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[2013] ZAWCHC 173
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Firstrand Bank Ltd t/a Rand Merchant Bank and Another v Master of the High Court, Cape Town and Others (679/13) [2013] ZAWCHC 173; [2014] 1 All SA 489 (WCC); 2014 (2) SA 527 (WCC) (11 November 2013)
REPORTABLE JUDGMENT
IN THE HIGH COURT OF
SOUTH AFRICA
WESTERN CAPE HIGH
COURT, CAPE TOWN
CASE NO: 679/13
In the matter between:
FIRSTRAND BANK LIMITED
t/a RAND MERCHANT BANK
...................
First
applicant
RMB PROPERTY HOLDCO 1
(PTY) LTD
............................................
Second
applicant
and
THE MASTER OF THE HIGH
COURT, CAPE TOWN
...........................
First
respondent
THE TRUSTEES FOR THE
TIME BEING
OF THE SUMMER WIND
TRUST
......................................................
Second
respondent
THE JOINT LIQUIDATORS
OF THE LIGHTHOUSE
SQUARE (PTY) LTD [IN
LIQUIDATION]
............................................
Third respondents
JUDGMENT DELIVERED ON
11 NOVEMBER 2013
___________________________________________________________________
BLIGNAULT J
:
[1] This is an
application for the review and setting aside of a decision of the
Master of the High Court, Cape Town, first respondent,
to authorise a
commission of enquiry in terms of sections 417 and 418 of the
Companies Act 61 of 1973 into the affairs of Lighthouse
Square (Pty)
Ltd (in liquidation) (‘Lighthouse’).
[2] First applicant is
FirstRand Bank Limited trading as Rand Merchant Bank. Second
applicant is RMB Property Holdco 1 (Pty) Ltd.
It is an associated
company of first applicant. Second respondent is the Summer Wind
Trust (’the Trust’) represented
herein by its trustees.
Third respondents are the joint liquidators of Lighthouse. They abide
the decision of the court. The commissioner
appointed by the Master
was initially cited as fourth respondent but he voluntarily
relinquished his appointment.
[3] Mr Marthinus Jacobus
du Preez deposed to the founding affidavit on behalf of both
applicants. Prior to its liquidation Lighthouse
operated as a
property owning and development company. Second applicant held 50% of
its shares, Whalerock Whitecaps (Pty) Ltd (‘Whalerock’)
held 25% and the Trust 25%. Lighthouse acquired certain immovable
properties in Plettenberg Bay and first applicant advanced various
sums to Lighthouse to enable it to develop the properties. As
applicants are associated companies I shall refer to them as
applicants
without attempting to distinguish between their different
interests in the matter.
[4] Lighthouse was,
however, unable to repay its debt to first applicant. First applicant
accordingly applied for its liquidation.
It was finally liquidated on
21 June 2012. The first meeting of creditors and members was held on
31 August 2012 before the magistrate
at Knysna. First applicant’s
claim, in the amount of R14 610 719,94, was the only claim
submitted to proof at this
meeting.
[5] On 25 October 2012
the attorney acting for the Trust wrote to the Master asking for
authority to convene an enquiry into the
affairs of Lighthouse in
terms of the provisions of sections 417 and 418 of the Companies Act
61 of 1973. In this letter it was
submitted that one of the reasons
for the enquiry was the need to establish whether any of the
directors could be held liable for
the demise of the company and
whether the liquidators of Lighthouse have cause of action against
the applicants. The letter was
accompanied by an affidavit deposed to
by Mr Robert Baudinet, one of the trustees of the Trust, which set
out the claims in more
detail. In this letter the attorney also
informed the Master that Messrs Gideon Louis Schnetler, Theunis Bosch
and David Wandrag
were possible witnesses to be subpoenaed. These
individuals were at the relevant time employees of the first
applicant and Schnetler
and Bosch had been appointed as directors of
Lighthouse by RMB Property Holdco. The letter also contained a
recommendation as to
the commissioner to be appointed.
[6] On 1 November 2012
the Master replied to the 25 October 2012 letter.He enquired why the
application was urgent and why a section
415 enquiry could not be
held.In response to the Master’s letter the attorney acting for
the Trust addressed a second letter
to the Master on 6 November 2012.
The letter was accompanied by a formal application for the enquiry
and letters of consent from
the liquidators. The attorney also
informed the Master that the matter was urgent as the enquiry was
scheduled for 3, 4 and 5 December
2012.
[7] On 7 November 2012 Mr
Chris van Zyl, one of the liquidators of Lighthouse, wrote to the
attorney for the Trust, informing him
that he had come to the view
that the joint liquidators should not consent to the enquiry. He
provided reasons for his view which
included his opinion that the
Trust’s purpose is seeking ‘ammunition’ for
purposes of future litigation between
it and the applicants. He also
stated that if an enquiry were justified it could be conducted in
terms of section 415 of the 1973
Companies Act. He said further that
he could not consent to an enquiry to be run by a party who has yet
to submit a claim for proof.
[8] On 16 November 2012,
whilst its application to the Master was still pending, the Trust,
represented by its attorney, launched
an
ex parte
application
in this court for leave to convene an enquiry into the affairs of
Lighthouse in terms of sections 417 and 418 of the
Companies Act 62
of 1973. This application was set down for hearing on 23 November
2012. A voluminous founding affidavit was deposed
to by Mr Roger
Baudinet, one of the trustees of the Trust. In the affidavit he
stated,
inter alia,
that he had gained the impression that Mr
Chris van Zyl, one of the liquidators of Lighthouse was guarding the
applicants and their
employees from possible claims by Lighthouse. As
a result of Van Zyl ‘
blackballing’
the enquiry, he
said, the consent of the Master could not be obtained and the Trust
had no other option but to apply to court to
convene the enquiry.
