic work.

On 6 April 2021, the Master raised three substantive queries directed at whether the forensic work should have been shared among the joint liquidators, whether the first respondent had forensic qualifications, and whether the basis advanced for the additional fee was appropriate. The first respondent responded that dividing the work among three liquidators would have been impractical and inefficient, including given lockdown conditions. It was undisputed that the first respondent did not hold a forensic qualification, but he relied on his degree and long experience, and he based the requested fee on an hourly rate associated with Auditor-General recommendations for senior personnel.

On 4 May 2021, the Master refused the application for increased remuneration. The refusal included the Master’s view that the Auditor-General’s audit-related guidelines were not relevant because the first respondent was appointed as a liquidator, not an auditor, and that forensic or investigative work was part of a liquidator’s function and did not justify claiming a specialist forensic fee in the circumstances. The Master advised that any challenge could be pursued by review under section 151 of the Insolvency Act 24 of 1936.

On 3 November 2021, the respondents launched and served the review application. The court accepted as material background that, within the Master’s office and the relevant governmental structures, litigation instituted against the Master had to be referred internally to the Office of the Chief Master and Legal Services in Pretoria, and the applicant followed that process by processing and scanning the application to the Chief Master’s office on 10 November 2021.

The court treated as significant that the Master’s initial focus was on the fact that costs were sought against the Master. Internal communications reflected an intention to approach the State Attorney to attempt to secure an abandonment of the costs claim, and, if not abandoned, to oppose (at least the costs relief, and potentially the review as a whole). Legal Services allocated the matter to an official (Ms Ngcobo) who attempted to brief the Cape Town State Attorney by email on 12 November 2021, but later it emerged that the State Attorney’s office did not in fact receive the instruction.

The court also relied on the following contextual and chronological events as contributing to the failure to oppose timeously. The Department’s IT systems remained compromised after a cyber-attack in September/October 2021, which affected operations. A meeting intended to consider whether to oppose the merits could not proceed, and instead an internal memorandum was drafted and forwarded to Pretoria on 7 December 2021, motivating that the review be opposed on the merits as well. Shortly thereafter, a COVID-19 exposure event resulted in quarantine for the entire Liquidation and Insolvency section for ten days, which overlapped with the December vacation period. In addition, Ms Ngcobo, who had been allocated the matter, experienced health complications during the third trimester of pregnancy, worked from home, and did not follow up to confirm that the State Attorney had opened a file and was defending the matter. On 3 February 2022, the State Attorney confirmed that the matter had not been received and referred to ongoing difficulties following ransomware disruption.

On 4 February 2022, the newly appointed attorney (Mr Golding) discovered that judgment had already been granted by default. Steps were then taken to appoint counsel urgently through an internal deviation process, which was finalised on 24 February 2022 when new counsel was appointed.

Legal Issues

The central legal question was whether the Master had established, under the common law test for rescission of a default judgment, the requirements amounting to “sufficient cause” to rescind the default order granted on 31 January 2022.

This required the court to determine, first, whether the applicant provided a reasonable and satisfactory explanation for the default that covered the entire period of inaction. This aspect involved an evaluative assessment of fact and explanation, including the reasonableness of internal governmental processes, the impact of operational disruptions, and whether the failures were attributable to culpable delay.

Second, the court had to decide whether the applicant demonstrated a bona fide defence that prima facie carried some prospect of success on the merits of the review. This was primarily an application-of-law-to-fact enquiry, requiring the court to assess whether the Master’s intended opposition to the review was genuine and potentially viable, without deciding the review itself.

A further issue arose in relation to costs in the rescission application: even if rescission were granted, whether the applicant should be awarded costs, particularly given the applicant’s public role and the criticism directed at the delays.

Court’s Reasoning

The court applied the settled common-law approach to rescission of default judgments, as stated with reference to Zuma v Secretary of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption & Fraud in the Public Sector including Organs of State & Others 2021(11) BCLR 1263 (CC). On that approach, rescission requires (i) a reasonable and satisfactory explanation for default, and (ii) a bona fide defence with prima facie prospects of success; together these demonstrate “sufficient cause”.

On the explanation for default, the court considered that the chronology showed an early intention on the Master’s part to engage the matter, at least on costs initially, and then also on the merits once the internal memorandum was prepared. The court accepted that it was sensible for the Master—litigating on the public purse—to explore whether the respondents would abandon costs before embarking on potentially expensive litigation, because if costs were abandoned the Master might have abided the merits. The court treated this approach as rational within the public-interest context in which the Master operates.