[9] Applicants’
attorney got sight of a copy of the court application. He wrote to
the attorney for the Trust on 20 November
2012 advising him that
applicants intended to intervene in the application in order to
oppose it. Applicants’ attorney suggested
that it be postponed
to be heard on the semi-urgent roll. On 23 November 2012 the attorney
for the Trust, Mr Fred van der Westhuizen,
sent an e-mail to
applicants’ attorney indicating that his client was agreeable
to the proposal. A court order was consequently
obtained by agreement
between the parties in terms of which the application was postponed
to be heard on the semi-urgent roll on
25 March 2012. A timetable was
also agreed upon for the filing of further affidavits and heads of
argument.
[10] On 27 November 2012
a colleague of Mr van der Westhuizen was informed telephonically by
Ms Christa Vermaak, an official in
the Master’s office, that
she had received the court application and wanted to discuss it with
her. On 28 November 2012 Mr
van der Westhuizen adressed a letter to
the Master. It read as follows:
‘
We
thank you for your invitation to discuss the details of the proposed
inquiry (Refer to our correspondence dated 25 October 2012
and 6
November 2012.
In an effort to assist
your office we hereby provide you with a few facts that need to be
kept in mind when making your decision:
Sec 417
–
Our clients are not proven creditors in the estate at this stage due
to the fact that a danger of contribution exists.
It is thus
impossible for our clients to proceed with this enquiry in terms of
sec 415 and 416 of the Companies Act (as amended).
It would be a
total injustice to expect our clients to prove concurrent claims
against an estate when a danger of contribution
exists, just to
pursue claims which the insolvent entity has, to their own
detriment.
Sec 417 and 418
was designed to cater for
situations and circumstances like these to assist the general body
of creditors.
The affidavits of
Robert Frederick Baudinet makes it abundantly clear that a
Prima
Facie
case exist against RMB Holdco No 1 (Pty) Ltd, a 50%
shareholder of the liquidated entity. The detail of the case needs
to be investigated
as it is in the best interest of the general body
of creditors. Two of the three liquidators support the enquiry and
the third,
who was supported (via requisition) by the holding
company of RMB Holdco No 1,namely FirstRand Bank Limited, is doing
everything
in his power to prevent the investigation of the claim
into the Creditors who supported him.
Reason why The Master
should consent to the enquiry:
Funding
–
All the funding would be provided by The Summer Wind Trust (25%
shareholder of the liquidated entity).
If successful the
estate may institute action for the
recovery of at least R20m
which would make it possible for all creditors to recover most of
their outstanding debt.
The enquiry can take
place as soon as possible.
At this stage only
three witnesses will be subpoenaed. We tender all the
reasonable
cost
to attend the enquiry.
The enquiry would be
held in
Cape Town
due to the fact that all legal
representatives practice in Cape Town as well as the commissioner.
This will enable all parties
involved to save cost and to minimize
any inconvenience.
There is
no
prejudice
to the estate at all.
The insolvent estate
can only
benefit
the general body of creditors.
The enquiry would
serve to
benefit
the general body of creditors.
Sec 417 and 418
was designed to cater for situations and circumstances like these to
assist the general body of creditors.
In summary, the
request directed to the office of the Master, is well founded and
supported. We hereby request the consent from
the master to proceed
with the Sec 417 enquiry as set out above and in our previous
correspondence.’
[11] On 28 November 2012
Mr van der Westhuizen and his colleague attended a meeting at the
Master’s office. The outcome of
the meeting was that Ms Vermaak
authorised the proposed enquiry. Van der Merwe’s version of the
meeting appears from the
Trust’s answering affidavit. It reads
as follows:
‘
16.1.1
On 27 November 2012,Ms Janell de Beer, an attorney in the employ of
Honey Attorneys,…received a phone call from Mrs
Crista
Vermaak, an Assistant Master, who stated that she has received the
High Court application and that she wished to discuss
the matter with
her.
16.1.2 On 28 November
2012, Mr Fred van der Westhuysen, who is the Trust’s attorney
of record,drafted a letter to the Master,
containing an exposition of
reasons why the Master should order the enquiry. Mr Fred van der
Westhuysen, accompanied by Ms de Beer
attended the offices of Mrs
Vermaak at 10h30 on 28 November 2012 and handed Mrs Vermaak the
letter. In the discussion that followed
Mrs Vermaak informed them
that she had read the High Court application, that she discussed the
matter with one of her seniors Mr
Warno Steenkamp, and that the
Master was prepared to grant the enquiry on condition that the High
Court application is withdrawn.
Mr Fred van der Westhuysen informed
Mrs Vermaak of the opposition to the High Court application and the
fact that it was postponed
to 25 March 2013 with provisions of the
filing of papers by the intervening parties. After Mr Fred van der
Westhuysen had told
Mrs Vermaak that Mr Leonard Katz of Edward Nathan
Sonnenberg is acting on behalf of Rand Merchant Bank (“RMB”),
the
latter who wanted to intervene in the High Court application,
they had a short discussion regarding the manner in which some
liquidators
and their attorneys approach the High Court, immediately
after the liquidators provisional appointment, for an extension of
powers
in terms of section 386 of the Companies Act, which practice
puts a lots of pressure on the Master’s office.
16.1.3 Mrs Vermaak and
Mr van der Westhuysen then discussed the contents of Mr van der
Westhuysen letter; inter alia, the Trust’s
tender to pay the
costs of the enquiry. At the end of this meeting Mrs Vermaak
informedMr Fred van der Westhuysen and Ms Janell
de Beerthat the
Master’s office will grant an enquiry on condition that the
High Court application is withdrawn.
16.1.4 Thereafter Mr
Fred van der Westhuysen and Ms Janell de Beerwent to counsel’s
chambers and a notice of withdrawal was
prepared, signed, served on
the Applicants and filed at the High Court. Mr Fred van der
Westhuysen prepared another letter to the
Master andMs Janell de Beer
served a copy of the withdrawal on Mrs Vermaak together with this
covering letter. Ms Janell de Beer
then obtained the order from the
Master, which was already typed and placed on file.’
[12] A number of material
facts are not in dispute. Applicants’ attorney did not know of
Ms Vermaak’s invitation to
Mr van der Westhuysen to discuss the
matter with her. He did not see the letterwhich Mr van der Merwe
adressed to Ms Vermaak before
the meeting. He was not given any form
ofnotice of the meeting held on 28 November 2012. He was not invited
to attend the meeting
and he was not present at the meeting. He had
not been given any prior notice of thewithdrawal of the court
application and the
removal of it from the semi-urgent roll. He only
learnt ofMs Vermaak’s decision to authorise the enquiryafter it
had been
made.
[13] Mr du Preez
proceeded in his affidavit with a brief explanation of the main
grounds on which applicants are opposing the proposed
authorisation
of the enquiry. The Trust had commenced proceedings against Baudinet
and one Frederick Arijs arising from suretyships
which they had
furnishedto applicants in respect of the debt owing by Lighthouse to
applicants. Baudinet and one Arijs, he said,wanted
to use the enquiry
to obtain material which could assist them in their defences to the
actionbrought agains them by applicants.
The Master’s
reasons
[14] The Master provided
the record of the proceedings to court together with her reasons in
terms of Rule 53. The reasons read
as follows:
‘
I
wish to make it clear that I did apply my mind before authorising the
enquiry of sections 417 and 418 of the Companies Act.
All my requirements
were met and the applicant were of the opinion that a successful
enquiry may lead to the “recovery of
at least R20 000 000,00”
which would be to the benefit of the general body of creditors. The
enquiry will be funded
by the Summer Wind Trust.’
Mr van der
Westhuizen’s conduct
[15] One of the Trust’s
principal defences is that the Master’s decision is not
reviewable. Before I deal with that
questionI propose to set forth my
findings in regard to the conduct of Mr van der Westhuizen, the
attorney for the Trust, and that
of the Master in the person of Ms
Vermaak. It is clear from Mr van der Westhuysen’s own version
that he attended the meeting
with Ms Vermaak in order to motivate the
holding of the enquiry. He did this in the absence of applicants’
attorney and without
informing him in any way of the meeting to be
held.His representations to Ms Vermaak were successful ashe obtained
a decision in
favour of his client.
[16] It is trite law that
a misrepresentation can be made by way of a positive statement
(
commissio
) or by a failure to disclose material facts
(
omissio
). In the present case one is dealing with the latter
form of misrepresentation. There are two requirements for
misrepresentation
in the form of a fraudulent non-disclosure. The
first is the existence of a duty to make the disclosure. See
Meskin
NO v Anglo - American Corporation of SA Ltd and Another
1968 (4)
SA 793
(W). The second is intention (
dolus
) on the part of the
representor.See
LAWSA Vol 17(2)
second edition (2008) para
311. As long ago as 1880 Lord Blackburn formulated the principle as
follows in
Brownlie v Campbell
(1880) 5 App Cas 925
, 950:
‘
where
there is a duty or an obligation to speak, and a man in breach of
that duty or obligation holds his tongue and does not speak,
and does
not say the thing he was bound to say, if that was done with the
intention of inducing the other party to act upon the
belief that the
reason why he did not speak was because he had nothing to say, I
should be inclined myself to hold that that was
fraud also.’
[17] In the present case
I am of the opinion that Mr van der Westhuizen was under a duty to
disclose his intended visit to the Master
to applicants’
attorney. This duty arose from the following circumstances:
(1) Both attorneys are
members of the legal profession. In
Society of Advocates of Natal
and Another v Merret
1997 (4) SA 374
(NDP) at 383CD Howard JP
quoted the following statement of James JP in
Ex parte Swain
1973
(2) SA 429
(N) at 434H:
'Furthermore, it is of
vital importance that when the Court seeks an assurance from an
advocate that a certain set of facts exists
the Court will be able to
rely implicity on any assurance that may be given. The same standard
is required in relations between
advocates and between advocates and
attorneys. The proper administration of justice could not easily
survive if the professions
were not scrupulous of the truth in their
dealings with each other and with the Court. The applicant has
demonstrated that he is
unable to measure up to the required standard
in this matter.'
(2) The two attorneys,
acting on behalf of their clients, solemnly entered into a binding
agreement as to how, where and when the
dispute between the parties
was to be determined. That agreement was made an order of court.
(3) The visit of Mr van
der Westhuysen to the Master placed him in a position where he
couldplace information and contentions before
her to persuade her to
grant the relief sought by him on behalf of his client. Applicant’s
attorney was denied the opportunity
to place his contentions before
the Master.
[18] As to the second
requirement: There can be no doubt that Mr van der Westhuysen acted
intentionally. He was fully aware of the
professional duties which he
owed applicants’ attorney. He was fully aware of their
agreement as to where, when and how the
dispute was going to be
resolved in court. He knew that he was acting in flagrant breach of
that agreement. His letter addressed
to Ms Vermaak is telling. It
shows that he went to the meeting with Ms Vermaak without any
intention of giving applicants’
attorney any notice of the
meeting. This is borne out by his accusation in the letter that
applicants wereabusing the one liquidator’spowers
in order to
avert the holding of the inquiry. Mr van der Westhuysen then
deliberately exploited the absence of applicants’
attorney to
obtain the Master’s decision in favour of his client.
[19] Upon a consideration
of Mr van der Westhuysen’s conductI am of the view that his
failure to disclose the facts in question
to applicants’
attorney, indeed amounted to a fraudulent misrepresentation. The
prejudice to applicants is obvious.