The court nonetheless acknowledged that the respondents had levelled justified criticism regarding the failure to act timeously. The decisive question, however, was whether the explanation, viewed in context, adequately covered the whole period and was reasonable. The court found that the process had “collapsed” due to interactions across different offices and departments, with “enough blame to go around”, and that the explanation was not confined to a single negligent omission but was shaped by several contributing factors. Those factors included the Department’s compromised IT environment after the cyber-attack, the COVID quarantine period, the December vacation timing, and Ms Ngcobo’s pregnancy-related medical condition and remote-working circumstances, combined with her mistaken assumption that the State Attorney had received the instruction.

In dealing with the respondents’ reliance on authority, the court held that the reliance on Coosner v Nuttal 2021 JDR 1645 (WCC) was misplaced because the present matter was distinguishable on its facts. The court further held that reliance on Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape) 2003 (6) SA 1 (SCA) did not assist the respondents, because the case before it did not concern “inexcusable inefficiency” by an attorney in the manner contemplated there. On this basis, the court was persuaded that the explanation for the delay, though open to criticism, was reasonable and covered the full period of inaction.

On the requirement of a bona fide defence, the court reasoned that the Master had demonstrated a genuine intention to oppose the review, shown both by the early engagement with the litigation (particularly on the costs issue) and by the later internal memorandum motivating opposition on the merits. The court accepted that there were good reasons for the Master to resist a costs order and to treat costs exposure seriously, including the precedent-setting nature of costs orders against a public office and the burden on the public purse.

As to merits, the court treated the internal memorandum’s rationale as evidencing a defence that was bona fide and carried some prospect of success. That rationale included concern about a potential abuse of special fee applications, the existence of a substantial deficiency in the estate when proven claims far exceeded recoveries, and the fact that there were three liquidators while only one sought special remuneration for work said to have been undertaken alone. The court also accepted that the Master intended to challenge the liquidators’ locus standi, on the basis that they were acting in their own interest rather than that of creditors in circumstances where recoveries were materially outweighed by proven claims. The court considered that this issue merited judicial attention.

Finally, on costs of the rescission application, the court exercised a value judgment. Although it granted rescission, it held that the Master should be denied costs. The court emphasised that the Master must act diligently because the office acts on behalf of the public, and it accepted that the respondents were entitled to pursue default judgment in the circumstances. It also accepted that, while there is a limit to which a litigant may escape consequences for attorney neglect, this was not found to be a case warranting refusal of rescission; nonetheless, some consequence was appropriate, hence the costs order that each party bear its own costs.

Outcome and Relief

The court rescinded in its entirety the default order granted on 31 January 2022.

The court directed the applicant to file a notice of opposition within five days of the rescission order. It further directed the applicant to file the Rule 53 record within ten days, and to file its answering affidavit within thirty days after the period referred to in Rule 53(4) of the Uniform Rules of Court had elapsed.

As to costs, the court ordered that each party bear its own costs in the rescission application.

Cases Cited

Zuma v Secretary of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption & Fraud in the Public Sector including Organs of State & Others 2021(11) BCLR 1263 (CC).

Coosner v Nuttal 2021 JDR 1645 (WCC).

Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape) 2003 (6) SA 1 (SCA).

Legislation Cited

Companies Act 61 of 1973 (section 384(1) and section 384(2)).

Insolvency Act 24 of 1936 (section 151).

Rules of Court Cited

Uniform Rules of Court, Rule 53.

Uniform Rules of Court, Rule 53(4).

Held

The court held that the Master satisfied the common-law requirements for rescission of a default judgment by providing an explanation for the default that, though open to criticism, was reasonable and covered the entire period of delay, and by demonstrating a bona fide defence with prima facie prospects of success to the review application.

The court further held that, notwithstanding the Master’s success on rescission, the appropriate costs disposition was that each party bear its own costs, given the need for diligence by the Master as a public office and the respondents’ entitlement to have sought default relief.

LEGAL PRINCIPLES

The common law requires an applicant for rescission of a default judgment to provide a reasonable and satisfactory explanation for the default that covers the whole period of inaction. A failure to provide a complete and acceptable explanation may justify refusal of rescission.

In addition, the applicant must show a bona fide defence that prima facie carries some prospect of success. This requirement is directed at ensuring that rescission is granted where there is a genuine and potentially viable defence, rather than merely to delay enforcement of a judgment.

Where both requirements are met, this constitutes sufficient cause for rescission. The remedy remains discretionary in the sense that the court evaluates the adequacy of the explanation, the genuineness and prospects of the defence, and fairness in the context of the litigation.

Even where rescission is granted, costs remain a separate discretionary matter. The court may refuse to award costs to a successful rescission applicant where the circumstances—including delay attributable to the applicant’s side and the public responsibilities of an office such as the Master—justify that outcome.

Master of the High Court, Cape Town v Gore N.O and Others (18748/2021) [2023] ZAWCHC 119 (25 May 2023)