[20]
It is trite that the effect of fraud is far-reaching. In
Farley
(Aust) Pty Ltd v J R Alexander & Sons (Qld) Pty Ltd
[1946] HCA 29
;
(1946) 75 CLR 487
the High Court of Australia, per
Williams J, said this:
‘
Fraud
is conduct which vitiates every transaction known to the law. It even
vitiates a judgment of the Court. It is an insidious
disease, and if
clearly proved spreads to and infects the whole transaction.’
[21] And in
Lazarus
Estates Ltd v Beasley
[1956]
1 QB 702
(CA) at 712 one finds Lord Denning’s well known
remarks:
‘
No
court in this land will allow a person to keep an advantage which he
has obtained by fraud. No judgment of a court, no order
of a
Minister, can be allowed to stand if it has been obtained by fraud.
F
raud
unravels everything.
The
court is careful not to find fraud unless it is distinctly pleaded
and proved; but once it is proved, it vitiates judgments,
contracts
and all transactions whatsoever..
’
[22] In South Africa the
‘
insidious’
effect of fraud permeates the entire
legal system. It renders contracts voidable. It is one of the
elements of delictual liability.
It constitutes a crime.
Fraudexcludes the effect of an ouster clause in legislation. See
Narainsamy v Principal Immigration Officer
1923 AD 673
at 675.
It also nullifies a contractual exemption clause which purports to
exclude a party from the consequences of fraudulent
conduct. See
Wells v SA Alumnite
1927 AD 69
at 72.
The conduct of the
Master
[23] I consider next the
conduct of the Master in the person of Ms Vermaak. It is regrettable
that she did not provide any reasons
for her decision.The giving of
reasons serves many purposes. See
Bel Porto School Governing Body
and Others v Premier, Western Cape, and Another
[2002] ZACC 2
;
2002 (3) SA 265
(CC) para [159]:
‘
[159]
The duty to give reasons when rights or interests are affected has
been stated to constitute an indispensable part of a sound
system of
judicial review. Unless the person affected can discover the reason
behind the decision, he or she may be unable to tell
whether it is
reviewable or not and so may be deprived of the protection of the
law. Yet it goes further than that. The giving
of reasons satisfies
the individual that his or her matter has been considered and also
promotes good administrative functioning
because the decision-makers
know that they can be called upon to explain their decisions and thus
be forced to evaluate all the
relevant considerations correctly and
carefully. Moreover, as in the present case, the reasons given can
help to crystallise the
issues should litigation arise.”
[24] In the absence
ofreasons one is entitled to draw inferences as to the conduct of the
decision-maker. See
Dendy v University of the Witwatersrand and
Others
[2005] ZAGPHC 39
;
2005 (5) SA 357
(W) at para
[53]
:
‘
It
is well established that the failure to give written reasons has an
important bearing on the question whether the decision-maker
or
makers acted in good faith or had been influenced by ulterior or
improper motives.
[25] In the present case,
however, it is difficult to drawspecific inferences as to Ms
Vermaak’s state of mind. There is not
enough evidence before me
to conclude that she was a party to the fraudulent aspects of Mr van
der Westhuysen’s conduct.
It is doubtful, however, whether
sheunderstood the implications of applicants’ opposition to the
application for the authorisation
of the enquiry. An attorney in the
firm of applicants’ attorneys stated in an affidavit that she
spoke telephonically to
Ms Vermaak on 29 November 2012 and was
informed by her,
inter alia
, that the background facts
relating to the section 417 application and the intervention
application brought before [the court]
were not discussed with her.
This statement was not disputed by Ms Vermaak.A plausible inference,
so it seems to me, is that Ms
Vermaak was so impressed by Mr van der
Westhuizen’s representations that she simply did not apply her
mind to the question
of hearing applicants’ attorney before
taking her decision.
[26] The result was that
Mr van der Westhuizen’s fraudulent conduct and Ms Vermaak’s
failure to apply her mind formed
a dangerous combination. He
exploited her attitude to achieve the result sought by him.
An outline of the
law of judicial review
[27] The first question
debated by counsel is whether the Master’s decision to
authorise the enquiry under sections 417 and
418 of the Companies Act
1973, is at all subject to review. Before I discuss the casescited in
argument it might be convenientto
provide a brief outline ofrecent
developmentsin the law of judicial review. Prior to the advent of the
Interim Constitution of
the Republic of South Africa 2000 of 1993
(‘the Interim Constitution’) it was governed by common
law principles which
had evolved over many years. They are sometimes
referred to as the
Shidiack
grounds of review after their
statement in
Shidiack v Union Government (Minister of the
Interior)
1912 AD 642
at 651-652:
‘
There
are circumstances in which interference would be possible and right.
If for instance such an officer had acted mala fide or
from ulterior
and improper motives, if he had not applied his mind to the matter or
exercised his discretion at all, or if he had
disregarded the express
provisions of a statute — in such cases the Court might grant
relief.’
[28] The Interim
Constitution of the Republic of South Africa 2000 of 1993 came into
effect on27 April1993. Section 24 thereof provided
fora right to
lawful administrative action. The Constitution of the Republic of
South Africa 108 of 1996 (‘the Constitution’)
came into
effect on 4 February 1997. Section 33 thereof contains a similar
provision. It reads asfollows:
‘
33
Just administrative action
(1) Everyone has the
right to administrative action that is lawful, reasonable and
procedurally fair.
(2) Everyone whose
rights have been adversely affected by administrative action has the
right to be given written reasons.
(3) National
legislation must be enacted to give effect to these rights, and must-
(a) provide for the
review of administrative action by a court or, where appropriate, an
independent and impartial tribunal;
(b) impose a duty on
the state to give effect to the rights in subsections (1) and (2);
and
(c) promote an
efficient administration.’
[29] The Promotion of
Administrative Justice Act 3 of 2000 (‘PAJA’) was
enacted pursuant to the provisions of section
33(3) of the
Constitution. It came into effect on 30 November 2000. Section 3(1)
of PAJA provides as follows:
‘
(1)
Administrative
action
which
materially and adversely affects the rights or legitimate
expectations of any person,
must
be procedurally fair.’
Section 3(2)of PAJA reads
as follows:
‘
(2)
(
a)
A
fair administrative procedure depends on the circumstances of each
case.
(b)
In
order to give effect to the right to procedurally fair administrative
action, an
administrator
,
subject
to subsection (4), must give a person referred to in subsection (1)-
(a)
adequate
notice of the nature and purpose of the proposed administrative
action;
(b)
a
reasonable opportunity to make representations;
(c)
a
clear statement of the administrative action;
(d)
adequate
notice of any right of review or internal appeal, where applicable;
and
(e)
adequate
notice of the right to request reasons in terms of
section
5
.
Sub-section 6(2)of PAJA
contains a lengthy list of actions that are subject to review. The
list includes an action that was procedurally
unfair.
[30] Under the
Constitution all exercise of public power must in addition comply
with the legality principle. I shall refer to this
principle more
fully hereunder.
The authorities
cited by counsel
[31] Mr B Manca SC
appeared on behalf of applicants. In support of the submission that
the Master’s decision is reviewable
he relied in particular on
the judgment of Stegmann J in
Friedland and Others v The Master
and Others
1992 (2) SA 370
(WLD). In that matter the Master
authorised the holding of an enquiry in terms of sections 417 and 418
of the Companies Act 1973.
Four persons whom the liquidator sought to
question brought an application for the review of the Master’s
decision. Stegmann
J recognised that a prospective examinee may
validly seek to resist an order which will have the effect of
subjecting him to examination
in terms of an enquiry of this nature.
At 379EF he said the following:
‘
To
summarise, I think it may correctly be said that the grounds on which
someone who has been identified as a person to be examined
may
validly seek to resist an order which will have the effect of
subjecting him to examination under ss 417 and 418 of the Companies
Act 1973 are narrow.’
[32] Stegmann Jreferred
with approval to theearlier judgment of Schreiner J in
Ex parte
Liquidators Ismail Solomon & Co (Pty) Ltd
1941 WLD 33.
Schreiner J held that a person summoned to appear before an
examination in this kind of enquiryhas
locus standi
to oppose
the application to summon him and he should be heard on this
question.
[33] Mr H M Carstens SC,
assisted by Mr J D de Vries, appeared on behalf of the Trust. He
submitted that the Master’s decision
in this case was not
subject to review. He reliedfirst on the judgment of Mynhardt J in
Strauss and Others v The Master and Others
2001 (1) SA 649
(T). The learned judge dealt with the question whether the decision
of the Master to hold an enquiry in terms of section 152 of
the
Insolvency Act into the affairs of an insolvent (the comparable
provisions under the Insolvency Act). Mynhardt J held,
inter alia,
that the Master exercised a subjective discretion but that it was
subject to reviewon the common law grounds, namely that he acted
‘
mala fide or from ulterior motive or failed to apply his
mind to the matter’.
[34] Mr Carstens also
relied on the judgment of Mbha J in
Nedbank Ltd v Master of the
High Court, Witwatersrand Local Division and Others
2009 (3) SA
403
(WLD). Mbha J held that the Master’s decision to grant an
application for the holding of an enquiry under section 417 of the
Companies Act is not reviewable. The thrust of the judgment is found
in para [36] which reads as follows:
[36] It is my view
that, when the master gives effect to s 417, he does not act
administratively and accordingly PAJA does not apply.
Even if it
could be argued that PAJA does apply, it can only apply to the most
limited and constrained extent. I say so for the
following reasons:
[36.1] A reading of
the language under ss 417 and 418 shows that these sections are
purely investigative measures to facilitate
the winding-up of a
company. The decision to take evidence from a witness in a winding-up
clearly has no potential to adversely
affect the right of any person.
Nothing is decided by the Commissioner under these sections. No
rights or obligations are determined.
Under s 418(3), a commissioner
must report to the master and the court on any enquiry referred to
him.
[36.2] It follows that
the summoning of a witness to provide information concerning the
affairs of a company is not'administrative
action'. Accordingly, the
procedural fairness contended for by the applicant does not arise.
Alternatively, if it can be said to
arise, it does not arise at the
stage when the enquiry is ordered. The secrecy provisions of s 417(7)
make it clear that prior
notice should not and cannot be given to
witnesses. Procedural fairness is, however, ensured by the right of
the witness to have
an attorney and/or advocate present.
[36.3] As was stated
by C Hoexter in The New Constitutional and Administrative Law vol 2 p
214.
“
the
principle of fairness in particular, and the other requirements of
legality in general, need not be applied identically or evenly
in
every case. It allows one to apply procedural justice to all
administrative action while tailoring the content of that fairness
to
suit the particular occasion.”’
[35] Mbha J found support
for his reasoning in certain
obiter
dicta of Ackermann Jin
Bernstein and Others v Bester and Others NNO
[1996] ZACC 2
;
1996 (2) SA 751
(CC)on the question whether an enquiry in terms of ss 417 to 418 of
the Companies Act 1973 constitutes administrative action.In
that
case, ss 417 and 418 of the Companies Act were attacked as an alleged
violation of s 24 of the Interim Constitution. Ackermann
J said,
inter
alia
, the following:
‘
[95]
…
..the
issue before us is not the common law one, but the constitutional
question as to whether paras (b) and (c) of s 24 of the
Constitution
apply to an enquiry under ss 417 and 418 of the Act. They only apply
if the nature of the enquiry is characterised
as being
‘administrative action' because it is only in relation to
'administrative action' that s 24 rights arise.
[96] I have a
difficulty in seeing how the enquiry in question can be characterised
as administrative action. It forms an intrinsic
part of the
liquidation of a company, in the present case the liquidation of a
company unable to pay its debts. . .
[97] The enquiry in
question is an integral part of the liquidation process pursuant to a
Court order and in particular that part
of the process aimed at
ascertaining and realising assets of the company. Creditors have an
interest in their claims being paid
and the enquiry canthus, at least
in part, be seen as part of this execution process. I have difficulty
in fitting this into the
mould of administrative action. I also have
some difficulty in seeing how s 24(c) of the Constitution can be
applied to the enquiry,
because it is hard to envisage
an'administrative action' taken by the commissioner in respect
whereof it would make any sense to
furnish reasons. The enquiry after
all is to gather informationto facilitate the liquidation process. It
is not aimed at making
decisions binding on others.’
[36] From an overview of
the cases cited by counsel it thus appears that the existence ofa
right to review the Master’s decision
to authorise an enquiry,
was in principle recognized in the
Friedland, Ismail Solomon
and
Strauss
judgments. The
Nedbank
judgment, it seems clear,
was influenced by the dicta of Ackermann J in the
Bernstein
judgment. The
Bernstein
judgment must, however, be read in
context. It was handed down before the enactment of PAJA and it was
based on an interpretation
of the term ‘
administrative
action’
in section 24 of the Interim Constitutionwithout
any statutory definition thereof.
[37] The preceding two
paragraphs,Nos [94] and [95] ,in Ackermann J’s judgment in
Bernstein
,are significant. I quote them in full:
‘
[94]
There is certainly an argument to be made for the proposition that
enquiries conducted pursuant to the provisions of ss 417
and 418 of
the Act and the performance by commissioners of their duties to
report thereunder constitute administrative action within
the meaning
of s 24 of the Constitution. The Court of Appeal in England in [Re
Pergamon Press Ltd
[1971] Ch 388
(CA) ([1970]
3 All ER 535)]
the
Pergamon Press case a decision relied upon by Mr Marcus, held that
enquiries of this kind, although merely investigative in
nature, do
adversely impact on the rights and interests of the witness and
accordingly have to be conducted in accordance with
the principles of
natural justice. Lord Denning said the following in this regard:
'It is true, of course, that the
inspectors are not a court of law. Their proceedings are not judicial
proceedings: see Re Grosvenor
& West End Railway Terminus Hotel
Co Ltd
(1897) 76 LT 337.
They are not even quasi-judicial, for they
decide nothing; they determine nothing. They only investigate and
report. They sit in
private and are not entitled to admit the public
to their meetings: see Hearts of Oak Assurance Co Ltd v
Attorney-General
[1932] AC 392.
They do not even decide whether there
is a prima facie case, as was done in Wiseman v Borneman
[1971] AC
297.
But this should not lead us to
minimise the significance of their task. They have to make a report
which may have wide repercussions.
They may, if they think fit, make
findings of fact which are very damaging to those whom they name.
They may accuse some; they
may condemn others; they may ruin
reputations or careers. Their report may lead to judicial
proceedings. It may expose persons
to criminal prosecutions or to
civil actions. It may bring about the winding up of the company, and
be used itself as material
for the winding up: see Re SBA Properties
Ltd
[1967] 1 WLR 799.
Even before the inspectors make their report,
they may inform the Board of Trade of facts which tend to show that
an offence has
been committed: see s 41 of the Act of 1967. When they
do make their report, the Board are bound to send a copy of it to the
company;
and the Board may, in their discretion, publish it, if they
think fit, to the public at large.
Seeing that their work and their
report may lead to such consequences, I am clearly of the opinion
that the inspectors must act
fairly. This is a duty which rests on
them, as on many other bodies, even though they are not judicial, nor
quasi-judicial, but
only administrative: see Reg v Gaming Board for
Great Britain, Ex parte Benaim and Khaida
[1970] 2 QB 417.'
Sachs LJ expressed
himself as follows:
'The nature of the proceeding, the
purposes for which the reports may be used, the matter which may be
found in them and the extent
of the publication being respectively as
described, it seems to me, as well as to Lord Denning MR, very clear
that in the conduct
of the proceedings there must be displayed that
measure of natural justice which Lord Reid in Ridge v Baldwin
[1964]
AC 40
at 65, described as "insusceptible of exact definition,
but what a reasonable man would regard as fair procedure in
particular
circumstances . . .". To come to that conclusion it
is, as recent decisions have shown, not necessary to label the
proceedings
"judicial", "quasi-judicial",
"administrative" or "investigatory": it is the
characteristics
of the proceeding that matter, not the precise
compartment or compartments into which it falls - and one of the
principal characteristics
of the proceedings under consideration is
to be found in the inspectors' duty, in their statutory fact-finding
capacity, to produce
a report which may be made public and may thus
cause severe injury to an individual by its findings.'
[95] I have no quarrel
with the judgment, as far as it goes. But the problem which faced the
Court of Appeal in the Pergamon Press
case differs from the problem
confronting us. In that case the issue was whether, at common law,
the inspectors conducting the
enquiry had to act in accordance with
the principles of procedural fairness. For this reason it was
unnecessary for the Pergamon
Court to characterise thenature of the
proceedings. On Mr Marcus' argument it is essential for us to do so,
for the issue before
us is not the common-law one, but the
constitutional question as to whether paras (b) and (c) of s 24 of
the Constitution apply
to an enquiry under ss 417 and 418 of the Act.
They only apply if the nature of the enquiry is characterised as
being 'administrative
action' because it is only in relation to
'administrative action' that s 24 rights arise.’
[38]
I am therefore of the view that I am not precluded by the authority
of any of the judgments mentioned above,
from
considering the merits of applicants’ review application in
terms of PAJA or in terms of the legality principle.
Review in terms of
PAJA
[39] The question whether
any particular conduct is subject to review in terms of PAJA depends
on the definition of
‘
administrative
action’
in section 1 thereof. The
relevant part of the definition reads as follows:
‘
In
this Act, unless the context indicates otherwise-
'administrative
action' means any decision taken, or any failure to take a decision,
by-
(a) an organ of state,
when-
(i) exercising a power
in terms of the Constitution or a provincial constitution; or
(ii) exercising a
public power or performing a public function in terms of any
legislation; or
(b) a natural or
juristic person, other than an organ of state, when exercising a
public power or performing a public function in
terms of an
empowering provision,
which adversely
affects the rights of any person and which has a direct, external
legal effect, but does not include-‘
[40] The important
criterion, for present purposes, is ‘
adversely affects the
rights of any person’
. It has been interpreted by the
courts in a broad and purposive manner. See
Joseph and Others v
City of Johannesburg and Others
2010 (4) SA 55
(CC) paras [41] to
[43]:
‘
[41]
Section 3(1) of PAJA provides that '(a)dministrative action which
materially and adversely affects the rights or legitimate
expectations of any person must be procedurally fair'. The structure
of s 3(1) is important as it indicates the broad application
of the
procedural fairness provisions under PAJA. In
Walele
,
in considering a procedural fairness claim based on an alleged
legitimate expectation, this court emphasisedthat s 3 of PAJA must
be
interpreted generously to give proper effect to s 33(1) of the
Constitution.O'Regan J, writing for the minority, observed that
'(w)e
must be careful, in construing s 3(1), to bear in mind that it is the
key provision in PAJA that gives effect to the right
entrenched in s
33(1) of the Constitution'.
[42] Both this court
and the Supreme Court of Appeal have already expressed support,
albeit obiter, for a purposive approach to
the concept of 'rights'
under s 3 of PAJA. In
Premier, Mpumalanga
O'Regan J remarked
that '(i)t may be that a broader notion of ''right'' than that used
in private law may well be appropriate'.
The importance of procedural
fairness is well described by Hoexter:
'Procedural fairness . . . is
concerned with giving people an opportunity to participate in the
decisions that will affect them,
and - crucially - a chance of
influencing the outcome of those decisions. Such participation is a
safeguard that not only signals
respect for the dignity and worth of
the participants, but is also likely to improve the quality and
rationality of administrative
decision-making and to enhance its
legitimacy.'
[43] In my view,
proper regard to the import of the right to administrative justice in
our constitutional democracy confirms the
need for an interpretation
of rights under s 3(1) of PAJA that makes clear that the notion of
'rights' includes not only vested
private-law rights, but also legal
entitlements that have their basis in the constitutional and
statutory obligations of government.
The preamble to PAJA gives
expression to the role of administrative justice and provides that
the objectives of PAJA are inter
alia to 'promote an efficient
administration and good governance' and to 'create a culture of
accountability, openness and transparency
in the public
administration or in the exercise of a public power or the
performance of a public function'. These objectives give
expression
to the founding values in s 1 of the Constitution, namely that South
Africais founded on the rule of law and on principles
of democratic
government to ensure accountability, responsiveness and openness.’
[41] Asa proven creditor
of Lighthouse,applicants possessed the legal entitlements described
in the dicta in the
Pergamon Press
judgment(quoted above)
which were approved by Ackermann J in
Bernstein.
Applicants
have been deprived of the opportunity to exercise these rights by
reason of the Master’sdecision to authorise the
enquiry in
their absence.
[42] The approach in the
Jacobs
judgment finds expression,
inter alia,
in the
so-called application cases in which unsuccessful applicants for
licences, permits, tenders and the like were held to have
been
entitled to take the functionary’s decision on review. See De
Ville
Judicial Review of Administrative Action in South Africa
(2003) 225-226.Applicants’ positionas an objector to the
Trust’s applicationfor the holding of an enquiryis in substance
no different from those of the applicants in the application cases.
[43] Counsel for the
Trust submitted that applicants had to show that they would have had
something to say to the Master which would
have made a difference to
the outcome of the process. I do not agree. In
Logbro Properties
CC and Another v Bedderson NO and Others
2003 (2) SA 460(SCA)
para
[24] Cameron JA said this:
‘
[24]
While, as Mr Marcus pointed out, it is no answer to a claim to be
heard that the subject might have had little or nothing to
say if
such an opportunity had existed… …
It is trite,
furthermore, that the fact that an errant employee may have little or
nothing to urge in his own defence is a factor
alien to the inquiry
whether he is entitled to a prior hearing. Wade Administrative Law
6th ed puts the matter thus at 533 - 4:
“
'Procedural
objections are often raised by unmeritorious parties. Judges may then
be tempted to refuse relief on the ground that
a fair hearing could
have made no difference to the result. But in principle it is vital
that the procedure and the merits should
be kept strictly apart,
since otherwise the merits may be prejudged unfairly.'”
[44] In the circumstances
I am of the view that applicants’ rights to procedural
fairnesswere violated by the manner in which
the Master, encouraged
by Mr van der Westhuizen, dealt with the application for the
authorisation of the enquiry.Applicantswere
simply not afforded any
opportunity to place their contententionsbefore Ms Vermaak despite
the fact thatshe knew that they were
opposing the application. She
should have realised, had she thought about it, that Mr van der
Westhuizen’s conduct wasirregular.
The legality
principle
[45] Applicants’
remedies are, however, not confined to the provisions of PAJA. The
Master’s decision can also be reviewed
in terms of the legality
principle. The principle was formulated as follows in
Fedsure Life
Assurance Ltd and Others v Greater Johannesburg Transitional
Metropolitan Council and Others
[1998] ZACC 17
;
1999 (1) SA 374
(CC) at para
[56]
:
‘
[56]
These provisions imply that a local government may only act within
the powers lawfully conferred upon it. There is nothing
startling in
this proposition - it is a fundamental principle of the rule of law,
recognised widely, that the exercise of public
power is only
legitimate where lawful. The rule of law - to the extent at least
that it expresses this principle of legality -
is generally
understood to be a fundamental principle of constitutional law.’
[46] It was confirmed in
President of the Republic of South Africa and Others v South
African Rugby Football Union and Others
2000 (1) SA 1
(CC) para
[148]:
‘
[148]
It does not follow, of course, that, because the President's conduct
in exercising the power conferred upon him by s 84(2)(f)
does not
constitute administrative action, there are no constraints upon it.
The constraints upon the President when exercising
powers under s
84(2) are clear: the President is required to exercise the powers
personally and any such exercise must be recorded
in writing and
signed; until 30 April 1999 the President was required to consult
with the Deputy President; the exercise of the
powers must not
infringe any provision of the Bill of Rights; the exercise of the
powers is also clearly constrained by the principle
of legality and,
as is implicit in the Constitution, the President must act in good
faith and must not misconstrue the powers.’
[47] In
Albutt v
Centre for the Study of Violence & Reconciliation and Others
2010
(3) SA 293
(CC)para [49] the principle was described as follows:
‘
[49]
It is by now axiomatic that the exercise of all public power must
comply with the Constitution, which is the supreme law, and
the
doctrine of legality, which is part of the rule of law. More
recently, and in the context of s 84(2)(j), we held that, although
there is no right to be pardoned, an applicant seeking pardon has a
right to have his application 'considered and decided upon
rationally, in good faith, [and] in accordance with the principle of
legality'. It follows therefore that the exercise of the power
to
grant pardon must be rationally related to the purpose sought to be
achieved by the exercise of it.
[48] In the present case
the Master’s decision, orchestrated by the fraudulent conduct
of Mr van der Westhuysen acting on
behalf of the Trust, offended
against at least three aspectsof the legality principle. The first is
fairness. The question of the
unfair procedural treatment of
applicants was discussed above with respect to the provisions of sec
3 of PAJA. The Master’s
treatment of applicants’
attorneywas, however, not only procedurally unfair. It was also
substantively unfair insofar as
the Master invited Mr van der
Westhuysen to a personal consultation with the purpose of granting
the application for the holding
of the enquiry. Applicants’
attorney was deliberately excluded from this process.
[49] The Masteralso
breached the principle of rationality.By excluding applicants’
attorney from the decision-making process
the Master inevitably
impaired the quality thereof. Rationality, as one of the aspects of
the legality principle, was described
as follows in
Minister
of Home Affairs and Others v Scalabrini Centre, Cape Town and Others
[2013]
ZASCA 134
(27 September 2013) para [69]:
‘
[69]
That the
process by which a decision is taken – in contra-distinction to
a decision on the merits of the matter under consideration
–
might itself be impeached for want of rationality – was
affirmed in Democratic Alliance v President of the Republic
of South
Africa
[2013
(1) SA 248
(CC)]
,
in which one of the issues was ‘whether the process as well as
the ultimate decision must be rational’
[para
12]
.
After referring to a passage from Minister of Justice and
Constitutional Development v Chonco
[2010
(4) SA 82
(CC)]
,
Yacoob ADCJ said:
‘
It
follows that both the process by which the decision is made and the
decision itself must be rational. Albutt is authority for
the same
proposition….'
And
later
[para 36]:
“’
The
conclusion that the process must also be rational in that it must be
rationally related to the achievement of the purpose for
which the
power is conferred, is inescapable and an inevitable consequence of
the understanding that rationality review is an evaluation
of the
relationship between means and ends. The means for achieving the
purpose for which the power was conferred must include
everything
that is done to achieve the purpose. Not only the decision employed
to achieve the purpose, but also everything done
in the process of
taking that decision, constitutes means towards the attainment of the
purpose for which the power was conferred.’’’
[50] The conduct of the
Master, influenced by Mr van der Westhuysen,in additionoffended
against the principle of transparency. The
purpose ofhis
modus
operandi
was to obtain the Master’s authorisation behind the
back of applicants’ attorney. The process and debate between
him
and Ms Vermaak was thus devised to take place in secrecy. Taking
a decision in this manner was calculated to cause resentment on
the
part of applicants and to impair the respect which an important
institution like the Master’s Office deserves.
Conclusion
[51] I accordinglyfind
that in taking the decision on 28 November 2012 to authorise a
commission of enquiry in terms of sections
417 and 418 of the
Companies Act 61 of 1973 into the affairs of Lighthouse Square (Pty)
Ltd (in liquidation), the Master breached
applicants’ rights to
fair administrative action. The Master’s decision also violated
the legality principle as described
above. It falls to be set aside.
[52] In the result, I
give the following orders:
(1) The Master’s
decision, taken on 28 November 2012, to authorise a commission of
enquiry in terms of sections 417 and 418
of the Companies Act 61 of
1973 into the affairs of Lighthouse Square (Pty) Ltd (in
liquidation), is reviewed and set aside.
(2) The Summer Wind Trust
is ordered to pay applicants’ costs.
_______________
A P BLIGNAULT
Appearing
for applicants : Adv B Manca SC
Instructed by : Edward
Nathan Sonnenbergs Inc
Letitia Field
Appearing for second
respondent : Adv H Carstens SC
Adv
J de Vries
Instructed by : Brink de
Beer and Potgieter
Fred van der Westhuyzen
Date of hearing : 10
September 2013
Date of judgment : 11
November 2013